Company Income Tax in Nigeria

Understand How Company Income Tax is Computed in Nigeria.

As a limited liability company, you are liable to pay company income tax. Any company doing business in Nigeria, whether resident (registered in Nigeria) or non resident (foreign company registered outside Nigeria) is expected to pay company income tax on profits accruing in, derived from, brought into or received in Nigeria. The company income tax rate is thirty percent. Companies with a turnover less than One Million Naira are charged at twenty percent of their assessable profit.

Basis of Assessment

The profits of companies are assessed on a preceding year basis. That is , the assessable profit for any year of assessment is the profit of the year immediately preceding the year of assessment. For example, your company’s profits for the year 2012 shall be assessed in 2013.

Read Also: Personal Income Tax and PAYE Calculation

But for a new company, the basis of assessment is slightly different. The basis of assessment for a new business is as follows:

  1. First year: Profits from the date of commencement to the 31st December of the same year
  2. Second Year: Profits for the first twelve months from the date of the commencement of the business.
  3. Third Year: This shall be on the preceding year basis.

For the second and third years, you have the choice of election, by giving notice in writing to the Board within two years after the end of the second year, that the assessable profits of both years be the profits based on the normal basis or actual basis.

Exemptions from Company Income Tax

The following companies are exempted from Company Income Tax:

  1. Pioneer Companies during their relief period
  2. Companies located in approved Export Processing Zone or Free Trade Zone.

Minimum Tax

After the deduction of allowable expenses, losses and capital allowances from the company’s profits, it is possible that the tax payable will be zero or too low to what is expected from such companies. In this case, Minimum Tax rule will be applied.

Minimum tax is computed as follows:

  1. If the turnover of the company is N500,000 or below and the company has been in business for at least four years, the minimum tax shall be the highest of:
    1. 0.5% of gross profits; or
    2. 0.5% of net assets; or
    3. 0.25% of paid up capital; or
    4. 0.25% of the turnover of the company for the year
  2. If the turnover is higher than N500,000, minimum tax shall be the highest of the highest above plus 0.125% of the turnover in excess of N500,000.

Nevertheless, the following companies are exempted from Minimum Tax:

  1. Companies carrying on agricultural trade or business
  2. Companies with at least 25% imported equity capital
  3. Companies for the first four years of commencement of business

Read Also: Withholding Tax in Nigeria (Administration and Rates)

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