Company Income Tax (CIT) is tax on the profits of incorporated entities in Nigeria. It also includes the tax on the profits of non-resident companies carrying on business in Nigeria. The tax is paid by limited liability companies inclusive of the public limited liability companies. It is therefore commonly referred to as corporate tax. CIT is one of the taxes administered and collected by the Federal Inland Revenue Service (FIRS). The tax contributed significantly to the revenue profile of the Service.
Companies have been categorized into three (3) parts for the purpose of filing CIT:
* Large Companies: with turnover of over 100 million Naira annually will pay 30% CIT.
* Medium Companies: with turnover of 25million – 100 million annually will pay 20% CIT.
* Small Companies: with turnover of less than 25 million are exempt from filing CIT.
Documents for Computation of Company Income Tax: –
- Audited Financial Statement comprising:
* Statement of financial position
* Statement of comprehensive income
* Statement of changes in equity.
* Statement of cash flows.
* Notes on significant Accounting Policies and other explanatory information.
* The audited financial statement should be signed by two Directors. The accounts should be audited and signed
by External Auditors who must be members of recognized professional bodies.
- Additions to Fixed Assets.
- Previous year tax computation.
- Withholding tax credit notes (if any).
Steps for Company Income Tax Computation: –
- Compute the adjusted profit/loss: this is computed by adding the disallowable expenses to the net profit.
- Compute assessable profit/loss: In arriving at the assessable profit, the following adjustment are to be done:
* compute the loss relief for the period under consideration (if any)
* add balancing charge
* less balancing allowance.
- Compute the taxable profit/loss: In arriving at the taxable income of a company, the capital allowance computed will be deducted from the assessable income.
For capital allowance computation;
* Get a list of all the assets the company has.
* Verify the invoices and dates of acquisition of all assets.
* Apply initial allowance for all new assets according to the rate provided in the Company Income Tax Act (CITA)
* Apply the rate of annual allowance on the asset based on the CITA schedule (note that annual allowance is the
cost – initial allowance X annual allowance rate until the cost of asset is exhausted)
Note that the maximum capital allowance allowed of the year is subject to 66 2/3 of the assessable income. Unrelieved capital allowance will be carried forward.
- Compute the Company income tax (CIT): This is 30% of taxable profits for companies with turnover of 100 million and above, and 20% of taxable profit for companies with turnover of 25- 100 million. It is expected by law at the end of each financial year.
- Compute the Education tax (EDT): This is 2% of assessable profits
Filing Annual Return for Company
After the computation of CIT and EDT liability due to the company. We then take into consideration the Withholding tax credit note provided by the company (if any). The difference between the tax liability and the WHT tax credit note can either be CIT payable or CIT credit. If it is CIT payable then the tax payable will be advised to pay the amount before the due date. Once the payment is made, we then proceed to file the returns with the FIRS. The following are the document to be duly filled and file accordingly:
- Prepare a cover letter stating the documents to be submitted
- Duly completed Self-Assessment form for CIT and EDT
- Attach the evidence of payment (if any)
- Attach the Withholding tax credit note (if any)
- Attach 3 copies of Audited Financial Statement comprising:
* Statement of financial position (Balance Sheet)
* Statement of comprehensive income (Profit and Loss Account)
* Statement of changes in equity.
* Statement of cash flows.
- Notes on significant Accounting Policies and other explanatory information.
- Attach the tax computation (3 copies)
- Apply for Tax clearance certificate