Resident companies are liable to corporate income tax (CIT) on their worldwide income while non-residents are subject to CIT on their Nigeria-source income.
The CIT rate is 30% for large companies (i.e. companies with gross turnover greater than 100 million Nigerian naira [NGN]), assessed on a preceding year basis (i.e. tax is charged on profits for the accounting year ending in the year preceding assessment).
Investment income paid by a Nigerian resident to a non-resident is sourced in Nigeria and subject to withholding tax (WHT) at source, which serves as the final tax.
In respect of business profits, a non-resident company (which is not tax resident in a treaty country) that has a fixed base or a permanent establishment (PE) in Nigeria is taxable on the profits attributable to that fixed base. Non-resident digital companies (which are not tax resident in a treaty country) that have a significant economic presence (SEP) will be subject to income tax in Nigeria on profit attributable to the taxable presence in Nigeria.
A foreign entity involved in digital transactions will be deemed to have created an SEP in Nigeria and is therefore liable to tax if it:
For the purposes of (i) above, revenue derived from Nigeria includes that in respect of:
Activities carried out by connected persons shall be aggregated to determine the NGN 25 million threshold (where applicable).
Any company covered under any multilateral agreement to which Nigeria is a party will be treated in accordance with those agreements from the effective date in Nigeria.
Non-resident companies providing professional, consultancy, management, and technical (PCMT) services to Nigeria residents will be subject to tax at 10% final tax where such company has an SEP in Nigeria.
A foreign entity providing technical (including training, advertising, supply of personnel), professional, management, or consultancy services shall have an SEP in Nigeria in any accounting year if it earns any income or receives any payment from a person resident in Nigeria or a fixed base or agent of a foreign entity in Nigeria.
As such, it is required to register for CIT and file its tax returns. Any WHT deducted at source from its Nigeria-source income is available as offset against the CIT liability save for non-resident companies carrying out PCMT services where the WHT paid at 10% is deemed to be final tax.
The CIT rate is 0% for companies with gross turnover of NGN 25 million or less.
The CIT rate is 20% for companies with gross turnover greater than NGN 25 million and less than NGN 100 million.
Real Estate Investment Companies approved by the Securities Exchange Commission to operate as a real estate investment scheme in Nigeria will be exempt from income tax on rental income, and dividend income earned in a financial year will be exempt from income tax provided that at least 75% of such income is distributed within 12 months. For the purposes of the CIT Act, A Real Estate Investment Company is a company (including a Real Estate Unit Trust) duly approved by the Securities and Exchange Commission.
PPT is a tax on the income of companies engaged in upstream petroleum operations in lieu of CIT.
The PPT rates vary as follows:
Following the enactment of the Petroleum Industry Act 2021, holders of a Petroleum Prospecting Licence and Petroleum Mining Lease will be subject to both CIT at 30%, and Hydrocarbon Tax (HCT).
HCT rates are as follows:
This means that the highest headline tax rate for companies in the upstream oil and gas industry will be 60%.
Current Oil Mining Licence and Oil Prospecting Licence holders will continue to be taxed in line with the Petroleum Profits Tax Act (PPTA) unless a conversion contract is executed in line with the provisions of the Petroleum Industry Act 2021.
Tertiary education tax is imposed on every Nigerian company at the rate of 3% of the assessable profit for each year of assessment. The tax is payable within two months of an assessment notice from the FIRS. In practice, many companies pay the tax on a self-assessment basis along with their CIT.
For companies subject to PPT under the PPTA, tertiary education tax is to be treated as an allowable deduction. For other companies, income/profit taxes are not deductible in arriving at taxable income. Tertiary education tax is not tax deductible for companies subject to income tax under the Petroleum Industry Act 2021.
Non-resident companies and unincorporated entities are exempt from tertiary education tax.
Minimum tax is payable by companies having no taxable profits for the year or where the tax on profits is below the minimum tax. However, companies in the first four calendar years of business, companies engaged in primary agriculture business, or small companies are exempt from minimum tax.
Minimum tax payable is calculated as 0.5% of gross turnover less franked investment income.
For non-life insurance companies, minimum tax is calculated as 0.5% of gross premium.
For life insurance companies, minimum tax is calculated as 0.5% of gross income.
There is a tax on distribution where a company pays a dividend in excess of its taxable profit. Certain profits should be deducted from the dividend that is compared to the taxable profit, including dividend income that has suffered WHT, profits exempt under the Companies Income Tax, Capital Gains Tax, Petroleum Profit Tax, Industrial Development (Income Tax Relief) Act, and retained earnings that had suffered tax previously.
The law allows the FIRS to assess and charge companies to tax on a fair and reasonable percentage of turnover under the following circumstances:
The above provision of the law also applies to foreign digital companies deriving profits from Nigeria.
CIT is payable only to the federal government. State governments collect income taxes of individuals and unincorporated entities, while local governments are only allowed to collect levies and rates but not income tax.