Nigeria ’s parliament has finally passed a new finance bill that will increase Value Added Tax in the country from its current 5% to 7.5%. Of course, there is no gain saying the fact that President Mohammed Buhari will quickly sign the Bill into law since it originated from the President’s office and would form the backbone of the country’s budget financing next year. One sect of people who escaped the government’s tax net this time are companies whose yearly profits do not exceed N25 million ($69,000). However, for large companies with yearly turnover of N100 million and above, added to the 30 percent flat-rate corporate tax and other range of taxes and levies already in place is now an increased Value-Added Tax 7.5%, in place of the former 5%.
Below are some of the important changes you should know about:
Changes In The Companies Corporate Tax Rate
Under Nigeria ‘s new Finance law:
- Small businesses with annual turnover of less than N25m will now be exempted from Companies Income Tax. However, to benefit from such incentive, such small businesses must first register for taxation in Nigeria and must continue to file tax returns during the period their profits are below the tax N25mn threshold.
- A lower Corporate Income Tax rate of 20% ( as against 30%) will however apply to medium-sized companies with turnover between N25m and N100m, to benefit from such incentive, they must first register for taxation in Nigeria and must continue to file tax returns during the period their profits are between the N25m and N100m threshold.
- The law now allows a minimum tax rate of 0.5% for every turnover and this provision will only apply to small companies (less than 25m turnover), thus allowing non-resident companies in Nigeria to pay minimum tax.
- For companies or businesses that pay their tax dues early, a 2% deduction bonus on tax payable is given in the case of medium-sized companies between N25m and N100m and 1% deduction on payable tax is given for large companies from N100m and above.
Introduction of New Taxable Businesses In Nigeria
- The finance law also extends the scope of taxable businesses in Nigeria to include any digital media agency that transmits, emits or receives signals, sounds, images or data of any kind in Nigeria, including ecommerce companies, app store, online adverts, cloud computing services online payment platforms and so on, as long as the company has significant economic presence in Nigeria and profit can be attributable to such platforms.
- Also taxable in Nigeria under the new finance law would be outsourcing of foreign technical, management, consultancy or professional services to a person or company resident in Nigeria where the company has significant economic presence in Nigeria and profit can be attributable to such platforms.
Read also: Businesses In Nigeria To Pay Extra Value-Added Tax (VAT) and New Police Fund Levy
Taxation On Dividends of Companies
Under the new law, the following categories of dividends are exempt from tax:
- Dividends which are paid out of the retained earnings of a company, provided that the dividends are paid out of profits that have been subjected to tax under the relevant laws.
- Dividends that are paid out of profits that are exempted from income tax by the Act or any relevant Act.
- Profits or income of a company that are regarded as franked invesment income under the Act.
- Distributions made by a Real Estate Investment Company to its shareholders from rental income and dividend income received from such shareholders.
Ease of Doing Business
The law also made substantial changes to the mode of doing business in Nigeria. Under the finance law:
- Nigerian banks are to request for Tax Identification Number (TIN) before opening bank accounts for individuals, while existing account holders (accounts opened before September 30, 2019) must provide their TIN to continue operating their accounts.
- Email correspondences are now recognised for purposes of communicating with Nigerian tax authorities.
- Also, stamp duty on bank transfer made in Nigeria will now apply only on amount starting from N10,000, and above. However, transfers between the same owner’s accounts in the same bank are to be exempted from stamp duty.
Other notable introductions and amendments include:
- That the remittance of VAT will now to be on cash basis, that is, the difference between output VAT collected and input VAT paid in the preceding month.
- The meaning of supply and definition of goods and services has been expanded to cover intangible items other than land, among others.
- Introduction of thin capitalisation of 30% of Earnings before interest, tax, depreciation and amortization (EBITDA)for interest deductibility. Any excess deduction can be carried forward for 5 years.
- Deemed tax presence for non-residents with respect to imported technical and management services now taxable at a final WHT rate of 10%.
- Insurance companies can now carry forward tax losses indefinitely, deduct reserve for unexpired risks on time apportionment bases while special minimum tax for insurance has been abolished.
- Dividend distributed from petroleum profits now to attract 10% withholding tax.
- Compensation for loss of employment below N10m to be exempted from Capital Gains Tax.
- VAT registration threshold of N25 million turnover in a calendar year to be introduced
- Any expense incurred to earn exempt income now specifically disallowed as a deduction against other taxable income
- Specific requirement for VAT deregistration for discontinuing operations
To download the new Finance Act, click here.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world