Taxes for small businesses in Nigeria are usually not paid enough attention. Many small businesses either forget or purposely skip tax payments in their budgets.

Taxes are what businesses pay the government for operating. Whether you run a sole proprietorship, partnership, limited liability company, or corporation, you must follow your country’s tax rules. Taxes fund federal, state, and local government activities, so if your business is registered, a portion of your profits goes to the government.

Understanding Taxes in Nigeria

All employees, business owners, non-residents earning income in Nigeria, and companies operating there must pay taxes. Federal, state, and local governments manage Nigeria’s tax system.

• Federal Taxes: Companies Income Tax (CIT), Value Added Tax (VAT), capital gains tax, stamp duty, education tax, petroleum profit tax, etc.
• State Taxes: Personal Income Tax, Business Premises Tax, development levy, etc.
• Local Taxes: Various levies and rates.

Types of Tax for Small Businesses in Nigeria

Navigating the world of taxes as a small business owner in Nigeria can be tricky. The types of tax obligations you require depend on factors like location, type, size, and business revenue. 

In this section, we’ll break down some of the most common taxes you might encounter.

1. Company Income Tax (CIT)

Company Income Tax is charged on the profits of limited liability companies by the Nigerian government.

File your annual CIT returns and pay the tax within six months of your financial year-end to avoid fines. Late payments attract a penalty of 25,000 Naira for the first month and 5,000 Naira for each subsequent month.

2. Personal Income Tax (PIT)

Personal Income Tax is levied on the income of individuals living in Nigeria. As a business owner, you must pay PIT on your business profits.  PIT rates range from 7% to 24%, depending on your income bracket.

If you have employees, deduct PAYE (Pay As You Earn) from their salaries and remit it to the tax authorities by the 10th of each month.

3. Value Added Tax (VAT)

Value Added Tax, or VAT, is a consumption tax on goods and services sold to the public. Registered businesses must collect VAT on sales and remit it to the Federal Inland Revenue Service (FIRS) monthly. The VAT rate is 7.5%, though some items, like basic food, medical products, books, and agricultural products, are exempt. Failing to pay VAT can result in a 5% per annum penalty plus interest. Not registering for VAT incurs a 10,000 Naira penalty for the first month and 5,000 Naira for each following month.

4. Capital Gains Tax (CGT)

Capital Gains Tax applies to profits from selling capital assets like land, buildings, stocks, and shares. The CGT rate in Nigeria is 10%, payable by the seller of the asset.

5. Business Premises Tax (BPT)

State governments levy Business Premises Tax on properties used for business, such as offices, factories, and shops. Rates vary by state and property location.

6. Customs Duties

Customs duties are taxes on imported goods, with rates ranging from 5% to 35%, depending on the type of goods.

7. Stamp Duty Tax

Stamp duty is imposed on the transfer of legal documents, including homes, buildings, copyrights, land, patents, and securities. Documents must be stamped within 40 days of execution. Stamp duty amounts vary: some have fixed rates, while others are ad valorem, meaning the duty increases with the transaction value.

Calculating and Paying Taxes for Small Businesses in Nigeria

First, identify the taxes your business must pay. Each tax has its rates, and your annual revenue determines the amount you owe.

Penalties for Non-Compliance

For example, Company Income Tax must be paid within six months after the fiscal year or 18 months from incorporation for new businesses. Failure to file means a N25,000 penalty for the first month and N5,000 for each following month, plus interest.

Tax Requirements for Nigerian Businesses

Documents you typically need include:

• Tax Identification Number (TIN): Issued when registering with the Corporate Affairs Commission (CAC).
• Audited Financial Statement: A yearly overview of your business’s finances, prepared according to International Financial Reporting Standards (IFRS).
• Self-Assessment Form: Declares your estimated tax liability.

Additional documents may be needed depending on the specific tax.

How to Pay Tax as a Small Business in Nigeria

Paying taxes involves several steps, but it’s manageable:

Step 1: Register Your Business

Register with the Federal Inland Revenue Service (FIRS) and your state’s tax authority. Visit their office or website and complete the necessary forms with your business details.

Step 2: Identify Applicable Taxes

Determine which taxes apply to your business based on factors like location and type. Monitor your expenses and profits to calculate your taxable income and review financial statements for deductions and allowances.

Step 3: Fill Out a Self-Assessment Form

This form estimates your tax for the year. Get the form from the tax authority’s office or website, and carefully provide details about your business, income, and tax amount due.

Step 4: File Your Tax Returns

Gather essential documents like your annual financial statement, CAC documents, directors’ statements, and the completed self-assessment form. File returns via the FIRS or the appropriate state tax authority’s online portal.

Step 5: Pay Your Tax

Pay at a bank or through the tax authority’s website. Keep your TIN and other tax documents handy during payment.

Step 6: Keep Thorough Records

Save receipts, financial statements, and tax returns for at least six years. These records are vital for audits and proving compliance to stakeholders like investors, lenders, customers, or suppliers.

Conclusion

Understanding tax basics for small businesses in Nigeria helps you make informed decisions, ensuring your business can leverage any tax benefits. Complying with tax regulations protects you from penalties and boosts your credibility with customers and investors

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