Cessation rule for companies in Nigeria
What happens to unutilised withholding tax (WHT) credit at cessation?
Unused WHT credit is applied on the income tax payable in the relevant years of assessment. Any remaining credit is then carried forward as far as possible. The Federal Inland Revenue Service (FIRS) shall refund any credit balance.
XYZ Limited has an accounting year end of 30 June. The company later ceased operations on 30 September 2018 and reported assessable profits in the last 4 years as;
First: July 2014 – June 2015 NGN600,000
Second: July 2015 – June 2016 NGN450,000
Third: July 2016 – June 2017 NGN180,000
Last: July 2017 – September 2018 NGN50,000
Determine the cessation returns due to FIRS.
Penultimate and ultimate years, according to the cessation rule, are 2017 and 2018 respectively. FIRS will assess XYZ Limited to tax using the higher assessable profits of NGN450,000 under PYB rather than NGN110,000 in 2017. Also, the six (6) months gap in basis period, that is, July to December 2016, escapes income tax. In the ultimate year, assessable profits of NGN30,000 will result in the same tax exposure for XYZ Limited and FIRS.
If your company is facing liquidation, it is important to speak with a liquidation expert early. You may be able to know what to do so as to clear all obligations, including tax debt. Getting the right advice at this point could make a big difference, and help you achieve that desired outcome. You can also check FAQs on companies income tax (CIT) returns.
Effective 13 January 2020, cessation rule will no longer apply to companies that close operations in Nigeria. This is in line with the Finance Act 2019.
Updated: 1 February 2020