How to Calculate CIT in Nigeria

Calculating the Corporate Income Tax (CIT) rate in Nigeria is crucial for any business operating within the country. CIT is a form of tax levied on the profits of companies, and understanding how to calculate it can help businesses comply with the law, avoid penalties, and plan for their financial future. In this article, we will explain everything you need to know about calculating CIT in Nigeria.

What is CIT?

Corporate Income Tax is a tax levied on the profits of companies in Nigeria. It is governed by the Companies Income Tax Act (CITA) and is administered by the Federal Inland Revenue Service (FIRS). The tax is calculated based on the company's taxable income, which is the income generated from all sources within Nigeria minus any allowable expenses, capital allowances, and losses incurred during the year of assessment.

Who is Required to Pay CIT?

All registered companies that generate income in Nigeria are required to pay CIT. This includes both resident and non-resident companies. Resident companies are those that are incorporated in Nigeria and have their management and control in Nigeria. Non-resident companies are those that are incorporated outside Nigeria but have a fixed base or a permanent establishment in Nigeria.

How to Calculate CIT in Nigeria

The CIT rate in Nigeria is currently 30% for all companies except small companies whose gross turnover does not exceed N25 million. The current CIT rate for small companies is 20%. To calculate the CIT payable by a company, the following steps should be taken:

1. Calculate the company's taxable income: This is done by subtracting all allowable expenses, capital allowances, and losses incurred during the year of assessment from the company's total income generated from all sources within Nigeria.

2. Apply the appropriate CIT rate: The current CIT rate for most companies in Nigeria is 30%. Small companies whose gross turnover does not exceed N25 million are taxed at a rate of 20%.

3. Calculate the CIT payable: This is done by multiplying the company's taxable income by the appropriate CIT rate.

4. File the tax return: Once the CIT has been calculated, the company is required to file a tax return with the relevant tax authority. The deadline for filing the tax return is six months after the end of the company's financial year.

What are Allowable Expenses?

Allowable expenses are expenses that are incurred wholly, exclusively, and necessarily in the production of the company's income. Examples of allowable expenses include salaries, rent, repair and maintenance expenses, and business-related travel expenses.

What are Capital Allowances?

Capital allowances are allowances granted to companies for the depreciation of their capital assets. These assets include plant and machinery, buildings, and vehicles. The capital allowance is calculated as a percentage of the cost of the asset.

What are Losses?

Losses are expenses that exceed the income generated by the company. A loss can be carried forward to subsequent years of assessment and offset against the profits of those years.

What are the Penalties for Non-compliance?

Failure to comply with the tax laws in Nigeria can result in penalties and interest charges. The penalties for non-compliance include:

1. Late filing penalty: This is a penalty of 1% of the tax due for every month or part of the month that the tax return is late.

2. Late payment penalty: This is a penalty of 10% of the tax due for every year or part of the year that the tax remains unpaid.

3. Interest charges: Interest is charged at a rate of 1% per month or part of the month that the tax remains unpaid.

Conclusion

Calculating the Corporate Income Tax rate in Nigeria is a crucial aspect of doing business in the country. By understanding how to calculate CIT, businesses can comply with the law, avoid penalties, and plan for their financial future. It is important to seek professional advice to ensure that you are complying with all the tax laws in Nigeria.

FAQs

1. What is the current CIT rate in Nigeria?

   • The current CIT rate in Nigeria is 30% for most companies and 20% for small companies whose gross turnover does not exceed N25 million.

2. Who is required to pay CIT in Nigeria?

   • All registered companies that generate income in Nigeria are required to pay CIT.

3. What are allowable expenses?

   • Allowable expenses are expenses that are incurred wholly, exclusively, and necessarily in the production of the company's income.

4. What are capital allowances?

   • Capital allowances are allowances granted to companies for the depreciation of their capital assets such as plant and machinery, buildings, and vehicles.

5. What are the penalties for non-compliance with tax laws in Nigeria?

   • The penalties for non-compliance with tax laws in Nigeria include late filing penalty, late payment penalty, and interest charges.