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Taxes you should be aware of before starting a business in Nigeria

A key understanding of the tax regime, which operates in your area of operation, is quite important if you want to establish any business.

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Taxes you should be aware of before starting a business in Nigeria

Tax liability is an important aspect of your business and compliance obligations. Therefore, a key understanding of the tax regime, which operates in your area of operation, is quite important.

Taxes in Nigeria are of two categories: federal taxes and state taxes. Federal taxes include Companies Income Tax, Value Added Tax, Education Tax, etc. State taxes, on the other hand, include Personal Income Tax, Business Premises Tax, Development levy, etc.

There is usually a Body of Appeal Commissioners that is a court of first instance to handle Tax appeal cases. There is also a Value Added Tax Tribunal. If you are just starting your business, you need to know the taxes you are subjected to paying and have a tax plan in place to help you make the most of your entrepreneurial endeavours.

Tips to help you launch your own business in 2020 (Part 1)

Companies income tax

This is a tax chargeable on all companies (other than companies engaged in petroleum operations) registered in Nigeria. It is an annual tax on the profits of registered companies, which profits must accrue in, be derived from, brought into, or received in Nigeria.

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The rate of a company’s income tax is fixed at 30% of taxable income. This tax is remitted to the Federal Inland Revenue Service, and it is payable on a preceding year basis. Companies in the oil and gas field do not pay Company Income Tax; rather, they pay Petroleum Profit Tax which is charged at 85% of the chargeable income.

Value-added tax

Arguably the most popular tax in Nigeria, this is a tax payable by the consumer at 5%. It is a tax imposed on the supply of goods and services. All registered businesses are expected to register and have a VAT registration certificate, with their VAT registration numbers boldly displayed on all invoices. Although companies do not pay VAT, they are mandated by the government to collect VAT from consumers, then remit to the relevant tax body.

[READ MORE: Here are reasons your business should monitor its website)

So in essence, the business is an agent of the government for the purposes of collecting VAT. A failure to include VAT, or declare it is an offence that attracts serious fines and severe punishments. VAT filing is monthly, and always due on the 21st day of the subsequent month.

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There are however some goods that are exempted from VAT; some examples are educational materials like books, medical and pharmaceutical products, newspapers and magazines, agricultural equipment and products, veterinary medicine, etc.

Capital gains tax

This is a 10% tax imposed on Capital Gains (Profit) arising from a sale, exchange or other disposition of properties known as chargeable assets. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price. Capital gains taxes are only triggered when an asset is realized/sold. Emphasis on profit, not sale price.

Education tax

This fund is made available to the Federal government by the companies, and no, it is not a voluntary contribution.  All registered companies in Nigeria are required to pay a percentage of their assessable profit into an Education Tax Fund. The tax is charged at 2% of the assessable income.

Personal income tax

This tax is payable by all individuals and registered businesses and partnerships, except those registered under Part A of Companies and Allied Matters Act 1990 (incorporated companies). The State Inland Revenue Service administers the tax.

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This is the rate of calculating personal income tax; First N300,000 of income @7%Next N300,000 of income @ 11%Next N500,000 of income @ 15%Next N500,000 of income @19%Next N1,600,000 of income @ 21%Above N3, 200,000 of income @ 24%.

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Withholding tax

This technically isn’t a tax. It is an advanced payment of income tax deducted at source of specific transactions. The recipient of the income is entitled to utilize the withheld tax credit note or receipt, against the final tax obligations. The main purpose is to capture as many tax payers that may have evaded tax into the tax net. WHT rates are usually between 5-10%, depending on the type of transaction. Also, the collecting authority for this tax is the FIRS or State Inland Revenue Service.

If, for example, the amount payable by the purchaser is N2million and the relevant tax rate is 10%, then upon payment the purchaser will deduct N200,000 from the invoice of the supplier, then remit to the relevant tax authority.

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Hotel occupancy and restaurants consumption tax

If you intend to venture into businesses such as hotels, restaurants, nightclubs, fast food outlets, bars, and event centres, you should be aware of this tax. Such business is expected to pay 5% tax on goods and services consumed by customers in addition to a further 10% penalty on the latter unremitted tax and the interest charged.

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Pay As You Earn (P.A.Y.E)

This is a scheme by the Taxman to ensure that employees pay their taxes, and puts the duty on the employer to deduct the tax liability of the employees at source; thus, the employees are paid their net salaries. The employer on a monthly basis remits the tax to the State’s Internal Revenue Service, and a tax clearance for that month covers all employees of the company. The PAYE becomes applicable to a business or company with 4 or more employees.

Stamp duty tax

Stamp Duty is chargeable according to a scale fixed by the Joint Tax Board. This is tax paid to the federal or state governments on documents such as conveyances on sale, bills of exchange, promissory notes, agreements, contracts, etc. The federal government has the sole authority to impose charge and collect stamp duties in respect of documents relating to matters between a company and an individual, group or body of individuals.

While, the state government, on the other hand, has authority to collect stamp duty in respect of documents executed between individuals or persons at such rates imposed or agreed with the federal government.

[READ ALSO: How to build up your investment knowledge)

 

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9 Comments

9 Comments

  1. Loyola Empowerment

    January 13, 2020 at 8:57 am

    And they want the economy to grow. They can’t even make a streamlined way of charging the tax, say a website where you just go and pay online and everything is automated including the clearance certificate. What a Country!
    I’m leaving business because there’s too much taxing involved. This means I’m sending back my staff to the labour market, that’s going to have a toll on the economy.

    Apparently, the Country just wants to take and take and not give any value back.

    Take it from me experience-wise, in this Country things are different, you’re better of being an employee than running a business, cos the cost of running business is too high and your business will eventually crumble, or have very stunted growth compared with what is obtainable overseas. It’s not worth it.

  2. Ayo

    January 13, 2020 at 9:56 am

    Thanks for the piece. This is very informative.
    However, I think the calculations of the Personal income tax is different for each State.

    • Martins

      January 13, 2020 at 11:01 am

      @Ayo the computations is the same. While some state may add additional tax levy to the already determined PAYE. E.g, Development levy. Cheer’s

    • Anonymous

      January 14, 2020 at 10:50 pm

      @Loyola-
      Have you tried running a business in the U.K – before? Do you even know, how much income tax the business owners pay in the U.k?

      Sir, you promise to stay as an employee althrough ya active days- (that’s ya choice) many Nigerians have chosen business.

      Keep ya discouraged Thoughts to yasef, please.

    • Anonymous

      January 19, 2020 at 1:38 pm

      Thank you for the article on tax issue, please I want to ask which tax options is applicable to money lender?

  3. Anonymous

    January 14, 2020 at 6:56 pm

    I sincerely share the same view with Loyola sometimes I pay same tax twice because the system is not so organized

  4. tunji

    March 10, 2020 at 7:20 am

    I believe its our civil responsibility to pay tax in order to build the nation ,this is where a substantial amount of the income of the country is derived ,having a business in Nigeria is hard we know but,having a business in another man;s country doesn’t help your country unless you are bringing the money to reinvest in your own country,please lets have a mind set that things will get better and forge on for not just us and our family but for the less privileged amongst us.

  5. Rik

    July 16, 2020 at 8:50 pm

    All the tax they collect, what do they use it for?

    Pensioners struggle to get paid.
    Bad roads; poor, expensive internet; no security; incessant power outage; police harassment; huge deposits into foreign banks, etc.

    I don’t mind taxation, if only you see the money being spent to build the country, and cater for the citizens. When developed countries impose taxes, you see how they spend the money.

  6. Rosemond Phil-Othihiwa

    October 13, 2020 at 8:30 am

    The Body of Appeal Commission and the VAT tribunal has been replaced with the Tax Appeal tribunal by virtue of Section 59 of the FIRSEA

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Investment Tips

Retail franchise investment next gold mine for Nigerian investors- CIG

Retail franchise investment curbs unemployment  and create buffer for people looking for side hustle

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The Choice International Group (CIG) has tasked both unemployed and employed Nigerians to embrace retail franchise investment, as the initiative would curb unemployment in the nation  and create buffer for people looking for side hustle.

In line with a recent FBDS Study, there are over 450,000 Nigerian career professionals with minimum investible funds of N1 million, looking out for investment opportunities.

In the majority, these funds are looking for franchise type opportunities for ease of venturing and minimal failure risk.

As far as CIG chairperson, Diana Chen, is concerned, such investor should look no further but consider the group’s retail franchise investment opportunity, which offers Nigerian community mouth-watering offer of owning Gree & Lontor retail stores.

According to him, Gree is the world’s residential air-conditioner manufacturer, while Lontor provides high-quality, energy-saving and convenient rechargeable home appliances and lighting products for global consumers.

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He said, “Both brands have been built by the CIG into a world-class electronic retail chain in Nigeria opening no less than 20 brand shops in Lagos and Oyo over the last 18 months.

“The sales performance of its existing stores in the country makes Gree & Lontor one of the most profitable businesses in Nigeria with yields of an average return on investment of 50% and above per annum.

“CIG is offering investors the opportunity to own any of six regional logistics centres, or any number of Gree & Lontor brand shops in viable locations across Nigeria.

“It is the decision of the company to open up these opportunities to the investing public through a Franchise Retail partnership.”

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He added that the company has mapped out two investment models it says are simple, transparent, and hassle-free.

“The first model involves only six regional logistics centres located across the geopolitical zones in Nigeria.

“Whoever invests in this will require a capital outlay of $1 million, and become a mega distributor partner of the Gree & Lontor brand, and service a network of brand shops.

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“The second investment model involves the Gree & Lontor brand shops – retail franchise stores that require an initial capital outlay of N20 million.

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“The investor will secure a store size of 120-150sqm at any choice location, shopping mall, plazas, high streets and even residential neighbourhoods.”

What they are saying

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Nigeria is a growth market for franchising and franchise development services.

Gbenga Ajayi, an Entrepreneurship analyst, said, “The retail industry comes second to the food industry among sectors with best franchising opportunities.

“As with other emerging markets, one of the challenges of franchising in Nigeria remains the strengthening of intellectual-property regimes so that franchise companies can transmit knowledge and franchise system concepts with the confidence that such know-how will be protected.

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Investment Tips

Where to invest N500,000 right now

Nairametrics interviewed financial experts on what assets they would invest in if they had N500, 000

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Since a full economic recovery this year is off the table, Nairametrics interviewed some investment experts, entrepreneurs, and corporate heads, on the assets they would invest N500,000 in. The responses varied from buying gold to investing in mutual funds or starting a business.

The world economy is projected to fall by 4.4% in 2020, an upward guide from an earlier predicted rate of -4.9% made in June. The IMF projected that social distancing due to the COVID-19 pandemic will linger till 2021, but the transmission of the virus will plunge globally by the end of 2022.

Get Stock Trading Guidance Via the Nairametrics SSN Newsletter

READ: BUA Cement shows resilience to marginally improve bottom line

Temitope Busari, CFA

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With fixed income yields at the current levels, my N500k in today’s market will go into a dividend-paying stock or alternative investments.

  • Depending on whether or not I can afford to risk some capital and barring timing constraints, I would buy a stock that offers periodic cashflow in form of dividends.
  • For alternative investments, I would explore high-yielding fixed deposits in the on-lending space.

READ: Thrive Agric: “Where is my money?”

Michael Nwakalor, Macroeconomist at CardinalStone Research

  • The yields in the fixed income markets are currently on the low and producing negative real returns, the equities market provides a viable alternative to earn a total return above inflation.

(READ MORE: Trading and Investment for beginners: How to prepare for the stock market)

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  • I like stocks in the banking sector, as a number of them remain undervalued by fundamental metrics. Several names are on the course to post near double-digit dividend returns by the year-end. A portfolio that includes the following counters – GUARANTY, STANBIC, ETI, FBNH, and ZENITH, should provide adequate exposure to the sector as well.

READ: Onyema, Oniha highlight opportunities for investors in fixed income market

Adaobi Okonkwo, Currency Trader of a leading Tier 1 Bank

  • With a few things to invest in, the most reliable investment that comes to mind is a mutual fund. The fixed income and money markets are currently experiencing a downturn; hence, investing in them could reduce my income spread.
  • However, with a mutual fund, my portfolio of investment in the capital markets is determined by the fund managers with a decent return on investments certainly above the risk-free rate. Gold is a commodity that would yield a good ROI within a specified time frame if I wanted to invest by myself.

READ: FG to inject over N198 billion on capital projects in power sector in 2021

Silas OZOYA, President/CEO, SUBA Capital

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Though quite a small capital, it might not do much if you want to play the long-term investment game. However, it can set the ball rolling.

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  • I would invest it in a high yield investment platform that pays at least 5% returns monthly to cover running costs.
  • Put the money in a fixed deposit and leverage it as collateral to take a debt fund, with a 6 – 12 months moratorium from a commercial bank for a possible expansion of a profitable business. This way, you gain on the debt and still have your N500,000 intact.

(READ MORE:Nigeria’s Macro-economic dashboard for Q3 2020 – Comercio Partners)

Ugonna Thelma Ohiri-Anyanwu, CFA

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With a gift of N500,000, my risk appetite and drive for higher returns,

  • I would invest 50% of the funds (N250,000) on dollar and Eurobonds. This is mainly because of my future needs for FX and also as the need to hedge my currency risk.
  • I would invest 25% of the balance (N125,000) in Ethereum, which would give me a steady cash flow with medium risk.
  • The balance of N125,000 would be invested in Value company shares with low P/E and also stable dividend payments.

READ: CBN reveals framework for the N75 billion Youth Investment Fund

The overall investment portfolio allows for diversification, stable cash flow in both local and FX currency, and currency hedge. These would provide a solid mix between ownership of materially underpriced assets and high dividend-yielding assets.

READ: Cryptos: Nigerian financial experts talk risks associated with trading digital assets

Bottom line

Amid the rising COVID-19 caseloads prevailing globally, the financial experts interviewed above showed significant diversity on the assets they would invest in, coupled with their different appetite for taking risk reflected on their preferred choices made amid a blurry global economy era.

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Investment Tips

Where to invest $10,000 right now

Entrepreneurs, financial experts and investment analysts suggest what sectors or assets to invest in if you have $10,000.

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Where to invest $10,000 right now

The upsurge in COVID-19 cases around the world has kept global investors flocking the world’s safe-haven currency at an exponential rate, the high demand for the greenback is coming on the high geopolitical uncertainty prevailing in today’s financial market.

Also, it’s important to note at the currency market, the U.S dollar remains king. According to the International Standards Organization, 90% of currency trading done globally involves the U.S. dollar, most crypto assets, virtually the most liquid commodities are priced in the U.S dollar not forgetting about 40% of the world’s debt is dominated in the greenback.

READ: If you have N1m today, how would you invest it?

READ: Hackers, expose crypto wallets worth $150 million at Kucoin

So Nairametrics felt it paramount to ask a hedge fund manager,  entrepreneurs, and financial experts, about what sectors or assets they would invest in if they had, say, $10,000.

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Their responses were revealing and diverse as they were varied—ranging from; buying global equities, local stocks, real estate holdings to investing in digital assets.

READ: Key ‘side-hustles’ Nigerian Bankers supplement their income with

READ: What BBNaija winner, Laycon can do with N30 million  

Gavin Smith, veteran trader, and managing partner at Panxora Crypto Hedge Funds.

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I would scale into BTC $2,000 now, $2,000 when it comes off to $10,000, then add $2,000 at $9,000 and another $2,000 at the $8,000 level. If BTC then breaks above $13,000 I would buy any of the above orders that had not been filled of the remaining $2,000. I would put $500 into each of these four DeFi protocols: LINK, COMP, KNC, and OMG.”

READ: Real Estate Developers express fear over selection process of CBN’s N200 billion Housing Fund

DeFi is an exceptionally volatile market and these would need active management, but they represent an opportunity with exceptional upside potential. This is a market our analysts are building a profile in, to advance our DeFi hedge fund later in the year.

READ: Real Estate: A universal convertible survival tool

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Debo Adejana – Founder, MD/CEO – Realty Point Limited.

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I follow the investment wisdom that says, ‘invest in what you know and understand’. I know and understand real estate probably more than any other investment asset class.

So, the decision as per what I will invest in with $10,000 which should be upwards of N4m is simply; Real Estate. I will either do rental income property as part of a properly organized shared-ownership structure or speculate on land depending on how much time I have with the money. The reasons are very basic, real estate investments have been known to survive and surpass any and every challenge.”

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READ: If you had $100,000 in cash, where would you invest it in US markets?

Darlington-Morsi Onyemaka, Co-founder Quba Exchange Forbes Accelerator Cohort ’20.

One of the main pointers to a good investment portfolio is diversified across multiple asset classes which should be according to the investor’s risk appetite. Looking at my long-term investment strategy, real estate fits in perfectly for Ten-thousand dollar investment. My portfolio is already jam-packed with high-risk assets and Real Estate will do a great job at hedging the risk factors without minimizing profitability in any significant way.”

READ: Foreign investment inflow into banking sector falls by 95% in Q2 2020

Francis Obasi Cofounder and CEO of Lead Wallet.

If I have a spare $10,000 right now for investment, first, I’ll invest 55% of the funds into new crypto startups being run by professionals and backed by companies like Coinlist; LID Protocol, and Binance. Second, I’ll invest 20% of the funds into Lead Token as there is still potential for massive growth in the coming months/years. Third, looking at the situation of Nigeria, and not knowing where the current protest (uprising) on #EndSARS is headed, I’ll reserve the rest 25% in USDC/USDT to hold against a potential Naira crash. I’m confident that there is every possibility that the Dollar will become scarce again in the coming weeks/months due to the ongoing protest, thereby returning instant gains for immediate spending on basic needs.”

READ: Ethereum robber transfers $1.5 million worth of Crypto

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Dapo-Thomas Opeoluwa Global Markets analyst and an Energy Trader.

“There are so many ways to invest $10,000. The real question depends on the investor. His risk appetite, his investment horizon, when does he or she want to liquidate? The answers to these now limit the options of investments. So for safe and long-term investments, I always advise investing in index funds, Eurobonds or the Nigeria International Debt fund. This is with the caveat that says ‘low risk equals low returns’. Also, I usually would say, invest in investments that beat inflation so you won’t suffer negative real turns.”

READ: Total, GTBank, Zenith Bank up, Bulls return to Nigerian Stock Market

Victoria Njimanze Investment Analyst at a Nigerian Investment Bank

Well, off my head I’ll go with Bonds, cryptocurrency, Stocks, and then alternatives.  I would definitely make my findings first, but I’ll make a larger portion go into Bonds say 40%, 30% in cryptocurrency, 20% in stocks, and 10% in alternatives like commodity market so as to have a diversified portfolio.”

READ: Cryptos: Nigerian financial experts talk risks associated with trading digital assets

READ: A mysterious Bitcoin Whale causes brief panic sell-offs at Bitcoin’s Market

Akinsola Esan, a credit risk analyst at Nigeria’s Tier 1 Bank.

Basically, the goal is to earn substantial returns on investments – dividends, capital appreciation, and secondly, beat inflation in naira which is currently about 12.85%. With $10,000, I’ll spread my investments across foreign equities such as purchasing and holding stocks of companies like Apple, Facebook, Google, Fastly, Nio, Amazon, to list but a few, and also buy some top-performing dollar-denominated Mutual funds such as Vantage dollar funds and some other ones recommended by Nairametrics. Lastly, I will look in the area of cryptocurrencies by investing as much in bitcoin, Ethereum, and other recognized Cryptos. There are some dividend-paying stocks listed on the Nigerian stock exchange as well, I will consider holding a number of them.

Explore Data on the Nairametrics Research Website

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Bottom line

Due to the present fickle nature of global financial markets, most financial experts interviewed above are unsurprisingly keen on mostly U.S dollar-dominated financial assets, thus reflecting the greenback’s dominance in demand amid the COVID-19  infection exploding at an alarming rate.

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