Paying your taxes might seem stressful, but it’s a non-negotiable part of running a business. In this article, we’ll explain why taxes matter, the different taxes in Nigeria for businesses, and how you can handle your small business tax payments like a pro.
So, let’s dive into how small business tax in Nigeria works
Do Small Businesses Pay Tax in Nigeria?
The short answer is yes. All businesses regardless of size or type are legally obligated to pay taxes to the Nigerian government.
Not paying your taxes as a business owner can have significant consequences like heavy fines, damage to your business reputation, or the government shutting down your business.
So, to avoid getting in trouble with the government, your best- and only option- is to pay your small business tax on time.
Read: Everything You Need to Know About Filing Your Annual Returns in Nigeria
Who Collects My Taxes?
In Nigeria, taxes are collected at three levels of government: federal, state, and local. Let’s break down who handles what:
Federal Inland Revenue Service (FIRS)
The Federal Inland Revenue Service (FIRS) is the primary tax collector for the federal government. They are responsible for collecting a range of taxes, including the company’s income tax (CIT), value-added tax (VAT), capital gain tax, stamp duty tax, etc.
State Inland Revenue Service (SIRS)
At the state level, each state in Nigeria has a State Inland Revenue Service (SIRS) to collect taxes from businesses. For instance, the Lagos State Internal Revenue Service (LIRS) oversees tax collection in Lagos State. A state’s SIRS is in charge of collecting taxes like Personal Income Tax, Business Premises Tax, Development levies, etc.
Local Government Revenue Committees (LGRCs)
Local Government Revenue Committees (LGRCs) handle tax collection at the local government level. Some of the levies and rates they impose and collect are:
- Shops and kiosks rates
- Street registration fees (excluding any street in the state capital)
- Right of occupancy fees on rural lands (excluding those administered by the federal and state governments)
- Motor park levies
- Merriment and road closure levy
- Public convenience, sewage, and refuse disposal fees
7 Types of Business Tax in Nigeria
The tax your small business may have to pay depends on different factors like your business location, type, size, and revenue. There isn’t a specific small business tax rate guide in Nigeria.
However, we’ll walk you through the 7 most common taxes you’re likely to come across as a business owner in Nigeria.
Company Income Tax (CIT)
Company income tax is charged by the Nigerian government on the profits of limited liability companies. The CIT tax rate depends on the company’s annual turnover:
- No tax for companies with a turnover below 25 million Naira
- 20% for companies with a turnover between 25 million-100 million Naira
- 30% for companies with a turnover exceeding 100 million Naira
Businesses are required to file their annual CIT returns and pay the corresponding tax within six months of the end of their financial year.
Not paying your CIT at the right time can lead to a fine of 25,000 Naira in the first month, followed by 5,000 Naira for each subsequent month.
Personal income tax
Personal income tax (PIT) is a tax levied on the income of individuals residing in Nigeria. If you own a business, you are legally obligated to pay PIT on your business profits.
Additionally, if you employ staff, you’re responsible for deducting PAYE (Pay As You Earn) from their salaries and remitting it to the relevant tax authorities on or before the 10th day of every month. PIT tax rates in Nigeria depend on your income bracket and ranges from 7% to 24%
Value added tax
Value Added Tax (VAT), commonly referred to as sales tax, is a type of consumption tax you’ll definitely have to deal with as a business owner in Nigeria.
In simple terms, VAT is a tax applied to goods and services sold to the public. If your business is registered, it falls on your shoulders to collect VAT on your sales and then promptly send it off to the Federal Inland Revenue Service (FIRS) each month.
As of 2023, the VAT tax rate in Nigeria stands at 7.5%. However, it’s worth noting that not all goods and services are subject to this tax. Some items are exempt, such as basic food items, medical and pharmaceutical products, books and educational materials, and agricultural products.
Ignoring your VAT obligations can result in hefty fines from the government. If you fail to pay VAT, you may find yourself facing a penalty of 5% per annum plus interest.
Additionally, neglecting to register for VAT carries its own set of consequences. For the initial month of non-compliance, there’s a 10,000 Naira penalty, followed by 5,000 Naira for subsequent months.
Capital Gain Tax (CGT)
This tax applies to profits from selling capital assets such as land, buildings, stocks, and shares. The current CGT tax rate in Nigeria is 10% and it is paid by the seller of the asset.
Business Premises Tax (BPT)
Business Premises Tax (BPT) is a tax levied by state governments on properties used for business purposes, such as office buildings, factories, and shops. The BPT tax rate in Nigeria varies depending on the state and the location of the property.
For example, BPT rates in urban areas cost 10,000 Naira for registration and 5,000 Naira for subsequent renewals in urban areas, while its rate in rural areas costs 2,000 Naira.
Custom Duties
Customs duties are taxes levied on imported goods entering Nigeria. The rates for customs duties vary depending on the type of goods being imported, typically ranging from 5% to 35%. The specific tax rate for each item is determined based on the Harmonized Commodity and Coding System (HS code).
Stamp duty tax
Stamp duty is a tax imposed by the government on the transfer of legal instruments and documents. These instruments include the transfer of homes, buildings, copyrights, land, patents, and securities.
Instruments subject to stamp duty tax must be stamped within 40 days of their initial execution. The amount of stamp duty payable depends on the type of instrument being transferred. Some instruments have fixed stamp duty rates, while others have ad valorem rates- meaning the duty amount increases with the value of the transaction.
Tax Requirements for Businesses in Nigeria
The specific documents you need to pay your small business tax in Nigeria depend on the type of business you operate and the specific tax you’re liable for.
However, here’s a list of the documents you’ll typically need:
- Tax Identification Number (TIN)
This is a unique identification number assigned to you when you register your business with the Corporate Affairs Commission (CAC). It serves as your business tax fingerprint and is used to pay all types of taxes in Nigeria.
- Audited Financial Statement of the Year
This document provides a comprehensive overview of your business’s financial performance for the year. It should be prepared in accordance with the International Financial Reporting Standards (IFRS) to ensure consistency and transparency.
- Duly Completed and Signed Self-Assessment Form
This form is used to declare your estimated tax liability for the year. It’s crucial to fill out this form accurately and on time to avoid penalties and ensure compliance with tax regulations.
- Additional Documents
Depending on the specific tax you’re paying, you may be required to provide additional documents. For instance, if you’re paying capital gains tax, you’ll need to provide documentation related to the sale of assets.
How to pay taxes as a small business in Nigeria
Paying business taxes in Nigeria involves a series of steps, from registering with the relevant tax authorities to calculating tax liabilities, filing returns, and making payments. However, it’s not as complicated as it sounds.
If you are not interested in finding a tax professional, here’s a step-by-step breakdown of how to pay your small business tax in Nigeria:
Step 1: Register Your Business
The first thing you must do is register your business with the FIRS and the relevant tax authority in your state.
To get registered, simply visit their office or website and fill out the appropriate forms. You will need to provide details about your business, like its name, address, and contact information.
Step 2: Figure out The Taxes You Need to Pay
The next step is identifying the specific taxes applicable to your business. Remember that the tax rate in Nigeria for businesses depends on different factors like your business location, type, etc.
Keep a close eye on your business expenses and profits, as this will help you calculate your taxable income for each tax. Also, reviewing your financial statements to determine relevant deductions and allowances will help you calculate your tax liability accurately.
Step 3: Fill Out a Self-Assessment Form
You can think of self-assessment forms as your tax estimates for the year. You can find the forms you need for a specific tax payment either at the tax authority office or their website.
It’s important to pay close attention and fill out the forms carefully. You will be asked to provide details about your business, taxable income, and tax amount due.
Step 4: File Your Tax Returns
You’ll need important business documents like your company’s annual statement, CAC document, directors’ statement, and the completed self-assessment form to file your tax returns. Once you have gathered the documents, you can either file your tax returns on FIRS or the appropriate SIRS online portal.
Step 5: Pay Your Tax
You can choose to pay your tax at a bank or via the relevant tax authority’s website. Either way, it’s important to have your TIN and other tax documents nearby when you are paying your taxes.
Step 6: Keep Thorough Records
Don’t toss those receipts, financial statements, and tax returns into the trash. It’s important to maintain organized records of your tax receipts, financial statements, and returns for at least six years, as the FIRS may request them for audit purposes.
Additionally, you may need them for compliance proof when dealing with stakeholders like investors, lenders, customers, or suppliers.
Conclusion
Remember, staying on top of taxes is essential for any successful business in Nigeria. So, keep those records organized, set tax payment reminders, and utilize your tax authority’s resources to make paying your taxes easy.