Capital Gains Tax in Nigeria (CGT) applies to profits from selling or exchanging certain assets.
In Nigeria, CGT is a flat 10% on chargeable gains, governed by the Capital Gains Tax Act, Cap CI LFN 2004 (as amended). All chargeable assets sold at a gain, except those exempted by the Act, are subject to this tax.
Exemptions include awards for valour, life insurance policies, Nigerian government securities, and stocks and shares.
When Capital Gains Arise
Capital gains can occur when an asset appreciates in value or when it is sold or disposed of. CGT applies to gains from shares, stocks, land, structures, securities, machines, and more.
Why Capital Gains Tax Exists
CGT is justified because capital gains increase an individual’s taxable capacity, enhancing their ability to spend or save. However, these gains are concentrated among property owners rather than being evenly distributed among taxpayers.
Chargeable Persons for Capital Gains Tax in Nigeria
Section 46(2) of the Capital Gains Tax Act (CGTA) defines chargeable persons as:
- Companies or corporate bodies established by law in Nigeria or elsewhere
- Individuals subject to the Personal Income Tax Act
Chargeable Assets for Capital Gains Tax in Nigeria
Section 3 of the CGTA includes all forms of property (except exemptions) as assets for CGT purposes, whether in Nigeria or not, including:
- Options, debts, and incorporeal property
- Any non-Nigerian currency
- Property created by the disposer or acquired without purchase
Disposal of Assets
Section 6 of the CGTA defines asset disposal as any capital sum derived from selling, leasing, transferring, or assigning assets, even if no asset is acquired by the payer. Examples include:
- Compensation for loss of office or employment
- Insurance payouts for asset damage or loss
- Payments for surrendering or forfeiting rights
- Payments for exploiting assets
- Capital sums connected to trade, business, or profession
Exemptions from Capital Gains Tax
Section 26 of the CGTA lists exemptions, including:
- Ecclesiastical, charitable, or educational institutions of a public nature
- Registered friendly societies
- Co-operative societies
- Trade unions (provided the gain is not from trade or business assets)
Filing and Payment of CGT
CGT accrues annually, with the due date for filing returns and payment aligning with Company Income Tax deadlines.
Steps to Compute CGT
- Identify the asset’s sales proceeds.
- Deduct allowable expenses to get the net sales proceeds.
- Subtract the asset’s original acquisition cost from the net sales proceeds to find the capital gains.
- Multiply the capital gains by 10% to determine the CGT.
Allowable Expenses
Deductible expenses include:
- Selling expenses like advertising and marketing costs
- Professional fees (estate agents, solicitors, surveyors, accountants)
- Costs for refurbishing or improving the asset before sale
Partial Asset Disposal
Selling part of an asset still incurs CGT. For example, if you sell part of a jewelry collection, calculate the cost of the sold part using a specific formula, then compute the CGT.
Frequently Asked Questions about Capital Gains Tax in Nigeria
Are All Assets Subject to CGT?
No, the following are exempt:
- Gains on stocks, shares, and government securities
- Ecclesiastical, charitable, or educational institutions of a public nature
- Registered friendly societies
- Registered co-operative societies
- Registered trade unions
- Gains on decorations for gallantry
- Gains to statutory bodies
- Gains from acquisitions, mergers, or takeovers without cash payments
- Gains on assurance policies or annuities unless the beneficiary is not the original owner
- Compensation for personal or professional losses
- Gains from an individual’s main private residence (up to one acre)
- Gains on private vehicles
- Gains on business assets if reinvested
- Gains from provident or retirement schemes
- Unit Trust gains if not reinvested
- Gains by diplomatic bodies
Who Collects Capital Gains Tax?
The Federal Inland Revenue Service (FIRS) collects CGT in Nigeria.
For more detailed information, refer to the full text of the Capital Gains Tax Act.
How To Pay Capital Gains Tax in Nigeria
Ensuring tax compliance is essential for individuals and businesses alike. One of the best practices for tax compliance is to keep accurate and organized financial records throughout the year. This includes maintaining records of income, expenses, and any relevant documentation for tax deductions.
For professional assistance and to ensure 100% compliance with taxes, you can sign up with Taxpal today. You can also book a call with our expert team can provide guidance and support to navigate the complexities of tax compliance, helping to avoid potential issues and penalties.