Company Income Tax: What you Need Know

One of the components of the various tax structures in Nigeria is Company Income Tax (CIT). In this tax structure, taxes are payable on the earnings of a company accumulated from, brought into, or got in Nigeria or any exchange or business for whatever timeframe the exchange or business may have been completed. The current rate of company’s income tax is 30% of assessable income.

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Tax Auditing: Understand its Benefits

“For every operation audited, know the mission … the purpose… the reason for being.”Larry Sawyer

Tax audit is an autonomous assessment of records, tax returns, tax installments and different records of a taxpayer to affirm compliance with tax laws, rules and regulations and precision of tax paid and adhering to relevant accounting standards and norms.

Generally, an audit will inspect the issues seen as generally important to accomplishing an exact appraisal of a taxpayer’s tax responsibility. Commonly, these issues will incorporate any signs of critical unreported pay or possibly over-asserted allowance; things that might be evident from an assessment of a taxpayer’s return. On account of business audits, public law regularly requires a business to comply with certain accounting and bookkeeping guidelines. The audit may likewise include actual enquiries, like assessment of merchandise in stock, premises and so on. Tax auditing has several benefits, and they include:

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Taxation of Non-Resident Companies in Nigeria (Part 2)

In our previous post, we shared our view on the taxation of Non-Resident Companies (NRCs) in Nigeria, it is worthy of note that further to the introduction of Significant Economic Presence (SEP) vide the CITA (as amended by the Finance Act 2019), the scope of NRCs has been amended to include digital activities.

SEP put in simple terms means foreign entities which derive revenue especially through digital activities in Nigeria in an accounting year without having a fixed base in Nigeria. The SEP concept was first documented in the final report of Base Erosion Profit Shifting (BEPS) of the Organization for Economic Co-operation and Development (OECD) in October 2015. What SEP seeks to address are the cases where Companies or persons outside the shores of Nigeria transact businesses with Organizations domiciled in Nigeria and as a result of them not having a fixed base in Nigeria end up not being subject to tax. Prior to the amendment of Section 13 of CITA, an NRC was subjected to tax in Nigeria if such NRC had a fixed base in Nigeria and/or the taxable profit is attributable to profits from the fixed base.

However, with the constant growth and utilization of the digital space, businesses such as online advertising, movie streaming, music streaming, cloud payments, online gaming stores, e-commerce et al. were outside the purview of Nigeria’s tax net until the introduction of SEP.

With the introduction of SEP, there is a focal point for taxing profits derived by NRCs and Technical, Professional, Management or Consultancy Services (TMPCs) with respect to digital operation in Nigeria. The SEP order states clearly that “profits from any company other than a Nigerian Company from any trade or business shall be deemed to be derived from Nigeria if it  transmits, emits or receives signals, sounds, messages, images or data of any kind from cable, radio, electromagnetic systems or any other electronic or wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, high frequency trading, electronic data storage, online adverts, participative network platform, online payments and so on, to the extent that the company has significant economic presence in Nigeria and profit can be attributable to such activity.”

For a foreign revenue-deriving entity to be classified as an SEP, it must meet the following requirements:

1. It derives 25million naira annual gross turnover or its equivalent in foreign currencies through the following digital activities:

  • Streaming or downloading services of digital contents spanning videos, music, applications and so on;
  • Provision of goods and services excluding those under sub-paragraph 5 of the Order, directly or indirectly through a digital interface which includes website or mobile applications;
  • Provision of services such as intermediation via digital platforms, websites et al which seeks to link suppliers with customers in Nigeria; or
  • Provision of services such as intermediation via digital platforms, websites et al which seeks to link suppliers with customers in Nigeria; or
  • Transmission of data collected with Nigerian users as the target sample which has been generated from the activities of such users on a digital interface such as websites or applications.

2. It uses a Nigerian domain name (for example .ng) or has a website registered in Nigeria;

3.  has a sustained interaction with persons resident in Nigeria by customizing its digital platform to target persons in Nigeria. This could either be by reflecting prices in Nigerian naira or providing billing/payment options in Nigerian naira.

Exemptions of SEP

The SEP Order exempts the activities of the following foreign persons from being recognized as a SEP in Nigeria:

  1. any foreign entity who is under a multi-lateral agreement with respect to addressing taxation challenges stemming from digitalization of the economy who would be treated under such an agreement;
  2. any foreign company making any payment:
  • to its employees under contract of employment;
  • for teaching in an educational institution or for teaching by an educational institution (e.g. seminars); or
  • by a foreign fixed base of a Nigerian company.

It is important to note that the Finance Act places the Honorable Minister of Finance with the power to issue an Order on SEP.

For more enquiries, please contact: Abimbola Oyebowale (a.oyebowale@taxaide.com.ng, +234 908 341 1615), Emenike Ugwuanyi (e.ugwuanyi@taxaide.com.ng, +234 806 536 7616), Emmanuel Emereuwa (e.emereuwa@taxaide.com.ng, +234 806 807 1347).

THE TAXAIDER NEWSLETTER VOL 3, ISSUE 5 (MAY 2021)

First Thoughts

Thoughts for the Coming Generation

So today is Children’s Day. This is a special day celebrated all over the world to recognize children and their existence. The joy of every home is the presence of these special creatures and every moment where a child is born is always one to be celebrated. In fact, about 80% of marriages all over the world are contracted with plans for procreation, which remains a major reason among others for marriages today. The Bible also expressly states in Psalm 127 verse 3 that ‘Children are the heritage of the Lord and the fruit of the womb is his reward’. It goes further to say in the next verse that ‘as arrows are in a man’s quiver so are the children born in a man’s youth’. Don’t fret, people. I am not about to take you into a church service. However, we cannot over emphasize the importance of children who are indeed the hope for the continuity of mankind and as we like to say around here, they are the ‘leaders of tomorrow’ or ‘the coming generation’.

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Taxation of Non-Resident Companies in Nigeria (Part 1)

Taxation of Non-Resident Companies in Nigeria (Part 1)

It is no news that the Non-Resident Companies (NRCs) have been on the FIRS’ watchlist to drive revenue generation in Nigeria. Prior to the creation of the Non-Resident Persons Tax Office (NRPTO) as a separate department, the tax laws have had specific provisions for income generated by NRCs in Nigeria and as such, tax compliance by NRCs in Nigeria has been ever present. However, following the amendments by the Finance Act 2019 and creation of the NRPTO department at the FIRS, there has been an increase in tax compliance for NRCs receiving income from Nigeria which includes NRCs with significant economic presence (SEP) in Nigeria, providing management, professional and technical services in Nigeria etc.

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Tax Audit Triggers: What You Should Know

“Remember that even if you haven’t been audited in the past, it doesn’t mean you won’t be in the future. And it only takes one audit to ruin your day”. Kathy Burlison
 

This Thursday came with a special occasion. Eid Al Fitr! Happy Eid Al Fitr to everyone. Remember not to fill your belly with more than you can digest. Well, you would be able to digest your food, but there is no point in dealing with constipation first. Anyway, enjoy and have a fun filled day. Welcome to Tax Thursday.

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Tax Audit Management: Understanding Its Significance

Management is above all, a practice where art, science, and craft meet” – Henry Mintzberg.

There is something special about Thursdays. Thursday is the best day to start a new habit. You are less inclined to be caught up with contending needs, as on Monday and you can pursue that routine on the next Friday and consistently, increasing the odds that the change will stick. Happy new month and welcome to Tax Thursday.

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THE TAXAIDER NEWSLETTER VOL 3, ISSUE 4 (APRIL 2021)

First Thoughts

The Twin Goals of Safety and Security.

In the words of Jodi Rell, ‘at the end of the day, the goals are simple; safety and security’. This is as true as it comes! Safety is defined as ‘the condition of being protected from or unlikely to cause danger’ while Security is defined as ‘the state of being free from danger or threat’. Both terms are synonymous and emphasize the existence of an apparatus that ensures one has no need to worry about danger or threat. The absence of safety and security in any society renders such a society a lifeless one and effectively takes away its ability to reach its full potentials.

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Corporate Tax Incentives: What You Need to Know

An incentive is a bullet, a key: an often-tiny object with an astonishing power to change a situation” – Steven Levitt.

Do you know when our brains are low on glucose, we are more likely to feel angry and hungry at the same time? Well, that was what I saw on the internet today and I believe it to be true because I confirmed that statement from a number of authoritative sources. Interestingly, the simplest way to restore glucose to your brain is to eat! I hope I will not turn to a foodie in the name of restoring glucose to my brain, and if I do, well, it is what it is! Welcome to Tax Thursday.

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Free Trade Zones: Taking Advantage of the Incentives

I trust this week has been good on your side. Are you preparing for the weekend already or are you still struggling to get all your tasks in check? Maybe you have not even done much, because you think you have the whole time to yourself. Here is a quick reminder, time waits for nobody, so do what you got to do!  For me, the week as been good, with exception of the incessant traffic I have had to deal with to and from work. I also noticed recently that I have lost some weight! Well, I have been looking for a way to avoid the back and forth running on the tread mill and I guess I have one now. Welcome to Tax Thursday!

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