Personal Income Taxation in Nigeria
For residents of Nigeria, worldwide principle of taxation is used. Under this regime, all income that has been earned by residents in Nigeria, by both, Nigerian, and Non-Nigerian sources is used to compute Personal Income Tax.
In the case where an individual is employed, and is a non-resident in Nigeria, only that income is used for computation of Personal Income Tax for the work that is performed in Nigeria. However, this does not hold in the following cases:
- The work executed is for an employer who is outside of Nigeria,
- The payout to the employee is not supposed to be borne by a fixed base of the given employer in Nigeria, and/or
- The payout to the employee has already been subject to tax in the foreign country from where the employment is drawn.
Personal Income Tax Rates in Nigeria
The following personal income tax rates are applicable in Nigeria:
- For the first 300,000 NGN (Nigerian Naira): PIT is levied at a rate of 7%.
- For the next 300,000 NGN (Nigerian Naira): PIT is levied at a rate of 11%.
- For the next 500,000 NGN (Nigerian Naira): PIT is levied at a rate of 15%.
- For the next 500,000 NGN (Nigerian Naira): PIT is levied at a rate of 19%.
- For the next 1,600,000 NGN (Nigerian Naira): PIT is levied at a rate of 21%.
- For income higher than 3,200,000 NGN (Nigerian Naira): PIT is levied at a rate of 24%.
Minimum Income Tax: Minimum Income Tax is applicable in cases where the taxpaying individual has certain personal reliefs and allowances. In this regard, it is also important to understand that for the Minimum Income Tax to come into effect, the total income produces a tax that is lower than the minimum tax. It is levied at a rate of 1% of the total income is payable. For employees that earning more than National Minimum Wage (NGN 300,000) are not liable to pay Personal Income Tax.
Corporate Income Taxation in Nigeria
For resident companies based in Nigeria, CIT is supposed to be paid on the worldwide income. On the other hand, for non-residents, Corporate Income Tax is supposed to be paid on Nigerian-sourced income only.
Corporate Income Tax Rate in Nigeria
The Corporate Income Tax is levied in Nigeria at a rate of 30%. This rate is applied across all large companies. This is mostly for companies that have a gross turnover of more than NGN 100 Million. This is mostly assessed on a preceding year basis.
As far as investment income is concerned, the tax payable on investment income is contingent on the source from which it has been derived. This is supposed to be withheld at the source, in case of non-resident. On the other hand, for business profits for non-residents, Corporate Income Tax is charged at a flat rate.
For small companies, the applicable rate of Corporate Income Tax is 0%. Small companies are defined as companies that have a gross turnover of NGN 25 Million or less.
For medium companies, CIT is levied at 20%. Medium companies are classified as companies that have a turnover of NGN 25 Million, and less than NGN 100 Million.
Real Estate Investment Companies: Real Estate Companies that are approved under the Securities and Exchange Commission are exempted from tax on property related income (primarily rental income).
Petroleum Profit Tax (PPT): This tax is levied on companies that are involved in upstream petroleum related business or activity. The PPT rates are levied in the following manner:
- 50% rate is levied for petroleum operations that fall under the production sharing contracts under NNPC.
- 75% rate is levied for non-PSC operations during the first five years of production.
- 85% is applied for non-PSC operations after the first five years of operations and production.
- Upstream gas profits are taxed at a rate of 30%.
Tertiary Education Tax: Tertiary Education Tax is levied at a rate of 2% of the assessable profit for every subsequent year of taxation.
Minimum Tax: Minimum tax is payable as 0.5% of the gross turnover of the less franked investment income. On the other hand, for non-life insurance companies, minimum tax is calculated as 0.5% of the gross premium. However, for life insurance companies as 0.5% of the gross income.
Other Taxation in Nigeria
- Value Added Tax: VAT is levied as a consumption tax at a rate of 7.5%. This is levied across consumption of all goods and services. However, there are some items are zero-rated for VAT. Examples include non-oil exports, goods and services purchased by diplomats, as well other essential goods and services. All export related goods and services are all also zero-rated in terms of VAT.
- Custom Duties: Custom Duties are levied in Nigeria on imported goods and services. They are mostly levied at a rate of 5% to 35%.
- Excise Duties: Excise Duties are levied on products including alcohol, and tobacco at a rate of 20%.
- Property Taxes: Property Taxes are levied in Nigeria, in form of a levy at a rate of 3%.
- Capital Gains Tax: Capital Gains Taxes are levied at a rate of 10% on disposal of assets.
- Police Fund Levy: Under this tax regime, police fund levy is charged at a rate of 0.005% on the net profit of companies.