- July 4, 2020
- Posted by: matogconsulting
- Category: Tax, Taxation
TAX AND REGULATORY MATTERS A FOREIGN INVESTOR MUST AVERT HIS MIND IN NIGERIA
by Ayoade Apelegan
Nigeria is ranked 131st on the World Bank’s 2020 Doing Business index. The ease of doing business score shows an economy’s absolute position relative to the best regulatory performance. The implication of this is that foreigners are on the lookout to establish businesses in Nigeria.
As a business owner, you probably know that your business is regulated by different laws. Some of these laws govern social and economic matters which may include business income or payroll taxation. Others may be environmental laws, occupational health and safety laws, employment laws, criminal laws, and laws that are specifically related to your industry.
These laws are typically administered by regulatory agencies. Regulatory agencies are set up by the government to implement and enforce specific laws on behalf of the government. They also enforce standards required in businesses and protect consumers.
As a foreigner who is looking to do business in Nigeria, it is of utmost importance for you to know that your business will be regulated by different laws.
There are regulatory agencies set up by the government to implement and enforce specific laws on behalf of the government. These regulatory agencies also enforce standards required in businesses and protect consumers. These laws cover safety, environment, tax and occupational health.
Tax and Regulatory Matters for Foreign Investors in Nigeria
CORPORATE AFFAIRS COMMISSION – CAC
The Corporate Affairs Commission is an autonomous body charged with the responsibility to regulate the formation and management of companies in Nigeria.
Its functions are carried out through accredited members of Association of National Accountants of Nigeria (ANAN), Institute of Chartered Accountants of Nigeria (ICAN), Institute of Chartered Secretaries and Administrators (ICSAN) and the Nigerian Bar Association (NBA).
The functions of the Commission include the following;
To administer the Act, including the regulation and supervision of the formation, incorporation, management and winding up of companies.
To establish and maintain companies registry and offices in all the states of the Federation suitably and adequately equipped to discharge its functions under the Act or any law in respect of which it is charged with responsibility.
Arrange and investigate the affairs of any company where the interests of the shareholders and the public so demand.
To undertake such other activities as are necessary or expedient for giving full effect to the provisions of the Act.
The Commission also registers Business Names, and Incorporated Trustees as well as provides a wide range of ancillary services.
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Filing of Annual Returns
The Annual Returns of a company is a yearly statement which gives essential information about a firm’s composition, activities, and financial position, and which must be filed by every active incorporated firm with an appropriate authority.
In Nigeria, it is a statutory requirement that all duly registered businesses and companies submit their annual returns yearly to the Corporate Affairs Commission (CAC).
New companies may not file its return within the first 18 months of its incorporation, while for older companies, the annual return is due no later than 42 days after its Annual General Meeting (Section 374 CAMA).
For Business Names:
Partnerships, Business Ventures and all other types of organizations registered as Business Names need not submit Annual Returns for their first year of operation after registration. For subsequent years, however, the business is required to file its Annual Returns and make payments of the applicable fees on or before the 30th day of June of each year.
Very vital importance is that filing of the annual return by a company helps to keep the Corporate Affairs Commission (CAC) aware that such company is still actively in operation and still engaging in business activities or otherwise.
Federal Inland Revenue Service
The Federal Inland Revenue Service is the agency responsible for assessing, collecting and accounting for taxes and other revenues accruing to the Federal Government. The agency enforces tax laws and ensures tax compliance by the citizenry. It is also responsible for giving penalties and sanctions for non-compliance by individuals and businesses.
Two important taxes regulated by the FIRS, are Companies Income Tax and Value Added Tax (VAT).
COMPANY INCOME TAX (CIT)
Under the new law (Finance Act 2019), companies are categorized for corporate tax liability by annual gross turnover.
A small company is defined as a company which has an annual gross turnover of ₦25,000,000.00 (Twenty Five Million Naira) and below. Such a company is exempted from paying Company Income Tax.
A medium-sized company is defined as a company having an annual gross turnover of over ₦25,000,000.00 (Twenty Five Million Naira) per annum but below ₦100,000,000.00 (One Hundred Million Naira). Such an entity pays Companies Income Tax at the rate of 20%.
A large company is defined as a company with an annual turnover greater than ₦100,000,000.00 (One Hundred Million Naira) and it pays Companies Income Tax at the rate of 30%.
Gross turnover is defined as the gross inflow of economic benefits (cash, revenues, receivables, other assets) arising from the operating activities of a company, including sales of goods, the supply of services, receipt of interest, rents, royalties or dividends.
The new Act includes a provision that grants to all companies engaged in agricultural production in Nigeria, an initial tax-free period of five years renewable for an additional three years subject to the determination of the satisfactory performance of such company.
Withholding tax is an advance payment of income tax deducted at source from payment accruing or made to individuals or corporate entities in respect of income receivable for service(s) rendered or from investment and remittance of same to the Relevant Tax Authority in line with the provisions of Personal Income Tax (PITA) and Companies Income Tax Acts (CITA).
VALUE ADDED TAX (VAT)
A taxable person shall upon commencement of business, register with the FIRS for VAT.
VAT is charged at a rate of 7.5%
Businesses with turnover below ₦25,000,000:00 (Twenty-five Million Naira) are exempted from VAT payments, while VAT registration is compulsory when a business crosses the VAT threshold which is ₦25,000,000:00 (Twenty-five Million Naira).
Paragraph 4 (Section 37 of the Finance Act, 2019) states: “Where a person to whom taxable supplies are made in Nigeria is issued an invoice on which no tax is charged, such a person shall, self-account for the tax payable and remit the output tax to the service…”
The implication of this is that a small company is exempted from output VAT i.e VAT on the sales invoice.
However, if a small company is involved in a transaction with a large company, the small company is expected to pay VAT on the purchase invoice but if a small company is involved in a transaction with another small company, VAT would not be paid by either of the small company.
PERSONAL INCOME TAX
Tax is imposed on individuals who are either in employment or are running their small businesses, under a business name or partnership.
Though the collection of Personal Income Tax is a federal responsibility, this tax is generally collected by state governments from those that are resident in their various states, regardless of whether they are federal, state, local government, or private-sector workers. The Federal Inland Revenue Service, also collects this tax but only from residents of the Federal Capital Territory as well as what may be described as a highly mobile federal worker; staff of the Ministry of Foreign Affairs, other Nigerians and foreigners outside the country but earning income in Nigeria (non-residents), expatriate workers resident in Nigeria, Police Officers, and Military Officers.
Civilians working in Police and Military formations, however, pay to their respective States of residence.
The current law guiding the taxation of personal incomes is the Personal Income Tax Act (Cap P8 LFN 2004). Under the law, Federal and States’ tax boards are empowered to identify persons living in or earning income from Nigeria who is required to pay tax and to assess incomes and tax their incomes using specified guidelines and rules.
Income from employment shall be deemed to be derived from Nigeria and therefore taxable in Nigeria if:
The duties of such employment are performed wholly or partly in Nigeria, unless:
the employer is not resident in Nigeria and the remuneration of the employee is not borne by a fixed base of the employer in Nigeria, and
the employee is not in Nigeria for an aggregate of 183 days (inclusive annual leave or temporary period of absence) or more in any 12 calendar month period, and
the employee’s income is liable to tax in that other country/territory under the provisions of the avoidance of double taxation treaty with that other country/territory.
Note that all the conditions listed above must be jointly met for the expatriate to be exempted from taxes in Nigeria.
The employer is in Nigeria or has a fixed base in Nigeria.
The concept of residence is critical in determining the relevant tax authority to assess and collect taxes.
Under the PIT Act, a person’s place of residence is defined as a place available for their domestic use in Nigeria on a relevant day. This excludes hotel, rest house or other places at which they are temporarily lodging unless no more permanent place is available for their use on that day.
Once a place of residence is determined, the relevant tax authority is the tax authority of the territory in which the taxpayer has their place of residence or principal place of residence, as the case may be. For example; if an employee resides in Oyo State but works in Lagos State, the relevant State Internal Revenue Service (SIRS) will be the Oyo State Internal Revenue Service (OIRS).
Types of PIT
Pay-As-You-Earn (PAYE) i.e. taxes from employment
PAYE is an acronym for “Pay as You Earn”. It is a method of collecting personal income tax from employees’ salaries and wages through deduction at source by an employer as provided by the relevant sections of the Personal Income Tax Act (PITA). (S.81 of Personal Income Tax Act Cap P8 LFN 2011).
TAXES FROM SELF EMPLOYED PERSONS (DIRECT ASSESSMENT)
Direct Assessment is an assessment raised directly on self-employed persons (eg. Professionals, Contractors, Traders, Landlords etc).
The self-employed person will without notice or demand, file a return of income earned in the preceding year.
Capital Gains Tax (INDIVIDUALS ONLY)
It is a tax on the profit made from the sale or exchange of capital assets like land shares, machinery.
STAMP DUTY TAX
This is a tax imposed on legal instruments/documents executed by individuals, this tax is usually placed on the transfer of homes, buildings, copyrights, land, patents and securities
The Act has expanded the definition of instruments for stamp duty to cover electronic transactions to give legal backing to the Central Bank of Nigeria’s ₦50 (Fifty Naira) stamp duty drive. There’s also been an increase in the chargeable amount of Stamp duty charge from ₦1,000 (One Thousand Naira) to ₦10,000 (Ten Thousand Naira) and above; this would reduce the challenges faced by small business owners who have recently transferred the ₦50 (Fifty Naira) as an additional cost to their customers and clients.
The Stamp Duties Act (SDA) now defines ‘instrument’ to include “every written document including electronic documents”.
BUSINESS PREMISES LEVY
It is a tax on property used for the production of income including rental houses, office buildings, factories etc. Business premises amounts to ₦10,000 for registration and then ₦5,000 for renewal in subsequent years for urban areas and ₦2,000 / ₦1,000 respectively in rural areas.
HOTEL OCCUPANCY AND RESTAURANT CONSUMPTION TAX
It is a tax imposed on goods and services consumed in hotels, bars, restaurants and event centres within Lagos State. This tax is payable by the consumers who purchase these goods and services. The hotels, bars, restaurants and event centres serve as collecting agents for LIRS.
TAX IDENTIFICATION NUMBER (TIN)
The Finance Act mandates every company to have a Tax Identification Number (TIN), which shall be displayed by the company on all business transactions with other companies and individuals and on every document, statement, returns, audited account and correspondence with revenue authorities, including the Federal Inland Revenue Service, Ministries and all Government Agencies.
Also, all new companies and businesses are now required to provide their Tax Identification Number (TIN) as a pre-condition for opening a bank account or, in the case of an existing account, the TIN shall be provided to the bank for the continued operation of their bank accounts.
Nigeria Social Insurance Trust Fund (NSITF) – Employee Compensation Scheme
The Federal Government of Nigeria in a bid to help employees live a good and decent life after their employment service with a public or private company made it mandatory for all employers to register with the Nigeria Social Insurance Trust Fund (NSITF).
This is to establish and maintain a solvent compensation fund managed in the interest of employees and employers in Nigeria.
The NSITF manages all social security insurance schemes in Nigeria other than pension. NSITF Registration coverage applies to every person who is employed by a company incorporated (or deemed to be incorporated) under the Companies and Allied Matters Act (CAMA); is employed by a partnership irrespective of the number of persons employed by the company or partnership; or in any other case, where the number of persons employed is not less than five.
The Act provides a form of social security for workers who become incapacitated in the course of employment or their dependents in the event of death. The act applies to all employers and employees in the public and private sectors in the Federal Republic of Nigeria. Every employer is required to make a minimum monthly contribution of 1% of the total monthly payroll into the employee compensation fund.
Resident Permit and VISA (Non-Nigerians)
The Nigerian law requires non-Nigerians who wish to enter Nigeria and or reside in Nigeria to comply with the regulations made under the Nigerian Immigration Act.
The residence permit in Nigeria is officially known as Combined Expatriate Residence Permit and Aliens Card (CERPAC).
It is important to note that regulations 11 of the 2017 Immigration Regulations exempt member states of the Economic Community of West African States (ECOWAS) from obtaining CERPAC provided that such citizen shall register with the service as nationals of ECOWAS.
Generally, foreign nationals must obtain a visa before entering Nigeria for work. The type of visa required will depend on the purpose of the individual’s entry into Nigeria.
Such visa types include:
Business Visa / Entry Permit
Businessmen and investors coming to Nigeria for business discussions. It is obtainable from Nigerian Missions abroad.
Subject to Regularization Visa
Expatriates employed by individuals, corporate bodies or governments (i.e. to take up employment in Nigeria)
Temporary Work Permit (TWP) Visa
Experts invited by corporate bodies to provide specialized skilled services, such as after-sales installation, maintenance, repairs of machines & equipment.
The issuance of a TWP visa is subject to obtaining prior approval of the Comptroller General of the Nigeria Immigration Service.
The Citizenship and Business Department
The Citizenship and Business Department has responsibility for administering and enforcing the provisions of the Immigration Act, 1963; as it relates to the establishment of business in Nigeria and the employment of expatriates. In other words, the department is entrusted principally with the following responsibilities;
Issuance of Business Permit and Expatriate Quota positions
Monitoring the execution of the quota positions granted to ensure effective transfer of technology to Nigerians and eventual indigenization of the positions occupied by the Expatriates
GENERAL RULES APPLICABLE TO ALL COMPANIES
Every enterprise, desirous of obtaining a business permit and expatriate quota, is to submit an application to that effect to the Federal Ministry of Internal Affairs on Form T/1 designed for that purpose.
Companies are, however, to note that emphasis would be placed on the employment of Nigerians to understudy the foreign experts to train them, to enable the understudies to acquire relevant skills for the eventual take-over of the expatriate quota positions. Renewal of quotas granted will not be automatic but considered on merit based on submission of the required documents.
The application of expatriate quota is granted by the Minister of Interior Affairs to foreign or indigenous companies to enable foreign employees, directors or owners of businesses work in Nigeria.
The expatriate quota is of two types namely;
Temporary expatriate quota
Permanent until Reviewed
Special Control Unit against Money Laundering Registration (SCUML) Registration
SCUML is the body charged with the responsibility of monitoring, supervising and regulating the activities of Designated Non-Financial Institutions (DNFIs) and professions in Nigeria in line with the Money Laundering (Prohibition) Act ML(P) Act 2011 and the Prevention of Terrorism Act (PTA) 2011.
The Act defines Designated Non-Financial Institutions(DNFIs) as dealers in jewellery, cars and luxury goods, Precious stones and metals, Real estate, Estate developers, Estate Surveyors and Valuers, Estate Agents, Chartered Accountants, Audit firms, Tax consultants, clearing and settlement companies, hotels, casinos, supermarkets, Dealers in Merchandised Farming equipment and machinery, Practitioners of Mechanized farming, Non-Governmental Organizations (NGOs) or such other businesses as the Federal Ministry of Trade and Investment or appropriate regulatory authorities may from time to time designate.
Industrial Training Levy (ITF)
The Industrial Training Fund (ITF) was set up to regulate standards and offer direct training intervention in industrial and commercial skills training and development, using a corps of highly competent professional staff, modern techniques and technology.
Employers having 5 or more employees or less than 5 employees but with an annual turnover of at least Fifty million naira are eligible to contribute a levy of 1% of the annual payroll of the employer to the industrial training fund.
There is an obligation to have a training programme for employees, of which 50% of the training costs paid by the employer is refunded on application.
Standards Organisation of Nigeria (SON)
The Standards Organisation of Nigeria (SON) is the apex standardization body in Nigeria. The aim of the body is the; preparation of the standards relating to products, measurements, materials, certification of industrial products and assistance in the production of quality goods. A business into manufacturing and importation of goods should endeavour to register its products with the standards organization of Nigeria.
The objective is to keep improving the lives of Nigerians through quality standardization and quality assurance.
If you as a foreigner is considering starting a business into manufacturing and importation of unassembled goods, you should seek to register your products with them.
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National Agency for Food and Drug Administration and Control (NAFDAC)
NAFDAC is the agency authorized to regulate and control the manufacture, exportation, importation, advertisement, sale, distribution and use of drugs, cosmetics, packaged water, packaged foods and snacks and chemicals (collectively known as regulated products) in Nigeria. It is important for an entrepreneur that is into either the manufacture, exportation or importation of any of the regulated products to register with the National Agency for Food and Drug Administration and Control.
As a prospective foreign business owner in Nigeria who wishes to deal in any of the regulated goods, having a NAFDAC number not only shows that your product is compliant, it also gives credibility to it.
National Pension Commission (PenCom) – Contributory Pension Scheme
The National Pension Commission (PenCom) is the body set up to regulate, supervise and ensure the effective administration of pension matters in Nigeria. The minimum contribution for the employer is ten per cent (10%) of the monthly emolument while the minimum contribution for the employee e is eight per cent (8%). The rates are applied to the monthly emoluments.
Employers who choose to bear the full pension cost of their employees will be required to contribute a minimum of eighteen per cent (18%) to the scheme.
Employers and employees are allowed to increase their pension contributions beyond the minimum rates prescribed under this Law.
All employers are required to maintain a Group Life Insurance Policy in favour of each employee for a minimum of three (3) times the annual total emolument.
The PRA 2014 does not make specific provisions on the requirements for foreigners to participate in the Nigerian pension scheme. However, guidance from the National Pension Commission indicates that foreigners may at their sole discretion join the Nigerian Pension Scheme, without considering whether they have an existing pension arrangement in their home country.
National Oil Spill Detection and Response Agency (NOSDRA)
NOSDRA was established as an institutional framework to coordinate the implementation of the National Oil Spill Contingency Plan (NOSCP) for Nigeria under the International Convention on Oil Pollution Preparedness, Response and Cooperation (OPRC 90) to which Nigeria is a signatory.
According to the NOSDRA establishment Act, the agency shall
- Be responsible for surveillance and ensure compliance with all existing environmental legislation and the detection of oil spills in the petroleum sector
- Receive reports of oil spillages and co-ordinate oil spill response activities throughout Nigeria
- Coordinate the implementation of the Plan as may be formulated, from time to time, by the Federal Government
- Coordinate the implementation of the Plan for the removal of hazardous substances as may be issued by the Federal Government
- Perform such other functions as may be required to achieve the aims and objectives of the Agency under this Act or any plan as may be formulated by the Federal Government according to this Act
- Undertake surveillance, reporting, alerting and other response activities as they relate to oil spillage
The Nigerian Mining Cadastre Office (NMCO)
The Nigeria Mining Cadastre Office is empowered by the Nigerian Minerals and Mining Act, 2007 to perform the following functions:
- Receive, consider and dispose of applications for mineral titles and permits as well as applications for the transfer, renewal, modification, and relinquishment of mineral titles or extension of areas;
- Grant, issue, suspend and (with the approval of the Minister) revoke mineral titles;
- Maintain a chronological record of all applications for mineral titles in a Priority Register and General Register and maintain the cadastral registers;
- Create and maintain a database of all mineral titles and applications; and
- Create and maintain a cartographic database of all mineral titles and applications in both paper and electronic formats (the cadastral maps).
This reconnaissance permit enables the holder to carry out reconnaissance for minerals on a non-exclusive basis. The holder is not to engage in drilling, excavation or other sub-surface techniques and must conduct activities in an environmentally and socially responsible manner and compensate for any damage to crops and property in the course of prospecting. The permit is issued for one year and it is not transferable, but renewable annually
A license will not be granted over any land that is subject of an existing Exploration License, Mining Lease, Small Scale Mining Lease, Quarry Lease or closed to prospecting/mining activity (E.g Forest reserves, military areas, government dev areas, national heritage area etc). The area of land covered by an Exploration License shall not exceed 200Km sqr (1000 CUs)
Application duration: 30 days on the reception of a valid application
License duration: 3 years renewable for a further 2 terms of two(2) years each, provided that the titleholder has complied with minimum work commitment/programme and all the other legal requirements.
The MCO on receipt of a valid application, shall grant and issue a Mining Lease within 45 days of the application. The lease area shall be determined in relation to the ore body as defined in the feasibility study, in addition to an area reasonably required for the working of the deposit, not exceeding 50Km sqr (250 CUs.)
Application duration: 45days on the reception of a valid application
Lease Duration: 25 years, renewable every 24 years, provided that holder has complied with the minimum work programme and all other legal and regulatory requirements.
The lease enables the holder to perform quarrying activities. The area of land shall not exceed 5Km sqr (25 Cus)
Application duration: 45 days on the reception of a valid application
Lease Duration: 5 years and renewable every 5 years, provided that holder has complied with the minimum work programme and all other legal and regulatory requirements.
DEPARTMENT OF PETROLEUM RESOURCES (DPR)
DPR has the statutory responsibility of ensuring compliance to petroleum laws, regulations and guidelines in the Oil and Gas Industry. The discharge of these responsibilities involves monitoring of operations at drilling sites, producing wells, production platforms and flow stations, crude oil export terminals, refineries, storage depots, pump stations, retail outlets, any other locations where petroleum is either stored or sold and all pipelines carrying crude oil, natural gas and petroleum products, while carrying out the following functions, among others:
Supervising all Petroleum Industry operations being carried out under licences and leases in the country.
Monitoring the Petroleum Industry operations to ensure that it is in line with national goals and aspirations including those relating to Flare down and Domestic Gas Supply Obligations.
Ensuring that Health Safety& Environment regulations conform with national and international best oil field practice.
Maintaining records on petroleum industry operations, particularly on matters relating to petroleum reserves, production/exports, licences and leases.
Advising Government and relevant Government agencies on technical matters and public policies that may have an impact on the administration and petroleum activities.
Processing industry applications for leases, licences and permits.
Ensure timely and accurate payments of Rents, Royalties and other revenues due to the government.
Maintain and administer the National Data Repository (NDR).
DPR Permit is the license required to operate a company or facility that has to do with the Oil and Gas industry in Nigeria. Application for this permit is usually submitted to the Department of Petroleum Resources (DPR) giving details of the proposals and any information that may be relevant to the project.
Succinctly put, the DPR is the sole body responsible to formulate Regulations and Guidelines for Oil and Gas Industry activities in Nigeria.
Generally speaking, there are three categories of DPR permits that can be granted in Nigeria:
The General Purpose: This category covers Minor Supplies, Works and Maintenance services and do not require specialized or certified competencies. Applicants are expected to choose not more than one (1) service/job from the three (3) classifications. Not more than two services could be chosen under the Works classification.
There are job groups under this category. They are as follows:
WORKS (Artisans): This includes Minor Welding, Minor plumbing, Minor Painting, and Photographic.
MAINTENANCE (Artisans): This includes Minor Civil, Minor Mechanical and Minor Electrical.
SUPPLY: This includes Minor Civil Maintenance Materials, Minor Mechanical Maintenance Materials, Minor Electrical Maintenance Materials, Plumbing Materials, Minor Computer Accessories/Consumables, Welding Materials, Minor Catering Services (Provision of Snacks and Beverages for Meetings, etc.)
Others as may be determined by the Director of Petroleum Resources.
Major Category: Under the Major Category applicants are required to possess relevant and verifiable technical/special skills. There are many job groups in this category. Some of them are Consultancy, Aviation support, laboratory, Protocol and Logistics and so on.
Specialized Category: Under the Specialized Category, applicants are required to possess relevant and verifiable technical/special skills with different job categories like Offshore Pipeline laying and construction, Onshore Pipeline laying and construction and many others
CENTRAL BANK OF NIGERIA (CBN) – Licence for the financial sector
Application for the grant of a licence to carry on the business of banking in Nigeria should be addressed to the Director of Banking Supervision Department, Central Bank of Nigeria, P.M.B 0187, Garki, Abuja and submitted with the following documents:
- Non-refundable application fee of ₦500,000.00.
- Deposit of minimum capital of ₦25,000,000,000.00 with Central Bank of Nigeria on application with evidence of deposit by each shareholder. The source of capital contribution by each shareholder/ subscriber would subsequently be verified by Bank Examiners.
- Feasibility report/business plan. The feasibility report/business plan should contain information on the following:
- Minimum paid-up capital requirement of ₦25 billion for a new banking licence
- Ownership structure in a columnar format showing the name of proposed investor(s), profession/business and percentage shareholding. Detailed bio-data/resume of shareholders should be attached: S Fitness and properness of the promoters would be ascertained through security screening and status enquiry from SEC, NDIC, NAICOM, Credit Bureau (CRMS) and reference to CBN’s black book maintained by the Bankers Committee. Explanation of the sources of capital contribution by each investor. Where equity is financed by a loan, such loans must be 2 long terms (at least of 5-year tenor) and must not be taken from the banking system.
- Undertaking by promoters that the bank will be adequately capitalized for the volume and character of its business at all times.
Foreign investors should not be companies incorporated in off-shore centres or tax havens such as Gibraltar, The Cayman Islands, etc
PETROLEUM PROFIT TAX (PPT)
Companies engaged in petroleum operations and guided by the provisions of PETROLEUM PROFIT TAX ACT (PPTA) are expected to file two sets of returns:
- ESTIMATED TAX RETURNS: This return is expected to be filed not later than two months after the commencement of each accounting period i.e. at least every February of each year. The return contains estimated or projected barrels of oil multiplied by the projected price per barrel approved by the Federal Government (reference price).
A revised estimated return may be filed at any time during an accounting period if there is a change of at least 5% of oil from the initially estimated returns.
- ACTUAL FINAL TAX RETURNS: The final return is based on the Audited Financial Statement of the petroleum company within five months from the end of the accounting period which is the tax year. This means that the return must be filed on or before the 31st of May of the following year.
PAYMENT OF PETROLEUM PROFIT TAX
The estimated tax liability for an accounting year is payable in twelve equal monthly instalments, and final instalment. The first instalment is due and payable not later than the third month (March) of the accounting year. Subsequent instalments are to be paid not later than the last day of each month.
The actual tax liability based on the audited accounts is compared with the estimated tax.
If the actual tax is higher than the estimated tax, the balance shall be paid as the final instalment when the tax return is filed. Where the actual tax is lower than the estimated tax, the overpayment (tax credit) is carried forward to offset the tax liability of the subsequent years.
The content of this article is intended to provide a general guide to the subject matter.
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