However, unlike preceding year basis period, the year of account will coincide with the year of assessment. The two rules are the minimum tax and excess dividend tax. 22. The tertiary education tax is levied on a company registered in Nigeria at the rate of 2% of the assessable profit. Nigeria: Companies income tax assessment not allowed The Federal High Court sitting in Abuja issued a judgment for the taxpayer in a case concerning the authority of the Federal Inland Revenue Service (FIRS) to assess a company’s liability for Nigeria’s companies income tax … Profits, YOA Basis Period Assess Profit (N), 2002 1/10/02 – 31/12/02 (3/8 * 240,000) 90,000, 2003 1/10/02 – 30/9/03 (240,000 + 4/12*516,000) 412,000, 2004 1/6/2002-31/12/3 ^^^^^. assessable profit Education Tax Fund ETF-In addition to the CIT, all registered companies are required to pay ... Nigeria on the profit of a Nigerian company being remitted into the country is reduced by the amount of Foreign Tax’’ paid abroad and where an overseas company receives profits from Assessable profit is adjusted profit or part thereof that is assessed to Companies income tax in an assessment year. Zero taxable profits may trigger minimum tax or excess dividend tax. charged on the assessable profit of a company registered in Nigeria (in this Decree referred to as "a company"). Oil in Nigeria accounts for about 90-95per cent of its export revenues, over 90percent of foreign exchange earnings and about 80% of government revenue.as a result of this the main objectives of this research study is to assess the problem and prospect of petroleum profit tax administration in Nigeria. Nigerian Companies pay 30 percent of their worldwide profit while foreign companies pay 30 percent of only the profit made in Nigeria. Click Here To See My Breakthrough! R ecently at a public seminar it was asserted that the tax regime for insurance companies operating in Nigeria as contained in the Companies Income Tax Act as amended puts insurance companies at a disadvantage relative to other companies operating in the financial sector. In financial accounting, net profit arises when revenue is greater than the cost otherwise it is a loss. Total profits in the first three years = NGN (100,000 + 460,000 + 540,000) = NGN1,100,000 Capital allowances is the tax systems The tax is payable within two months of an assessment notice from the FIRS. First, assessable profit is the profit adjusted for income tax purposes using the information in the financial statements. Capital allowances are given in place of depreciation for the use of business assets. Partnershi ps, etc. This is, the global income of a individual accruing in, derived from, brought into, or received in Nigeria, in a year of assessment. 3. However, there are different methods of calculating depreciation which […] h. Amendments to the ‘Minimum Tax Rule’ Assessable profit is obtained prior to deducting capital allowances. 1. The assessable profits of any company from any trade or business for the year of assessment in which it commenced to carry on trade or business (or in the case of a company other than a Nigerian Company, for the year of assessment in which it commenced to carry on the trade or business in Nigeria) and for two following years of assessment (which years are in this subsection respectively referred to as “the first year” “the second year” and “the third year” shall be ascertained in accordance with the following provisions: (a) First Year: the assessable profits shall be the profits of that year(i.e. they have assessable profits. The company has been in operation for over five years. It is only calculated when a company is computing its tax liabilities. She has been a legal practitioner for 13 years and has experience in a wide range of commercial matters. It is only calculated when a company is computing its tax liabilities. However, excess dividend tax rarely affects small and medium-sized companies for two reasons. Every business has its accounting year end (accounting period) as it suits the company’s operations except for few industries in Nigeria where the permanent year end is determined by the applicable authority. Tax adjustments include expenses, income and any other transaction with tax impact on the income statement. (3) The assessable profit of a company shall be ascertained in the manner specified in the Companies Income Tax Act or the Petroleum Profits Tax Act (in this Decree referred to as "the Act") as the case may be. Nigeria as a single commodity dependent economy has over the years relied principally on the proceeds from oil exploitation. However, other sectors can claim a maximum rate of 66 2/3 percent of the assessable profit in an assessment year. (c) Third Year: Shall be computed in accordance with Section 29 (1) as earlier highlighted. Assessable profit is the profits from all sources in the year immediately preceding the year of assessment. Nigerian Companies pay 30 percent of their worldwide profit while foreign companies pay 30 percent of only the profit made in Nigeria. Contribution of Business Taxation in Nigeria 4. The Nigeria personal income tax act 2014 has the answer to these. Statutory law governs the creation of not-for-profit companies, including associations with incorporated trustees and … It is 2% of assessable profit. Some companies are exempt from minimum tax. Other Domestic Resources Federal Inland Revenue Service Consult Doing Business Website, to obtain a … Net Profit (as per account) ****, Add: disallowable expenses taxable income (not reported), Less: allowable expenses (not reported) non-taxable income (reported). Copyright © 2020. Depreciation is usually added back to profit because of the different policies and rates used by companies which are capable of producing different profits. Therefore, it is in the interest of KILOBADE Ltd not to exercise its right to avoid payment of higher tax. The accounting profit arrived at in the trading, profit & loss account is not usually the same as “tax profit”. The rate of Tertiary Education tax is 2 percent (2%) of the Assessable profit of a company registered in Nigeria. In practice, many companies pay TET on a self-assessment basis together with their CIT. i.e. Compute the assessable profits for the first 3 years of assessments and decide whether or not Doro-Dapo should exercise its right of election. Distinguish between the treatment of loss relief under Companies Income Tax Act and Petroleum Profits Tax Act. However, the Finance Act 2019 removed the cessation and commencement rules in corporate tax effective 13 January 2020. 2016: NGN(100,000 + (8/12 * 540,000 = 360,000)) = NGN 460,000. Finally, a taxpayer may have no taxable profits even after making these adjustments. Education Tax Act LFN 2004; This tax is imposed on the assessable profit of all companies at a flat rate of two percent 2%. 6.6. show that we basically have two (2) types of basis period applicable to every company liable to tax. This means that all registered companies in Nigeria are required to pay a percentage of their assessable profit into an Education Tax Fund. Lagos seals event centre for contravening protocols, Nine passengers escape death as vehicles catch fire in Anambra, Lagos-Ibadan train stations for inauguration next month, Trump makes U-turn, signs $900bn COVID-19 relief package, Five killed as rival cult groups clash in Bayelsa, Navy rescues 12 passengers in Lagos boat accident, Notorious bandit, Nasiru Kachalla, others killed in Kaduna, Insecurity: ‘Nigerians harbour too much hatred to handle guns’, CAN to govt officials, politicians: adhere to guidelines, COVID-19 won’t be last pandemic, says WHO chief, COVID-19 death toll more than double in one month, NCAA to slam $3,500 fine on defaulting passenger on airlines. The tax rate is 30% of the chargeable profit. The law equally gives a taxpayer the opportunity to revoke his earlier request for an election by giving notice in writing to the FIRS within twelve months after the end of the third year of assessment. ... (ai) the aggregated deduction from assessable profit or income in respect of any such loss Computation of Assessable Profit of a Trade or Profession 7. However, there are different methods of calculating depreciation which […] from date of commencement up to the end of the same year). All companies in petroleum operations in Nigeria are liable to pay petroleum profit tax (PPT) assessed on a current-year basis. That is the profit of petroleum companies are assessable to tax on Actual Year Basis (AYB) 8 This is same as actual year basis discussed earlier. Meaning of a Trade or Profession 6. The educational charge is pegged at 2 percent of the assessable profit while a 10 percent withholding tax is deducted from dividend … In practice, many companies pay the tax on a self-assessment basis along with their CIT. In other words, manufacturing and agro-allied businesses have no restriction for capital allowance. 3. NOTE: Only the assessable profits of the second and third year will change if the right of election is exercised. Depreciation is usually added back to profit because of the different policies and rates used by companies which are capable of producing different profits. Its adjusted profits were as follows: Period ended 30th April, 2000 420,000, Year ended 30th April, 2001 480,000, Year ended 30th April, 2002 600,000. Companies within the first four calendar years of operation. Assessable profit is a calculation used in tax law to determine an individual's taxable income based upon gains or losses on funds held in taxable investment accounts. iii. This is because in ascertaining the accounting profit some expenses which are not allowed for tax purposes may have been reported and some income included in the accounting profit are tax-free. In essence, disallowable expenses are added back to the accounting profit which will increase the assessable profit. The tertiary education tax is payable within 60 days of an assessment notice from the Federal Inland Revenue (FIRS). Over 90% of the foreign exchange earnings is from this commodity. Foreign companies not resident in Nigeria, but with a fixed base in Nigeria are only required to pay company income tax on their incomes derived from Nigeria. R ecently at a public seminar it was asserted that the tax regime for insurance companies operating in Nigeria as contained in the Companies Income Tax Act as amended puts insurance companies at a disadvantage relative to other companies operating in the financial sector. Some payments are exempt such as; Get the latest content delivered to your inbox.. Reserve a seat in our professional accounting and tax training, Copyright 2020 - Bomes Resources Consulting. a. profits of 1st January to 31st December of the second and third years of assessment). Carrying on business in Nigeria may be at profit or loss. It is allowed as a deduction from assessable profit to arrive at total profit. Any tax on income or profit is not deductible except where such tax was paid on profit earned outside Nigeria. Capital allowances are given in place of depreciation for the use of business assets. Taxation of Petroleum Profit under the Nigeria’s Petroleum Profit Tax Act Lawal, K. T. 1 ABSTRACT The aim of this paper is to examine the ownership, the legal framework as well as the basic components of the petroleum profits, which components are revenue, adjusted profits, assessable profit, chargeable profit, assessable tax and chargeable tax. … For companies subject to PPT, tertiary education tax is to be treated as an allowable deduction. Small companies with an annual turnover of below NGN25 million. More so a company’s accounting date may not correspond with the government fiscal year; which is 1st January to 31st December. then the company paying the dividend will pay income tax at the applicable rate. “assessable profits” or; (b) the assessable profits, in FIRS’ opinion, are less than might be expected to arise from that trade or business; or (c) the true amount of the assessable profits of the company cannot be ascertained. The focus of this article is on how to determine the basis period for assessable profits to be subjected to tax. The total assessable profits for the second and third YOA under commencement rule is N1,380,00 which is lower than N1,700,000 under election. The educational charge is pegged at 2 percent of the assessable profit while a 10 percent withholding tax is deducted from dividend … (a) Loss relief is a form of relief granted to all companies incorporated in Nigeria. Over 90% of the foreign exchange earnings is from this commodity. Companies are mandated by law to pay Company Income Tax (CIT) in Nigeria based on the profit. Noticeably, the basis period for 2004 YOA begins in a month earlier than the date of commencement. A company can have an assessable loss or taxable loss in a year of assessment. 12 months) from the date of commencement of the business. Considering the earlier example, the year of assessment will not be 2014 but 2013 and the basis period will be 1/1/2013 – 31/12/2013. Taxable/ Assessable Income. This means that every basis period determined on preceding year basis must be up to 12 months ending on a company’s permanent year end.
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