Finance Act 2020 - Corporate tax measures
The Finance Act 2020 was signed into law on 31 December 2020, and took effect from 1 January 2021. We summarise below the main corporate tax measures.
Changes to companies income tax act
Taxation of non-residents
Non-resident companies doing business in Nigeria are now required to file the following documents with the Federal Inland Revenue Service (FIRS):
- Audited Financial Statements of the Nigeria operation attested to by an independent qualified or certified accountant in Nigeria
- Tax computations based on their Nigeria operation
- Duly completed Company Income Tax Self Assessment Form
The above requirements would not be applicable if withholding tax (WHT) is the final tax on the income derived in Nigeria. In the case of small and medium companies, the FIRS may specify the form of accounts to be presented in place of Audited Financial Statements.
Under the Finance Act 2019, all services rendered by non-residents to a person resident in Nigeria are taxable. An amendment has been included in the 2020 Finance Act to the effect that WHT will be the final tax for non-residents who render technical, management, consultancy or professional services rendered outside of Nigeria that constitute significant economic presence to a person resident in Nigeria.
Taxation of shipping and air transport businesses
The provisions on taxation of shipping and air transport shall not apply to income from leasing, containers, non-freight operations and any other incidental expenses which are otherwise chargeable to tax under Section 9 of CITA.
BDO comment: The amendment is necessary in order to subject ancillary services connected with shipping and air transport to tax separately.
As part of the Covid-19 palliative measures, the minimum tax rate of 0.5% of turnover introduced by the Finance Act 2019 has been temporarily reduced to 0.25%. The new rate will be applicable to tax returns due for filing between January 1 2020 and 31 December 2021 (both days inclusive).
Redefinition of gross premium and gross income for insurance companies.
For the purpose of the tax computations of Insurance Companies, gross premiums and gross income for non-life and life insurance businesses respectively have been redefined under Section 16 of CITA as follows:
- Gross premiums for non-life business will consist of total premiums written, received or receivable, less unearned premiums and premiums returned to the insured.
- Gross income for life business will be total income, i.e. investment income (excluding franked investment income, i.e. dividends) fees, commissions and income from other assets but excluding premiums received and claims paid by re-insurers.
BDO comment: The above clarifications would ensure that tax on insurance business is not computed on unearned premiums and income not taxable under CITA.
Additional allowable donation
The Covid-19 Crisis Intervention Fund or similar funds established by the State or Federal Government have been added to the list of organisations to which allowable donations could be made. Donations made in cash or in kind in respect of any pandemic, natural disaster or other exigency to the funds would be treated as an allowable deduction from profit. However, the donation to be allowed for tax purposes is subject to a maximum of 10% of assessable profit after the deduction of other allowable donations from the profit made by the Company.
The amendment introduced in the Finance Act 2019 to disallow penalty and fines pursuant to legislation enacted by the National Assembly has been modified. In the Finance Act 2020, penalty and fines pursuant to legislation enacted by any of the State House of Assembly would also not be disallowed for tax purposes.
Books of account
A new Section 63 has been introduced to CITA to replace the former one on the books of account to be maintained by every company, including those exempted from corporate income tax. The new provisions include:
- All companies are required to maintain books or records containing sufficient information or data on all their transactions.
- The books of account must be maintained in the English language. Where for any reason they are prepared in another language, they must be translated into English by the taxpayer to make it readable by the FIRS.
- Any taxpayer that fails to provide books of account as and when required by the FIRS will incur a penalty of NGN 100,000 for the first month and NGN 50,000 for subsequent months in which the failure continues.
- The books of account must be maintained for at least six years after the year of assessment to which the income relates. This conforms with the statute of limitation.
- Penalties and interest in accordance with the provisions of CITA or relevant laws would be imposed on taxpayers who deliberately file dishonest returns from the date the tax is due, in addition to payment of the tax due on the dishonest return.
Service of notice of assessment
Henceforth, notices of assessment can be sent to the taxpayer by email, courier, or any other means as directed by the FIRS.
BDO comment: Taxpayers should ensure that they check the email account they registered with the FIRS regularly in order not to miss the opportunity to raise a valid objection to a disputed notice of assessment within the statutory period or incur a penalty for late payment of an undisputed notice of assessment.
Payment of government assessments
The period for the payment of undisputed Government assessments has been reduced from 60 days to 30 days. Penalties and interest would be imposed for payment not made within the 30 day window.
An addition has been made to Part I, Schedule II to CITA. Henceforth, capital allowances can be claimed on capital expenditure on the development and acquisition of software or such outlays on electronic applications.
BDO comment: The inclusion of this capital expenditure will encourage companies to invest in the development and acquisition of software to computerise their processes.
Industrial development (income tax relief) act
Addition to the list of companies eligible for tax holidays
Small or Medium Sized Companies engaged in agricultural production will enjoy a tax holiday of four years in the first instance, renewable for another two years if it meets the laid down guidelines. A small company is defined as a company with a turnover of NGN 25 million or less, while a medium company’s turnover is more than NGN 25milliion but less than NGN 100 million per annum.
BDO comment: The inclusion of small companies in the list of those to benefit from a tax holiday is surprising, because the Finance Act 2019 exempts small companies from payment of companies’ income tax under the CITA.