June is one of the busiest tax filing seasons in Nigeria. It is the deadline for filing companies income tax (CIT) returns for taxpayers with financial year-end of 31 December. For companies with connected persons, it also the deadline for filing the Transfer Pricing (TP) returns. Specifically, the due date for filing the CIT and TP returns for existing companies with a financial year-end of 31 December 2023 is 30 June 2024, 6 months after the financial year-end. This article looks at twelve (12) most frequently asked questions on companies income tax returns in Nigeria.
1. What is a tax return?
A tax return is a form used to disclose a taxpayer’s affairs for a definite period and file in the prescribed format with the relevant tax authority. In Nigeria, the relevant tax authorities are the Federal Internal Revenue Service (FIRS) and the relevant State Internal Revenue Service (IRS). Also, some tax returns such as the annual employer tax returns with Lagos State IRS can be filed online while some State IRS prefer physical submission of tax returns. For new taxpayers, it is ideal to confirm from the relevant tax authority, for ease of submission, on the prescribed mode of filing before the due date.
2. What is a companies income tax return?
A companies income tax (CIT) return is a return that shows the income tax payable by a company. A company is a corporation sole which can be a resident or non-resident company. A resident company is a company incorporated in Nigeria while a non-resident company is a company registered outside Nigeria.
A resident company will pay CIT on their worldwide income while non-residents will pay CIT on income sourced from Nigeria. In addition to CIT, companies engaged in upstream operations will be required to pay hydrocarbon tatax.
3. What is the companies income tax rate in Nigeria?
The CIT rate in Nigeria varies based on a company’s annual turnover. For small companies with turnover below NGN 25 million, the CIT rate is 0%. Medium-sized companies with a turnover from NGN25 million to NGN 100 million will pay CIT at a rate of 20%. Large companies with turnover of above NGN100 million will continue to pay CIT at 30%. To claim the tax exemption, small companies must file CIT returns, tertiary education tax returns and submit capital allowance computation (if any).
CIT is computed on a preceding year basis. For instance, corporate tax on profits for the financial year ended 30th September 2023 will be reported as the 2024 assessment year.
4. Who is the relevant tax authority for CIT?
The relevant tax authority for CIT is the Federal Inland Revenue Service (FIRS).
5. What are the requirements for filing a CIT return?
- duly completed self-assessment form and schedules
- financial statements
- evidence of payment of CIT, if any
These documents must be completed and submitted online.
6. How do I file a CIT return?
- Step 1: First, the taxable person must have registered for tax with FIRS. FIRS will create the taxpayer’s profile including access to dedicated online portal for self-service, TaxPro Max.
- Step 2: Prepare the accounts for the financial year. The taxpayer will provide documents to support the financial position where the company has not commenced operations.
- Step 3: Appoint an external auditor to review the accounts and issue an audited financial statement. An external auditor can also assist in providing a statement of affairs for companies that have not started business.
- Step 3: Visit the taxpayer’s account on FIRS portal TaxPro Max. Insert the figures for each section of the CIT form, schedules and submit the returns. A taxpayer may complete this step or seek the services of a tax consultant.
- Step 4: Pay the amount due. The sum payable depends on whether the company has an unutilised withholding tax (WHT) credit. See further explanation in Question 8 below.
There are two additional returns that may accompany the CIT return. They are the tertiary education tax (TET) returns and the transfer pricing (TP) returns. The tertiary education tax is levied on a company registered in Nigeria at the rate of 3% of the assessable profit, effective September 1 2023. TET return is a form showing the TET details such as assessable profit, rate of tax and TET payable of a company. TET is payable within 60 days of an assessment notice from FIRS. In practice, companies usually pay TET on a self-assessment basis together with the CIT. Nevertheless, non-resident companies and unincorporated businesses are exempt from tertiary education tax.
Annual TP returns will be required for companies with connected persons. The mode of filing TP returns is on the TaxPro Max platform.
7. A company reported accounting loss and taxable loss in a year, should the company still file a CIT return?
Yes. Every company must file a return with Federal Internal Revenue Service (FIRS) even if the company;
- reports a taxable loss. Note that the minimum tax and dividend tax rule may result in a tax payable position. Minimum tax is payable by companies with no taxable profits or where the tax calculated is below the minimum tax. Only companies with a turnover of ₦25 million and above will be subject to minimum tax at 0.5% of turnover less franked investment income. A lower minimum tax rate of 0.25% applies for any two years of assessment from 1 January 2019 to 31 December 2021. Small companies, agricultural businesses, and companies in their first four calendar years of operations are exempt from the minimum tax.
- is exempt by the law from paying tax.
8. As at December 31 2023, Company Bee had the following tax liabilities;
- Companies Income Tax (CIT) – ₦670,000
- Tertiary Education Tax (TET) – ₦50,000
- Value Added Tax (VAT) – ₦1,250,000
- The Company’s WHT credit position was ₦250,000. Can Company Bee use the WHT credit to settle all outstanding tax liabilities, that is, CIT, TET, VAT?
No. WHT credit note is used to offset income tax liability. Company Bee can use the WHT credit to offset the CIT liability. The remaining balance of ₦420,000 (₦ (670,000 – 250,000)) will be carried forward to future years.
9. When is the deadline for filing Companies Income Tax Returns?
It depends on whether the taxpayer is a new company or an existing company.
- For existing companies, CIT returns should be filed within six (6) months after the accounting year-end.
- For new companies, CIT returns should be filed within eighteen (18) months from the date of incorporation or six (6) months after accounting year end whichever is earlier.
Companies that make CIT payment within 90 days from the due date for filing the corporate tax returns will get a discount on tax payable. For large companies with a turnover above ₦100 million, the bonus is 1% while medium-sized companies with a turnover between ₦25 million and ₦100 million will enjoy a bonus of 2%.
10. Can a taxpayer request for an extension of time to file a CIT return or TP returns?
Yes. A taxpayer may request for an extension of time, in writing, to file a CIT return or TP return. However, taxpayers are required to fulfill specific conditions at the time of submitting an application for extension of time to file CIT returns. As FIRS has the discretion to accept or reject the application, taxpayers are therefore encouraged to file CIT, TET and TP returns online before the due date to prevent penalties.
11. What is the penalty for late filing of CIT returns?
The penalty for failure to file CIT returns on the due date is ₦25,000 for the first month of default and ₦5,000 for each succeeding month.
12. Is there any penalty for late filing of TP returns?
Yes. The penalties for failure to file TP returns within the stipulated time are:
- Failure to file the TP declaration form (if applicable) – ₦10 million for the first month of default and ₦10,000 for every day the failure continues
- Failure to file the TP disclosure form – ₦10 million or 1% of the value of the controlled transaction(s), whichever is higher, for the first month of default and ₦10,000 for every day the failure continues.