How To File Taxes as A SME

How To File Taxes as A SME

November 30, 2020

As a business owner in Nigeria, it is compulsory to pay taxes and to track this, every business should have a Tax Identification Number (TIN).

What is a Tax Identification Number?

The Tax Identification Number (TIN) is a unique number that identifies a specific individual (or business) for the purposes of paying taxes. As tax payment is mandatory for all individuals and businesses, everyone needs to have a unique TIN.

How Can I Get a Tax Identification Number?

For new business owners, after registering your business you are supposed to be assigned your Tax Identification Number (TIN).

In July 2020, the Corporate Affairs Commission (CAC) announced that upon successful registration of companies under Part A, a TIN would be automatically assigned to the company. However, the notification by the CAC does not cover older business organisations, therefore they will still have to register with the FIRS directly. Obtaining your Tax Identification Number is free. 

If you registered your business between July and now and do not have your TIN, you can email helpdesk@firs.gov.ng or registered businesses that have not obtained or have forgotten their TIN, you can visit http://apps.firs.gov.ng/tinverification and type in your RC Number / BN Number to ascertain your TIN. After filling in these details, your corresponding business name and the assigned TIN and Tax office will be displayed. 

After getting your TIN, the next step is to register to file and remit Value Added Tax, (VAT) and Withholding Tax (WHT) at the nearest FIRS office. 

What is Value Added Tax?

Value Added Tax (VAT) is a tax imposed on the supply of goods and services. Under Nigerian law, the tax is charged at 7.5% of the value of the taxable goods and services.

According to the Federal Inland Revenue Service (FIRS), all taxable persons are required to file VAT monthly returns not later than the 21st day following the month of transaction. Failure to file results in a penalty of N50,000 for the first month, and N25,000 for each subsequent month.

However, certain goods and services are exempted from filing VAT, they include:

All medical and pharmaceutical products, basic food items, books and educational materials, baby products, fertilizer, locally produced agricultural and veterinary medicine, farming machinery and farming transportation equipment, all exports Plant and machinery imported for use in Export Processing zone or free trade zone Plant, machinery and equipment purchased for utilization of gas in downstream petroleum operations, tractors and ploughs and agricultural equipment and implements purchased for agricultural purpose, medical services, services rendered by community banks, people’s bank and mortgage institutions, plays and performances conducted by educational institutions as part of learning.

What is Withholding Tax?

A Withholding Tax (WHT) is an advance and indirect source of taxation deducted at source from the invoices of the taxpayer. Its main purpose is to capture as many taxpayers that may have evaded tax into the tax net. Withholding tax rates are usually 10% or 5% depending on the type of transaction and collecting authority for the tax.

According to the Federal Inland Revenue Service (FIRS), all taxable persons are required to file WHT monthly returns not later than the 21st day following the month of transaction. Failure to file results in a penalty of N25,000 for the first month, and N5,000 for each subsequent month.

The VAT and WHT tax forms can be downloaded online from the FIRS website.

The next tax you need to be aware of as a new business owner is the Company Income Tax (CIT). 

What is Company Income Tax (CIT)?

The CIT is a tax imposed on profit of a company from all sources. The rate of this tax is 30% of total profit of a company annually. Some profits are exempted from CIT provided they are not derived from trade or business activities carried out by the company e.g. Cooperative society. 

According to the Federal Inland Revenue Service (FIRS), you have to file your Company Income Tax, (CIT) returns not later than six months at the end of the year. That is, by June 30th, if 31st December is your Accounting Year End; or 18 months after your registration, whichever comes first. 

The CIT form can also be downloaded online from the FIRS website.

After all these taxes have been filed, you can then go ahead to get your Tax Clearance Certificate(TCC). 

What is a Tax Clearance Form (TCC)?

The TCC also known as Tax Form Z, is an official document issued by the relevant tax authority to a taxpayer, certifying that, the tax assessed on the income from all sources of the taxpayer for the three years immediately preceding the current year of assessment has been fully paid.

To obtain your Tax Clearance Certificate (TCC) online, you can visit the FIRS website. You could also apply for your TCC at the office where you file your returns.

The regulatory body involved in taxation in Nigeria is the Federal Inland Revenue Service(FIRS). Each state in the country also have their independent inland revenue services that also have some of these taxes being filed to them. 

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