Taxes are statutory obligations of every citizen and businesses in a
\ncountry. It is thus a major factor in determining how much income you
\nkeep to yourself either as a business or as an individual.<\/p>\n
For example, a man who pays tax of N1000 on a profit of N1,500 fares
\nworse than a man who pays tax of N500 on the same profit of N1,500. How
\nthen is this possible you may ask?<\/p>\n
The Nigerian tax law provides several means by which one can avoid
\npaying tax or at least reduce paying excessively. This is not to be
\nconfused with tax evasion, which is considered illegal in Nigeria. Tax
\nEvasion refers to a deliberate act on the part of a tax payer not to pay
\n tax.<\/p>\n
However, tax avoidance is a legitimate way of avoiding tax by
\nexploiting loopholes and provisions in the tax code that allow you to
\nreduce the amount of tax that you pay on your income.<\/p>\n
Without much ado, let us look at various forms of loopholes and provisions one can use to avoid tax.<\/p>\n
It is quite often that companies donate money to certain If your business owns assets such as equipments that it uses for its In the Capital Gains Tax Act, any profit on disposal of an asset With this law, you do not need to pay this N80k immediately provided Value Added Tax is paid on certain goods and services as mandated by Consequently, if you sell the furniture for N15m you will charge your Companies Registered as Limited by Guarantee are exempted from paying If you want to run an organisation that pays no tax, then consider setting up first as an NGO.<\/p>\n Companies periodically buy assets which they employ to use in the However, how this cost is calculated differ from one business to A capital allowance can only be issued to you if you have a Need help obtaining your WHT? Send us an email info@nairametrics.com<\/em><\/p>\n Withholding tax (WHT) is one of the most popular form of taxation in WHT on supplies and services are considered and advance payment on This is because the N1m is seen as an advance payment of your tax and Need help obtaining your WHT? Send us an email info@nairametrics.com<\/em><\/p>\n By law, all employees are mandated to contribute 8% of their Basic, The Nigerian Government as a matter of policy usually have certain Some businesses especially in the oil and gas sectors typically Foreign Investors who bring in foreign exchange into Nigeria must People who are into real estate constructions are usually considered
\norganizations and NGO’s. This is considered a good cause and a sign of
\ncorporate responsibility. However, ONLY donations to certain
\norganizations are allowed to be excluded from taxable profits. Some of
\nthem are The Boys Brigade, Boys Scout, Christian Council of
\nNigeria, Girls Guide, Any Educational Institution recognized by the law,
\n Islamic Education trust, ICAN, Nigerian Red cross etc.<\/em> <\/strong>There are about 41 of them as such it is important that you know them. Donations to political parties do not qualify.<\/p>\nWhen you sell an asset, reinvest it into the same class of asset<\/strong><\/h4>\n
\ndaily operations, it is possible that you may wish to sell them once the
\n assets are no longer useful to the business.<\/p>\n
\nattracts a charge of 10%. However, if the proceeds of the asset sale is
\nutilized to acquire another asset within the same class of asset, the
\ntax payable can be deferred for as long as the new asset is in used. So,
\n assuming you buy a Generator for N2m and decide to sell it a 2 years
\nlater for N1m. And it cost you another N200k as selling expenses for the
\n generator, you will be liable to a 10% capital gains tax on N800k which
\n comes to N80k.<\/p>\n
\nyou spent the N1m or part of it on acquiring a new generator. However,
\nthe generator must be acquired 12 months before you made the sale or not
\n more than 12 months after. Please not that if you use the money to buy a
\n car (even if it is for your business) it will not apply.<\/p>\nDeduct Vat that you pay on your purchases from vat that you receive on your supplies<\/strong><\/h4>\n
\nlaw. However, for companies who are into selling goods and services, you
\n are allowed to deduct the vat that people charge you for your
\npurchases. For example, if you are into supplies of furniture and it
\ncost you N10m to acquire materials that you need to produce the
\nfurniture it is likely that you will be charged an extra 5% of the N10m
\n(N500k) as Vat.<\/p>\n
\n supplier N750 vat. When you are remitting to the government you should
\ndeduct N500k that you paid from the N750k that you collected giving you a
\n net remittance of N250k only. Most people end up paying the N750k
\ndenying themselves the opportunity of retrieving their cost. Your
\nbusiness surely does not need this generosity.<\/p>\nRegister an NGO (Non Governmental Organisation) or a Trust<\/strong><\/h4>\n
\n tax in Nigeria. Churches, Mosques etc fall under this category. In
\naddition organisations that are into charitable causes also fall under
\nthis category. Whilst they do not pay taxes, they are not expected to
\npay dividends to their owners. Also note that transactions made by them
\nthat results in a profit can equally be taxed. For example, if they
\ninvest in shares and get dividends, they will be taxed 10% withholding
\ntax.<\/p>\nApply for Capital Allowance Certificate<\/strong><\/h4>\n
\nordinary course of business. The Assets go through wear and tear and
\nneeds to be replaced over time. The wear and tear is a cost the company
\nmust bear and as such is written off (expensed) just as you write off
\nother cost such as transport, electricity, water bills etc.<\/p>\n
\nanother and for that reason the tax man does not deduct this cost from
\nyour profits before taxing. In its place, is capital allowance<\/a>
\n which is the tax authority’s way of writing off the cost of wear and
\ntear. To therefore ensure that you enjoy capital allowance, which helps
\nreduce income tax liability, you must obtain a certificate from the
\nMinistry of Industry.<\/p>\n
\nCertificate of Acceptance, which is obtained through the Ministry of
\nTrade. There are consultants who can help you obtain this.<\/p>\nMake sure you collect your withholding tax receipts<\/strong><\/h4>\n
\nNigeria. It is paid on contract for supplies, services, director fees,
\ndividends, interest, etc. Whilst withholding tax on director fees and
\ndividends is a final tax, Withholding taxes on contracts of supplies and
\n services is not.<\/p>\n
\ntax and should be deducted from your income tax. For example, during the
\n year a total of N1m has been deducted from your invoices by your
\nclients as withholding tax. In that same year, your tax liabilities have
\n been calculated as N5m. Before you pay the tax liability of N5m you
\nMUST deduct the N1m that had been deducted from your invoices during the
\n year.<\/p>\n
\n it is kept as credit for you. But to enjoy this credit you must obtain a
\n WHT Credit Note <\/a>from
\n your client. Your client having deducted the money from your invoice
\nMUST provide you with that credit note (after remitting the deduction on
\n your behalf to the FIRS) before you can deduct the N1m.<\/p>\nIncrease the amount you pay as pension<\/strong><\/h4>\n
\nTransport and Housing Allowance as pension. That amount when paid as
\npension is tax deductible (should be deducted from your income before
\ncharging you tax). Since pensions are a form of savings for you,
\nanything else you add to your pensions gets deducted from your tax as
\nwell. For example, if you increase from 8% to 15% the entire 15% will be
\n deducted. There is also this Voluntary Withdrawal loophole<\/a> which was previously being exploited by pension fund contributors. It has since been plugged by some tax authorities.<\/p>\nInvest in industries that the government is promoting with tax incentives<\/strong><\/h4>\n
\nsectors of the economy which they want people to invest in. To get
\npeople to invest in these sectors government usually gives certain
\nincentives. One of such incentive is a Pioneer Status<\/a>. If a company is given pioneer status then they are exempted<\/a>
\n from paying income tax for a minimum period of 3years and a maximum of 5
\n years. So they enjoy free tax status you may have to invest in pioneer industries<\/a>. Dividends paid out of profits during the pioneer period is also exempted from taxes.<\/p>\nWhen you borrow money from foreign financial institutions make sure you obtain a certificate of capital importation<\/strong><\/h4>\n
\nrequire foreign lines of credit to help supply fund their imports. In
\nNigeria. Whist this is not necessarily tax, it is important because when
\n you pay back the loans in forex you are entitled to access the funds
\nfrom the CBN at the official rate. That is huge savings when you
\nconsider the disparity between the official CBN rates and the black
\nmarket rates.<\/p>\nIf you are a foreign investor bringing in forex<\/strong><\/h4>\n
\napply for a Certificate of Capital Importation from the bank within
\n24hours of transferring the funds. With the CCI the foreign company can
\nlegally repatriate funds such as dividends, profit etc<\/p>\nDecide whether real estates are held as inventory or just as assets.<\/strong><\/h4>\n
\nas selling the assets in the ordinary course of business. As such their
\nreal estate properties are seen as inventory and not as assets. For
\nexample, sale of apartments are considered inventories according to the
\nNigerian Standard Board. As such you will not pay capital gains tax but
\nincome tax of 30%. So, you investing in a real estate you must decide
\nhow you want the assets classified.<\/p>\nIf you own a hotel<\/strong><\/h4>\n