June is one of the busiest tax filing seasons in Nigeria. It is the deadline for filing of companies income tax (CIT) returns for taxpayers with financial year-end of 31 December. For companies with connected persons, it also doubles as the deadline for filing the Transfer Pricing (TP) returns. Specifically, the due date for filing the CIT and TP returns for existing companies with financial year-end of 31 December 2018 is 30 June 2019, that is, 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 filing 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 tax returns due to other tax authorities can be filed physically at the taxpayer’s local tax station. For new taxpayers, it is ideal to confirm with the relevant tax authority, for ease of submission, on the prescribed mode of filing before any due date.
2. What is a companies income tax return?
A companies income tax return is a return that shows the companies income tax (CIT) payable of a company. Resident companies will pay CIT on their worldwide income while non-residents will pay CIT on income sourced from Nigeria. A company may be resident in Nigeria but not liable to CIT. For instance, companies engaged in upstream operations are assessed to tax under the Petroleum Profit Tax Act, 2007 and will be required to pay Petroleum Profit Tax and not CIT. In addition, sole-proprietorship is governed by the Personal Income Tax Act, 2011 (as amended).
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 NGN25million, the CIT rate is 0%. Medium-sized companies with a turnover from NGN25 million to NGN100 million will pay CIT at a rate of 20%. Large companies with turnover of above NGN100 million will continue to pay CIT at 30%. Note that exempt businesses will not pay and file tertiary education tax returns as well as 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 2018 will be reported as the 2019 year of assessment.
4. Who is the relevant tax authority for CIT?
The relevant tax authority for CIT is the Federal Inland Revenue Service.
5. What are the requirements for filing a CIT return?
- an audited accounts
- tax computation for the year of assessment including the schedule of fixed assets and capital allowance computation (if any)
- a duly completed CIT self‐assessment form (SAF)
- evidence of payment of CIT
In addition, companies that are required to file TET returns should include a duly completed TET SAF and evidence of TET paid (if any).
6. How do I file a CIT return?
- Step 1: Prepare the accounts of the company for the financial year.
- Step 2: Appoint an external auditor to audit the accounts and issue an audited financial statements
- Step 3: Prepare the tax computation for the year of assessment. It may include the schedule of fixed assets and capital allowance computation if the company has fixed assets. A taxpayer may complete this step internally or seek the services of an external tax consultant
- Step 4: Pay the CIT amount at any of the banks designated for tax collection. The amount payable depends on whether the company has an unutilised withholding tax (WHT) credit. See further explanation in Question 8 below.
- Step 5: Complete the self-assessment form. A copy of this form can be obtained from the nearest FIRS tax office.
- Step 6: Prepare a cover letter to FIRS for the submission
- Step 7: Submit documents (2) to (6) at the taxpayer’s assigned (FIRS) office and retain acknowledged copies of the return for future reference
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 2% of the assessable profit. TET is payable within 60 days of an assessment notice from FIRS. In practice, many companies pay TET on a self-assessment basis together with their CIT. Nevertheless, non-resident companies and unincorporated businesses (for example, sole proprietorship etc.) are exempt from tertiary education tax. TET return is a form showing the TET details such as assessable profit, rate of tax and TET payable of a company. TP returns would be required for companies with connected persons.
7. A company reported accounting loss and taxable loss in a year, should the company still file a CIT return?
Yes. Every company is required to 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 NGN25 million and above will be subject to minimum tax at 0.5% of turnover less franked investment income.
- is exempt by the law from paying tax.
8. As at March 31 2019, Company Bee had the following tax liabilities;
- Companies Income Tax (CIT) – NGN ₦15,000
- Tertiary Education Tax (TET) – ₦3,000
- Value Added Tax (VAT) – ₦25,000
- The Company’s WHT credit position was ₦50,000. 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 ₦35,000 (₦ (50,000 – 15,000)) 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 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 NGN 100 million, the bonus is 1% while medium-sized companies with a turnover between NGN 25 million and NGN100 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 submit CIT, TET and TP returns at their assigned tax offices before the due date to prevent these 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.
CIT return is one of the annual tax returns in Nigeria, and coping with numerous tax deadlines can be difficult. The expertise and time required to ascertain if a tax return is well optimised may be overwhelming. Push away the worries about how to prepare and file a corporate tax like an expert. With the experts at Bomes Resources Consulting, you can expect timely, organized, and reliable information that allows you more time to focus on your business. For a free consultation on your current corporate tax situation, send a message.
Updated: 25 June 2020