{"id":295651,"date":"2023-07-19T16:23:14","date_gmt":"2023-07-19T15:23:14","guid":{"rendered":"https:\/\/nigerianfinder.com\/?p=295651"},"modified":"2023-07-19T16:23:14","modified_gmt":"2023-07-19T15:23:14","slug":"how-to-calculate-companies-minimum-tax-in-nigeria","status":"publish","type":"post","link":"https:\/\/nigerianfinder.com\/how-to-calculate-companies-minimum-tax-in-nigeria\/","title":{"rendered":"How to Calculate Companies Minimum Tax in Nigeria\u00a0"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">With amendments made to the rule of minimum tax in recent years, many Nigerians are eager to know what has changed, including how to calculate companies&#8217; minimum tax in Nigeria. In this article, we&#8217;ll be explaining what minimum tax in Nigeria entails, and provide details on what has changed, including how companies in Nigeria calculate minimum tax. <\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-295652\" src=\"https:\/\/nigerianfinder.com\/wp-content\/uploads\/2023\/07\/How-to-Calculate-Companies-Minimum-Tax-in-Nigeria-.jpg\" alt=\"How to Calculate Companies Minimum Tax in Nigeria\u00a0\" width=\"601\" height=\"419\" srcset=\"https:\/\/nigerianfinder.com\/wp-content\/uploads\/2023\/07\/How-to-Calculate-Companies-Minimum-Tax-in-Nigeria-.jpg 601w, https:\/\/nigerianfinder.com\/wp-content\/uploads\/2023\/07\/How-to-Calculate-Companies-Minimum-Tax-in-Nigeria--574x400.jpg 574w\" sizes=\"(max-width: 601px) 100vw, 601px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Read on.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">How to calculate companies&#8217; minimum tax in Nigeria would be discussed below:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h2><span style=\"font-weight: 400;\">What is the Minimum Tax in Nigeria?<\/span><\/h2>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In Nigeria, the rule of minimum tax applies to a taxable person, be it an individual or a\u00a0<\/span><span style=\"font-weight: 400;\">company, who has no tax payable, or an accessible loss, or the tax calculated is lower than the minimum tax. Therefore, minimum tax can be viewed as the guaranteed sum a taxable person pays to the Federal Inland Revenue Service (FIRS) in a year.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For individuals, Section 37 of the Personal Income Tax Amendment Act <\/span><span style=\"font-weight: 400;\">2011, as amended, is the principal legislation guiding minimum tax in Nigeria, while for companies, Section 33 of the Companies<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Income Tax Act 2004 as amended (CITA) is the applicable legislation. But for this article, we&#8217;d be focusing on companies&#8217; minimum tax in Nigeria.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h2><span style=\"font-weight: 400;\">What is the Rate of Companies&#8217; Minimum\u00a0<\/span><\/h2>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The general rule of companies&#8217; minimum tax is that it is computed at 0.5% of a company\u2019s annual gross turnover less <\/span><span style=\"font-weight: 400;\">franked investment income. More so, companies in Nigeria can enjoy a reduced minimum tax rate of 0.25%, for any tax returns filed for any\u00a0<\/span><span style=\"font-weight: 400;\">2 consecutive accounting periods between 1 January 2019 to 31 December 2021 as may be <\/span><span style=\"font-weight: 400;\">chosen by the taxpayer. However, this only applies when relevant returns are <\/span><span style=\"font-weight: 400;\">filed before the filing due dates.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">N\/B:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">\u00a0\u201cGross turnover\u201d means the gross inflow of economic benefits during the period arising in the course of the operating activities of an entity. This also includes sales of goods, supply of services, receipt of interest, rent, royalties, or dividends.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Insurance companies in Nigeria will pay minimum tax when the Company has tax payable which is\u00a0<\/span><span style=\"font-weight: 400;\">less than the minimum tax computed at:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">0.5% of gross premium and other income for non-life insurance business<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">0.5% of gross income for life insurance business<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">N\/B:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">\u201cGross Premium\u201d means the total premiums written, received, and receivable, excluding unearned and <\/span>returned premiums.<\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">\u201cGross Income\u201d means the total income earned by a life insurance business including investment income, fees commission, and other incomes, and excluding franked investment income, premiums received, and claims paid by re-insurers.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The companies minimum tax rule in Nigeria also applies to non-resident shipping and airline companies <\/span><span style=\"font-weight: 400;\">that carry out international shipping and airline operations\u00a0<\/span><span style=\"font-weight: 400;\">in Nigeria. This minimum tax is computed at 2% of revenue from outbound freight activities and is\u00a0 <\/span><span style=\"font-weight: 400;\">usually paid in the form of withholding tax before repatriating the income in foreign currency<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">What Companies are Exempted from Paying Minimum Tax in Nigeria?\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">As with several taxes, there are provisions for exemptions. In the case of minimum tax, the companies exempt according to the provisions of Section 14(b) of the Finance Act 2019 are as follows:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">a company within its first four calendar years of business<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">a company that has an annual gross turnover of less than N25 million in the relevant year of assessment\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">a company that carries on primary agricultural trade or business.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h2><span style=\"font-weight: 400;\">What Amendments Were Made to Companies&#8217; Income Tax in Nigeria?\u00a0<\/span><\/h2>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">As stated in the introductory paragraph of this piece, there have been amendments to the rule of the companies&#8217; minimum tax in recent years.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Before 13 January 2020, the rate was;<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">(a) For turnover of NGN500,000 or below and the company has been operating for four calendar years or more, the minimum tax amount is the higher of:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">\u00a00.5% of gross profit; or<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">0.5% of net assets; or<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">0.25% of paid-up capital; or<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">0.25% of the turnover of the company<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">(b) For turnover above NGN500,000, the amount payable in (a) plus an additional tax of 0.125% on the revenue less NGN500,000.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In addition, agricultural businesses, companies with<\/span><span style=\"font-weight: 400;\"> at least 25% foreign equity capital, and companies<\/span><span style=\"font-weight: 400;\"> within the first four calendar years\u00a0<\/span><span style=\"font-weight: 400;\">of operations were exempt from MinTax in the <\/span><span style=\"font-weight: 400;\">old provision.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h2><span style=\"font-weight: 400;\">How to Calculate Companies Minimum Tax in Nigeria\u00a0<\/span><\/h2>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Having mentioned the applicable minimum tax rate of different types of corporations in Nigeria, let&#8217;s illustrate how companies&#8217; minimum tax in Nigeria can be calculated.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h2><span style=\"font-weight: 400;\">Illustration 1 on the calculation of companies&#8217; minimum income tax:<\/span><\/h2>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Assuming Imo Holdings, a business in Nigeria with 25% foreign equity, had no tax payable for the assessment year of 2022 but had a total turnover of NGN30 million. What is the minimum tax payable to the FIRS by Imo Holdings if the franked investment income for 2022 was NGN 2.5 million?\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Solution<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The first thing to do is to less the franked investment income from the total turnover to get the taxable turnover. That would be<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 30,000,000 &#8211; 2,500,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 27,500,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Having gotten the figure to be N27,500,000, let&#8217;s calculate the minimum tax for Imo Holdings below:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Remember minimum tax = 0.5% \u00d7 (Total turnover &#8211; franked investment income)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 0.5% \u00d7 27,500,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 0.00 \u00d7 27,500,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 137,500<\/span><\/p>\n<p><span style=\"font-weight: 400;\">N137,500 is the minimum tax Imo Holdings will pay for 2022.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h2><span style=\"font-weight: 400;\">Illustration 2 on the calculation of companies&#8217; minimum tax:<\/span><\/h2>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">What is the minimum tax CUO Insurance Limited, a non-life insurance company, is expected to pay for the 2022 year of assessment if it had no taxable income but recorded NGN23 million in gross premium and other income?\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Solution<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The minimum tax formula for a non-life insurance company is:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 0.5% \u00d7 gross premium and other income<\/span><\/p>\n<p><span style=\"font-weight: 400;\">From the example above, N26 million was the gross premium and other income of CUO Insurance Limited for 2022.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Therefore, the minimum tax is<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 0.5% \u00d7 26,000,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 0.005 \u00d7 26,000,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 130,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">CUO Insurance Limited is required to pay a minimum tax of NGN130,000 for 2022.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h2><span style=\"font-weight: 400;\">Illustration 3 on the calculation of companies&#8217; minimum tax:<\/span><\/h2>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">If the computed Company Income Tax of DAW Insurance Company exceeded the minimum tax for the 2021 year of assessment. What would the company pay to the FIRS if the gross income for 2021 was N400 million?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Solution<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Using the formula of 0.5% of gross income for the life insurance business, below is the computation for the minimum tax of DAW Insurance Company for 2021:\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 0.5% \u00d7 400,000,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 2,000,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">According to the calculation above, DAW Insurance Company will have to pay the sum of NGN2,000,0000 to the FIRS as minimum tax.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>With amendments made to the rule of minimum tax in recent years, many Nigerians are eager to know what has &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"How to Calculate Companies Minimum Tax in Nigeria\u00a0\" class=\"read-more button\" href=\"https:\/\/nigerianfinder.com\/how-to-calculate-companies-minimum-tax-in-nigeria\/#more-295651\" aria-label=\"More on How to Calculate Companies Minimum Tax in Nigeria\u00a0\">Read more<\/a><\/p>\n","protected":false},"author":2534,"featured_media":295652,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3093],"tags":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/nigerianfinder.com\/wp-content\/uploads\/2023\/07\/How-to-Calculate-Companies-Minimum-Tax-in-Nigeria-.jpg","jetpack_shortlink":"https:\/\/wp.me\/p6w1sx-1eUz","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/posts\/295651"}],"collection":[{"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/users\/2534"}],"replies":[{"embeddable":true,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/comments?post=295651"}],"version-history":[{"count":1,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/posts\/295651\/revisions"}],"predecessor-version":[{"id":295653,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/posts\/295651\/revisions\/295653"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/media\/295652"}],"wp:attachment":[{"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/media?parent=295651"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/categories?post=295651"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/tags?post=295651"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}