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Filing your taxes as a small business owner in Nigeria might seem like a headache, but it doesn't have to be! Paying taxes in Nigeria, regardless of your business size, is an obligation, and failure to do so comes with consequences like penalties, heavy fines, or a total shutdown.
You might ask, "What do I need to file my taxes as a small business in Nigeria?" We've got you covered! In this article, we'll explore the documents you need to file your taxes, the various types of taxes, and how to properly file your taxes.
Do Small Businesses Pay Taxes in Nigeria?
Yes, small businesses pay taxes in Nigeria just like their larger counterparts, and the government uses these taxes at various levels to provide public amenities.
The types of taxes small businesses pay range from value-added taxes(VAT) to pay-as-you-earn, capital gains tax, withholding taxes, stamp duties, etc.
It is, therefore, essential for you to have a proper understanding of the type of business you run so as to file your taxes properly.
Who do Businesses Pay Taxes to in Nigeria?
In Nigeria, businesses and individuals pay taxes to the government at any of the three levels, i.e., the Federal, State, and Local government. Let's simplify this further;
1. The Federal Inland Revenue Service (FIRS)
The FIRS is the federal government's central tax-collecting body in Nigeria. It is responsible for collecting taxes such as VAT, company income tax(CIT), stamp duty, capital gain tax, and others.
2. State Inland Revenue Services (SIRS)
A state's inland revenue service collects taxes at the country's state level. Each state has its own SIRS body that collects taxes from various businesses within its jurisdiction. The types of taxes the state collects include Business premises tax, Personal income Tax, Development levies, and so on.
3. Local Government Revenue Committees (LGRCs)
At the local government level in Nigeria, the LGRCs are responsible for collecting taxes from businesses under their jurisdiction. Some of the rates and levies they collect include motor park levies, kiosks and shop rates, merriment and road closure levies, refuse disposal public convenience levies, etc.
5 Business Taxes in Nigeria
The type of tax you pay in Nigeria as a business owner depends on your type of business, location, revenue, and size. Let's explore seven common taxes you're likely to encounter in Nigeria.
1. Company Income Tax (CIT)
The FIRS charges taxes known as CIT on the revenue of limited liability companies in Nigeria. The amount payable as CIT for a company depends on its yearly turnover:
Companies with a turnover of less than N25 million are not required to pay CIT.
Companies with a turnover of N25 million to N100 million are required to pay 20% CIT.
Companies with a turnover of over N100 million must pay 30% CIT.
As a business, you are required to file your annual CIT returns and pay them within the last six months of your financial year. Furthermore, failure to do so on time comes with a penalty of 25,000 naira fine in the initial month and 5,000 naira for each following month.
2. Value Added Tax (VAT)
This type of tax can also be referred to as a sales tax, and it's a type of consumption tax every Nigerian business owner deals with. A VAT refers to levies imposed on goods and services sold to the public by businesses.
However, VAT isn't applied to all items sold, and some exemptions include pharmaceutical and medical products, basic food items, agricultural produce, educational materials, etc. Not paying your VAT comes with a penalty of 5% yearly plus interest, a non-compliance fine of N10,000 and a subsequent N5,000 monthly.
3. Personal Income Tax (PIT)
A personal income tax is levied on the earnings of individuals living in Nigeria. Additionally, as a business owner, you are legally required to pay a PIT on your business revenue.
Also, you are obligated to deduct a PAYE (Pay As You Earn) from your employees' salaries and remit it to the relevant tax body before the 10th of every month. The amount you pay for your PIT depends on your income bracket, and it's within the range of 7% to 24%.
4. Stamp Duty Tax
The government imposes tax on the transfer of legal documents and instruments, such as buildings, homes, patents, copyrights, and securities.
Stamp duty is levied on instruments that must be stamped within 40 days of their initial execution, and the amount depends on the type of instrument. Different instruments have varying stamp duties, such as fixed and ad valorem rates, which increase with the transaction's value.
What Documents are Required to File Taxes in Nigeria
The type of taxes you pay as a business owner in Nigeria depends on the type of your business and its specific tax. Nevertheless, to file any type of tax, here is the list of documents you'll need;
Tax identification number (TIN) or RC number.
Audited financial statements comprising profit/loss statements, financial position and notes.
Completed tax return forms.
Capital allowance schedules with a detailed breakdown of capital allowances claimed on carrying asset classes.
Tax computation schedule showing the reconciliation of profits to taxable profits and all adjustments
Tax exemption and compliance certificates in cases of tax reliefs and exemptions
Withholding tax credit notes for deducted taxes on the company's income.
Supporting documents/ schedules like the previous year's losses carried forward, claimed deduction evidence, etc.
How to File Your Taxes as a Small Business in Nigeria
To properly file your business tax return in Nigeria, simply follow the steps below;
Gather all your required documents.
Download and fill the applicable tax forms for manual filing, such as Form C08A, C08B, C08C, OR C08D. If you are filing electronically, you can fill out these forms on the portal.
Login to the FIRS self-filing system to file your tax returns
Properly report your sources of income and claim any eligible reliefs or deductions.
Accurately calculate your taxable income and tax liability.
Ensure that you obtain an acknowledgement or receipt for your records.
Quote your TIN correctly on your tax forms and payments. A valid TIN makes you eligible for tax clearance certificates.
Conclusion
Now that you've seen the steps needed to file your taxes as a Nigerian business, it's essential to do so early to avoid penalties and identity theft.
Remember, having a reliable business bank account and payment option enables you to run a smooth and efficient business. Simply sign up on Moniepoint MFB to get started.
