Companies in Nigeria are statutorily required to pay 30% of their taxable profit as company income tax. However, before that tax is paid the tax authority provides steps that must be followed before the tax is computed. The steps include adding back to profits expenses that are not admissible as deductions and deducts expenses that are admissible for deductions. Deductions made before computing taxable profit are those expenses (allowable expenses) that the tax authority allows as admissible for deductions from your profit. Allowable expenses help reduce the amount of tax you pay and as such it is very important to take advantage of them. This is a list of allowable expenses;

Allowable Expenses

  • Expenses that are wholly, reasonably, exclusively and necessarily incurred for the purpose of the business
  • Interest on loan for the purpose of trade or business
  • Rent of accommodation of employees provided it does not exceed the basic salaries of the employee
  • Contribution to pension fund approved by the Joint Tax Board
  • Provision of doubtful debts of a specific nature
  • Bad debts written off
  • Legal Expenses limited to General Legal Advisory services, Renewal for short lease, retainer fees, any legal cost incurred in protecting or defending the business.
  • Rent and premium in respect of land and buildings occupied for the purpose of the business
  • Donations that meet the following conditions; 1. It must be made out of profit 2. it must not exceed 10% of chargeable profit 3. it must be made to bodies listed in schedule 5 of the Company Income Tax 4. It must not be capital in nature
  • Director’s fees not exceeding N10,000 per annum for a maximum of 3 directors is also allowable

Disallowable Expenses

  • Depreciation expenses
  • Any contribution to a pension fund not approved by the Joint Tax Board
  • Any provision for doubtful debt of a general nature
  • Capital Expenditures
  • Legal Expenses including; 1) Cost of acquiring a new lease 2) Cost of renewing a long lease 3) Cost of defending a traffic offence 4) cost of defending a tax appeal 5) stamp duties on increase in capital
  • Any withdrawal of capital
  • Income Tax provision
  • Fines and penalties
  • Pre-operational or preliminary expenses
  • Any sum recoverable under an insurance or contract of indemnity
  • Any sum reserved out of profit

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