All You Need to know About Small Business Tax Nigeria
All You Need to know About Small Business Tax Nigeria
Do you own a business in Nigeria? or are you thinking of starting a small business in Nigeria? then this article is for you; it contains all you need to know about small business tax in Nigeria
This article provides you with all you need to know about small business tax in Nigeria. This is an information guide aimed at informing and educating Nigerians on how important it is to understand how taxes work.
The government has executed many policies to help you be more profitable in your business; this expense is known as tax; many small businesses don’t have a good knowledge of how tax works and how it will affect their business bottom line, so knowing this and understanding what your tax responsibility is and how it affects your profitability is critical. This article hopes to provide a simple solution to these problems by listing the different types of taxes that apply to business owners in Nigeria.
Why should my business pay taxes?
In Nigeria, all working people, business people, non-citizens earning money in Nigeria, and companies operating in Nigeria are liable to pay taxes.
Some taxes are paid to the State Government (and controlled by the Federal Inland Revenue Service), some are delivered to the Provincial Government, and some to the Local Government.
For a complete list of the taxes levied on the Government’s State (or category), please refer to the Tax and Levy Act (the authorized list for collection). No. 21 of 1998.
Types of small business taxes in Nigeria
Business taxes are not limited to income tax. Like the general public, businesses have to pay several types of taxes. When initiating your business, you need to know what taxes you should pay.
- Income Tax
All businesses must pay tax on the money they earn. This means that the company must pay tax on the business’s profit. How that tax is paid relies on the type of business. Small businesses (sole proprietors and LLCs with one member) own owners pay taxes on their income tax refunds. Company Income Tax (CIT) is paid only to the federal government. Provincial governments collect income taxes from individuals and non-governmental organizations, while local governments only collect taxes and rates but not income taxes.
- Self-employment Tax
Self-employment tax is a form of tax, especially for self-employed people. Self-employment taxes are paid exclusively to owners and partners based on business income. Because business owners are not workers, there is no charge for these taxes, so the exception is rental tax. LLC owners must also pay their self-employment tax. Company owners who work as employees do not have to settle self-employment tax. - Sales Tax
Sales tax, also known as Value Added Tax (VAT), must be collected by traders in most provinces and paid to the national revenue department. Certain products and services are eligible for sales tax, revenue must be collected and delivered, and reports must be completed regularly. In Nigeria, the average sales tax levied on the purchase price of certain goods and services is 5%. There are two main ways to calculate VAT: an invoice-based method and a withdrawal or account-based method. Using an invoice-based method, sales are tax-deductible, the customer is notified of VAT activity, and businesses can receive VAT credit payable on inputs and services. Invoice based method is the most widely used method.
- Employment Taxes
If you have employees, you as an employer have certain employment tax obligations to pay and forms to complete.
Frequently Asked Questions
How much tax is paid to small businesses in Nigeria?
The Business Tax Rate in Nigeria stands at 30 percent. Source: Federal Inland Revenue Service, Nigeria.
How is business tax calculated in Nigeria?
The minimum tax is calculated as 0.5% of the total income earned by the investment. In non-life insurance companies, the minimum tax is calculated as 0.5% of the total amount payable. The minimum tax is calculated as 0.5% of total income in health insurance companies.
How much does a small business need to pay taxes?
According to Fresh Books, as a single owner or private contractor, anything you earn around $ 400 is considered a small taxable income.
Do SMEs pay taxes in Nigeria?
About 80 percent of Nigeria’s SMEs are tax-free, costing the Treasury billions a year. While some SMEs pay taxes to local, regional, and corporate government agencies, many avoid paying fixed taxes such as business and personal taxes. Our article on all you need to know about small business tax Nigeria covers this here.
How much VAT is paid by a small business?
The average VAT rate is 20 per cent, but some products and services have a lower VAT rate, zero rates, or are fully exempt.
Who are those who are exempt from paying taxes in Nigeria?
Shares, interest, rentals, and foreign exchange earnings brought to Nigeria by government-approved channels are tax-free in Nigeria. If not, income is taxable at the effective CIT rate based on the division of the company (i.e., small, medium, or large) and higher education tax of 2%.
This article is intended to serve as an overview of the elements of a small business tax return in Nigeria and what is required to file this as an SME. The intention here is to understand what a small business tax return will need you as the business owner to provide both in terms of evidence and financial input.
But as you may know, This type of business is quite a complicated one. Small businesses are the backbone of the economy everywhere globally, from Kenya to Germany to Fiji. In Nigeria, too, small businesses play a significant role in employment and the growth of new products and innovations. So the government needs to ensure that the tax rules treat small businesses fairly.
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