Tax Implications for Startups and Entrepreneurs: Finance Act 2019 Considerations.

Introduction:

Startups and entrepreneurs play a pivotal role in driving economic growth and innovation in Nigeria. As the business landscape evolves, it’s crucial for startups and entrepreneurs to stay informed about changes in tax regulations. The Finance Act 2019 introduced several provisions that directly affect startups and entrepreneurs. In this article, we will explore the key considerations and tax implications for startups and entrepreneurs resulting from the Finance Act 2019.

1. Value Added Tax (VAT) Threshold:   One of the significant changes introduced by the Finance Act 2019 is the increase in the VAT registration threshold. Previously, businesses with an annual turnover of ₦5 million or more were required to register for VAT. The Act raised this threshold to ₦25 million, providing relief to smaller businesses. Startups and entrepreneurs with turnover below ₦25 million are no longer obligated to charge and remit VAT, reducing their administrative burden.

2. Small Business Income Tax Exemption: The Finance Act 2019 introduced an exemption from income tax for small businesses with an annual turnover of ₦25 million or less. This tax break is particularly beneficial for startups in their early stages, as it allows them to retain more of their earnings for growth and development.

3. Capital Gains Tax on Real Property: Startups and entrepreneurs involved in real estate should be aware of the changes in Capital Gains Tax (CGT) introduced by the Act. The Act extended the scope of CGT to include gains on the disposal of real property, potentially impacting real estate transactions.

4. Digital Services Tax: The Finance Act 2019 introduced VAT on digital services provided by foreign companies to Nigerian consumers. This has implications for startups and entrepreneurs engaged in the digital economy. It’s important to consider the VAT implications of digital services offered to Nigerian customers and ensure compliance with VAT regulations.

5. Withholding Tax on Payments to Freelancers and Consultants: Startups and entrepreneurs often engage freelancers and consultants for various services. The Act introduced withholding tax obligations on payments made to these service providers. It’s essential to withhold the appropriate tax and remit it to the tax authorities when engaging freelancers and consultants.

6. Transfer Pricing Rules: If a startup or entrepreneur engages in related-party transactions, including cross-border transactions, they must adhere to transfer pricing rules introduced by the Finance Act 2019. These rules require transactions to be conducted at arm’s length prices, and accurate documentation must be maintained to support pricing decisions.

7. Compliance and Documentation: Compliance with tax regulations and accurate record-keeping are essential for startups and entrepreneurs. Proper documentation of financial transactions, income, and expenses is crucial to substantiate tax positions and ensure compliance with tax laws.

Conclusion:

The Finance Act 2019’s provisions have both benefits and responsibilities for startups and entrepreneurs in Nigeria. While the increased VAT threshold and income tax exemption provide relief to small businesses, new tax obligations on digital services, withholding tax on payments to freelancers, and transfer pricing rules introduce new compliance requirements. Engaging with tax professionals and seeking expert advice can help navigate these changes, optimize tax planning strategies, and ensure compliance with tax regulations. By embracing responsible tax practices, startups and entrepreneurs can focus on their core activities, contribute to economic growth, and thrive in the evolving business landscape in Nigeria.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

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