What are the taxes or levies imposed on businesses operating in Nigeria?
Apart from knowing the requirements for registering and setting up a company, it is also important for foreign and local investors to be aware of the regular statutory deductions, taxes or levies applicable to companies registered in Nigeria.
We have highlighted below some of the notable taxes and levies which are of general application and they are as follows-
- The National Information Technology Development Levy (NITDA Levy) is required and payable by companies with annual turnover of N100million or above (i.e. about $500,000 or above). The NITDA Levy is payable to the FIRS at 1% of profit before tax (PBT). The levy is imposed on companies registered for the following:
- Banking and other financial activities, including capital and money market operators, mortgage institutions, and micro-finance banks;
- Insurance activities, including brokerage;
- Pension fund administration, pension management, and related services;
- GSM service providers and telecommunication companies; and
- Cyber and internet services providers.
- Contributory Pension: every company with a minimum of fifteen (15) employees must contribute 10% of its employees’ total emolument as pension. Also, the eligible companies must deduct 8% from the employees’ emolument and remit both (i.e. a total of 18% deductions) to a Pension Fund Administrator (PFA) of an employee’s choice on monthly basis. There are a number PFAs in Nigeria, one of which an employee is required to approach and open a Retirement Savings Account (RSA) with and communicate the RSA numbers to the employer. Where an employee fails to register with a PFA within six (6) months of assumption of duty in a company, an employer is required to approach a PFA to open a temporary RSA for such employee.
- Education Tax (or tertiary education tax) is chargeable and payable annually to FIRS at 2% of assessable profit. Non-resident companies are exempted from Education Tax.
- Industrial Trust Fund (ITF) Contribution is chargeable and payable at 1% of the annual payroll of every employer having either five (5) or more employees or with less than five (5) employees but with an annual turnover of N50,000,000 and above. The contribution is payable to the ITF.
- National Social Insurance Trust Fund (NSITF) Contribution is a contribution by an employer, not a deduction from employee’s salary. The contribution is 1% of employee’s monthly payroll (i.e. remuneration excluding pension contributions, bonuses, overtime payments and one-off payments such as 13th month income) payable to NSITF for the first two (2) years of operation. Thereafter, NSITF Board will carry out a risk assessment of the company’s operations in order to classify and estimate the necessary contributions based on each company’s workers’ potential exposures.
- Company Income Tax (“CIT”) is tax paid on assessable income of a company, usually 30% (for large companies earning gross turnover greater than N100 million), 20% (for medium companies earning gross turnover greater than N25million but less than N100million) and 0% (for small companies earning gross turnover of N25million or less), assessed on a preceding year basis.
- Personal Income Tax (Pay As You Earn): this ranges from 7% (on taxable annual income of N300,000) to 24% (on taxable annual income of N3,200,000) payable to the Inland Revenue Service of the State where the employees are resident.
- Withholding Tax (WHT): This is deducted from payments made to corporate and individuals in respect of specifically taxable transactions. The taxable transactions and their respective rates (for corporate and individual) are stated below. Please note that there is no distinction between local and foreign corporate or individuals when deducting WHT.
| Taxable Payments | WHT for Companies | WHT for Individuals |
| Dividends, Interests or rents | 10% | 10% |
| Directors’ fees | N/A | 10% |
| Hire of Equipment | 10% | 10% |
| Royalties | 10% | 5% |
| Commission, consultancy, technical, service fees or Management Fees | 10% | 5% |
| Construction (roads, buildings, and bridges) | 2.5% | 5% |
| Contracts other than sales in the ordinary course of business | 5% | 5% |
9. Value Added Tax (VAT) is now 7.5% taxable on costs of goods and services pursuant to the Finance Act of 2019 which came into force on 1st February 2020. Exempted items include exports (exported oil is taxable), goods and services for humanitarian donor-funded projects, plants and machinery for use in Export Processing Zones (EPZ), basic food items (based on a list specified in the Finance Act), medical products and services, pharmaceutical products, books and educational materials and exported services.
10. Custom Duties are about 5% to 35% tariff levied on imported goods based on the prevailing Harmonized Commodity and Coding System (HS Code). It is important to note this tax in case a new company intends to import any product for the purpose of setting up or operating its business in Nigeria.
Please note that the Finance Act 2020 reduces the import duty on Tractors from 35% to 5% while the import duty on trucks and other vehicles for the transport of goods and persons was reduced from 35% to 10% and 5% respectively. Also, all airlines registered in Nigeria and providing commercial air transport services are entitled under Nigerian law to duty-free importation of their aircrafts, engines, spare arts and components whether purchased or leased.
11. Nigerian Housing Fund (NHF) Contributions are (deductions from or) made by employees earning a minimum of N3,000 ($ per annum. Every employer is obligated by law to deduct 2.5% of basic salary from eligible employees and remit same to the Federal Mortgage Bank of Nigeria (FMBN) within one (1) month of deduction. Every employee is required to open an account with the FMBN into which the employer must remit the deductions made.
12. Television and Radio License Fee is chargeable by the Local Government Council in charge of the business area of the company, usually assessed at annual rate between N50,000 and N250,000 for rural and urban areas respectively.
13. Local Content Levy: The Nigerian Content Development Act imposes a levy of 1% on every contract awarded in the upstream oil and gas sector of the economy. Any violation of the Act is liable for a fine of 5% of the contract value and may result in outright cancellation of the contract.
14. Stamp duty is levied on a chargeable transaction, either at fixed rates or ad valorem (i.e. based on the value of the consideration or the type of document containing). For example, stamp duty of 0.75% is chargeable on the authorised share capital at incorporation of a company or on registration of new shares. All deposit banks and financial institutions are required to charge stamp duties of NGN50 on every eligible transaction above NGN 10,000. There are exemptions for transactions between accounts held by the same bank customer, salary accounts and electronic transfer. Now, the Finance Act 2020 introduced “Electronic Money Transfer” levy of N50, which is chargeable on electronic receipts or electronic transfer of N10,000 or more.
