In continuation from our last column, we will still be focusing on the changes that affect the Companies Income Tax Cap C21, LFN 2007 (CITA) to guide corporate and individual taxpayers on the impact of the Act on their businesses.
Review of key changes
- Re-introduction of Bonus Incentive for early payment of tax liabilities (S.77)
A taxable company shall make payment of tax due on or before the due date of filing, in one lump sum or installments. The provisions to be met before installmental tax payments are specified in Subsection 5(a) & (b) of Section 77.
Where a company pays its tax 90 days before the due date as provided under S.55 of the Act, such company shall be entitled to a bonus of two per cent of the tax due, if it is a Medium-Sized company and one per cent for any other company.
- New basis for computing Minimum Tax (S.33)
Minimum tax is payable, where in any year of assessment:
(i)The ascertainment of total assessable profits from all sources of a company results in a loss; or
(ii) the ascertained total profits results in no tax payable; or
(iii) tax payable which is less than the minimum tax.
However, this Act has repealed the method of computation as specified in the old Act. It is now computed as 0.5 per cent of Gross Turnover of the company less Franked Investment Income.
In addition to the companies exempted from the payment of minimum tax in the old Act (see our previous publication), small companies are now included in the list while companies with at least 25 per cent imported equity capital are no longer exempted.
- Removal of Excess Dividend tax and avoidance of double taxation on companies profit already subjected to tax (S.19)
- In the old Act, where a dividend is paid out of profits on which no tax is payable due to:
- no total profits; or
- total profits which are less than the amount of dividend paid, whether or not the recipient of the dividend is a Nigerian company, the company paying the dividend shall be charged tax at the rate of 30 per cent as if the dividend is the total profits of the company for the year of assessment to which the accounts, out of which the dividend is declared, relates.
However, the above provision has been amended by the creation of a new subsection (2) as follows:
- The provision of subsection (1) shall not apply to:
- dividends paid out of the retained earnings of a company, provided that the dividends are paid out of profits that have been subjected to tax under this Act, the Petroleum Profit Tax Act, or the Capital Gains Tax Act;
- dividends paid out of profits that are exempted from income tax by any provision of this Act, the Industrial Development (Income Tax Relief) Act, the Petroleum Profits Tax Act, or the Capital Gains Tax Act or any other legislation;
- Profits or income of a company that are regarded as “franked investment income” under this Act;
- distributions made by a real estate investment company to its shareholders from rental income and dividend income received on behalf of those shareholders.
From the foregoing, the occurrence of double taxation is avoided and this also creates growth incentives to Real Estate Investment Companies.
- Ceiling on deductibility of loan interest to prevent Base Erosion and Profit Shifting (BEPS) – Thin-Capitalisation Rule (7th Schedule of CITA)
This rule sets the maximum amount of interest allowed as deductions for tax purposes. This was not specifically stated in the old Act. The new Act states that: “Notwithstanding any provisions of this Act, where a Nigerian company, or a fixed base of a foreign company in Nigeria, incurs any expenditure by way of interest or of similar nature in respect of debt issued by a foreign connected person, the excess interest thereon shall be a disallowable deduction for the purpose of this Act”.
Excess interest shall mean an amount of total interest paid or payable in excess of 30 per centof Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) of the Nigerian company in that accounting period.
This restriction is not applicable to a Nigerian subsidiary of a foreign company, which is engaged in the business of banking. Excess interest in a particular year that is not wholly deducted can only be carried forward for the next five years of assessment from which the excess expenditure was first computed.
It should be noted that the 100 per cent tax exemptions on foreign loan interest with repayment period above seven years and moratorium period of not less than two years has been replaced with maximum of 70 per cent.
The remaining amendments to CITA in the Finance Act, 2019 will be discussed in subsequent publications.
+234 8052 090 316 Lateef M. Ayofe
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