Everything you need to know about small business tax in Nigeria
Business taxation is essentially the tax businesses pay to the government as part of their operations. It is important that every business pay taxes, whether it falls under sole proprietorship, partnership, limited liability or a corporation. Your business is responsible for abiding by the tax regulations provided by your country of operation.
Taxes are essential to the government because they are the primary source of revenue to fund the activities of the government on the federal, state and local levels. As long as your business is registered in a country, you are expected to remit a certain percentage of profit to the government of that country.
It is essential to understand the tax process and regulation, whether small business or not. This will help you decide how to maximise tax advantages and ensure that you pay on time, so your company wouldn’t have problems with tax regulators.
Accounting method for Business taxes
Accrual accounting is a popular accounting method used for business taxes, and this is because it minimises tax computation and aligns with the basic principles of accounting. This is where everything is accounted for (all revenue and expenses). In simpler terms, all transactions made within the financial year should be accounted for regardless of when you pay your taxes.
Taxes to pay
Because taxes and tax regulations differ from country to country, we will focus on the taxes applicable to Nigerian businesses.
In Nigeria, all persons in employment, individuals in business, non-residents who derive income from Nigeria, and companies that operate in Nigeria are mandated to pay tax.
The tax regime in Nigeria is administered by the three tiers of government - Federal, State and Local government taxes.
Federal government taxes include- Companies Income Tax (CIT), Value Added Tax (VAT), Capital gain tax, stamp duty tax, education tax, petroleum profit tax etc.
State government taxes include- Personal Income Tax, Business Premises Tax, Development levy, etc.
Local government taxes include- levies and rates.
Calculating the right taxes
Once you have figured out which taxes apply to your business, you need to calculate the correct taxes to pay. Each tax comes with its percentages. How much your business makes a year can also determine how much to remit to the government.
Penalties for non-compliance
Each tax has its penalties. For this article, we will focus on tax created by the federal government- Company income tax.
The general law is to remit your tax within six months after the financial year or 18 months from the day of incorporation for new businesses.
Failure to file returns would mean a N25,000 penalty in the first month of failure to file and N5,000 for each month the default continues plus any interest accumulated on the amount.
How to file for taxes in Nigeria
You know the taxes to pay, how much, and the penalties when your taxes aren’t paid on time. But how do you go about filing for your taxes?
Prepare your company’s accounts for the financial year and get an audited financial statement.
Provide all documents needed to file your tax returns, i.e. CAC document, directors statement and a complete Type C form.
Pay the Company income tax amount to any banks designated for tax collection.
Tip: Did you know that you could file your returns online? Visit the firs.org website to begin.
Understanding the basics of tax will help prepare you to make well-informed decisions that can guarantee that your business remains able to take advantage of inherent loopholes.
Complying with the country’s tax regulations that your business operates in will help protect you from the consequences of non-compliance and proof that your business is credible and committed, especially to customers and investors.