Understanding Company Income Tax (CIT) and Value Added Tax (VAT) in Nigeria

Navigating the Nigerian tax landscape is crucial for compliance and long-term business success. The two most significant federal taxes for corporate entities are Company Income Tax (CIT) and Value Added Tax (VAT).

This guide simplifies these complex taxes, detailing the rates, filing obligations, and recent updates you need to know.

1. Company Income Tax (CIT) Explained

Company Income Tax (CIT) is a tax levied on the profits of registered companies operating in Nigeria. It is governed by the Companies Income Tax Act (CITA) and administered by the Federal Inland Revenue Service (FIRS).

What is CIT?

CIT is a direct tax on a company’s total profit—minus allowable expenses—for a given accounting period. Nigerian resident companies are taxed on their worldwide income, while non-resident companies are only taxed on income derived from Nigeria.

2024 CIT Rates Based on Turnover

The Nigerian tax system employs a graduated rate structure for CIT, based on a company’s gross turnover (annual revenue):

⚠️ Note on Education Tax (EDT): In addition to CIT, companies are also liable to an Education Tax at a rate of $3\%$ of the assessable profit.

CIT Filing Obligations

• Filing Deadline: CIT returns must be filed with the FIRS within six months of the company’s accounting year-end.
• Documents Required: Audited Financial Statements, Tax Computation, Capital Allowances computation, and Tax Forms.
• Non-Compliance Penalty: Failure to file CIT returns on time attracts significant fines, including $\text{₦}25,000$ for the first month and $\text{₦}5,000$ for each subsequent month of default.

2. Value Added Tax (VAT) Explained

Value Added Tax (VAT) is an indirect consumption tax levied on the supply of goods and services in Nigeria. It is ultimately borne by the final consumer but collected and remitted to the FIRS by the registered business.

What is VAT?

VAT is a tax on the ‘value added’ at each stage of the supply chain. It is governed by the Value Added Tax Act (VATA) and is collected by the Federal Inland Revenue Service (FIRS).

Current VAT Rate and Threshold

VAT Registration Threshold

A business is generally required to register for VAT and remit it if its annual taxable supplies/turnover is $\text{₦}25\text{ million}$ or more in any calendar year. Small businesses below this threshold are exempt from charging VAT but are still required to pay Input VAT on their purchases.

VAT Filing and Payment

• VAT Payable Formula: Net VAT Payable = Output VAT (VAT collected on sales) – Input VAT (VAT paid on purchases).
• Filing Deadline: VAT returns and payment must be remitted monthly, no later than the 21st day of the month following the transaction.
  • Example: VAT collected in September must be remitted by October 21st.
• Non-Compliance Penalty: Failure to file returns attracts a penalty of $\text{₦}50,000$ for the first month and $\text{₦}25,000$ for each subsequent month of default.

3. Key Differences: CIT vs. VAT

Understanding the fundamental difference between these two taxes is critical for proper accounting and compliance: