- What is Companies Income Tax (CIT)? CIT is tax on the profits of incorporated
entities in Nigeria. It also
includes the tax on profits of non-resident companies who accrue or derive profits from Nigeria or bring or
receive their income in Nigeria. It is therefore commonly referred to as corporate tax. CIT was created by the
Companies Income Tax Act (CITA or the Act), it is one of the taxes administered and collected by the Federal
Inland Revenue Service (“FIRS” or “the Service”).
- How is CIT Computed? CIT Computation is done for each year of assessment separately,
it is computed generally on
preceding year basis except in the instances of: commencement of business operation, cessation of business
operation and change of accounting date, in which case, the actual year basis of computation could be employed.
- The profit (Profit before Tax) in the Audited Financial Statement (AFS) is taken and
adjusted for non-tax items.
In doing this, cognizance is taken of the general rule of deductibility of business expense as described in
- The business expenditure/expense must be wholly, reasonably, exclusively and
necessarily (WREN) incurred in
earning the income of the company for the underlying period. There are also expenses that are expressly not
allowable or exempted from tax in the Act.
- Capital allowances are given at rates specified in the Act on each qualifying
expenditure or asset used in
earning the income in the year of assessment. It is allowed as a deduction from assessable profit to arrive at
- Capital allowances are given in place of depreciation for the use of business assets.
Depreciation is usually
added back to profit because of the different policies and rates used by companies which are capable of
producing different profits. Capital allowances is the tax systems means of providing uniformity.
- There is a restriction to the amount of capital allowance claimable in any assessment
year except for the
companies in the manufacturing and agro-allied sectors. Other sectors are restricted to a claim of 66% or 2/3 of
assessable profit in an assessment year. Unutilized capital allowance in any year of assessment can be carried
- At this point, the question of what if the company makes a loss would have crossed
your minds but not to worry,
the Act has got you covered. Whenever a company makes a loss (normal business loss) in the year of assessment,
CIT would not be computed on such loss, rather the company would be compelled to pay a minimum tax as specified
in the Act. Such loss would be accepted as an allowable deduction for future years of assessments but if not
fully utilized, it could be carried forward indefinitely, save in the case of insurance companies who have a
maximum four (4) years to carry such losses forward. Note that the minimum tax rule does not apply to all
companies as the following categories of companies are
exempted:agro-allied businesses, companies with at least 25% imported equity capital or foreign participation
and a company in its first four years of business operations.
- What is the rate of CIT? CIT is charged at 30% of chargeable profits, save in the
case of small companies who
have a reduced rate of 20%. A small company is one with an annual turnover of ₦1,000,000 (One Million Naira).
- When do I file my CIT Returns? CIT returns for a new company should be filed with the
FIRS, within eighteen (18)
months after incorporation or six (6) months after the accounting year end whichever is earlier. Companies that
have been in business beyond 18 months are required to file CIT returns 6 months after their year end. A company
that files returns within six months after the accounting year end can apply to the FIRS in writing to pay its
income tax in installments.
- What happens if I fail to file CIT? Failure to file CIT returns attracts a penalty of
₦25,000 for the first
month and ₦5,000 for each subsequent month of default. Late payment of CIT attracts a 10% penalty and
interest at the commercial rate.
- Where can I get help with CIT Compliance? The Chartered Institute of Taxation of
Nigeria currently has in excess
of 1,000 chartered or licensed tax practitioners who are able to assist with CIT compliance requirements.
Taxaide®’s professional personnel are among such licensed tax practitioners. Taxaide®’s technology practice,
Taxtech® has a revolutionary product CITApp®
designed to help you or your chosen professional with your CIT computation and compliance process. CITApp®, a
cloud-based solution, has automated the CIT computation processes, archives essential data and information,
prevents replication and saves returns filing and compliance time, generally.
For more information on CIT and all tax-related issues, please do not hesitate to contact us at:
Tel: +234 700 TAXAIDE (070 829 2433), +234 1 631 0971
WhatsApp: +234 810 701 7274