Sole Proprietor & Partnership Tax Conditions in Nigeria – The fact that majority of businesses in Nigeria are in the hands of sole proprietorship or partnership makes this topic an important one. Therefore, it’s a tax related issue that evolves around small business tax in Nigeria. So, how to pay, avoid or minimise tax in Nigeria becomes important. Moreso, personal income tax in Nigeria is regime of self-assessment system.
Furthermore, it’s now a common knowledge that the Nigerian government has become increasingly keen on enforcing compliance with tax laws. This is why we think it’s important for business owners to have basic knowledge of Nigerian tax system. This post addresses such tax matters as they affect sole proprietorship and partnership. So, read on.
Sole Proprietor & Partnership Tax Conditions in Nigeria: Nigeria Tax Administration for Sole Proprietorship and Partnerships:
To start with, you have to know that different levels of government make laws and regulations that relate to taxation of businesses and individuals, respectively in Nigeria. Hence, we think the first step will be to understand the various taxes and levies administered by Federal, State and Local Governments in Nigeria. We implore you to please follow us through.
Secondly, we need to emphasise that the Nigerian tax system recognizes the profits of a trade or business of an enterprise as taxable in the hands of the individual who is considered the sole proprietor of the business. This type of business structure usually require one subscriber for registration with the Corporate Affairs Commission.
Thirdly, Partnerships also fall under this category of business enterprise. This is because the individuals that make up the partnerships of the enterprise have their share of profits taxed in their hands, as individuals as well.
Therefore, it’s worthy of note, that, the taxation of sole proprietors and partnerships lie with the State Internal Revenue Service. That means it lies within the purview of the Personal Income Tax Act.
Sole Proprietor & Partnership Tax Conditions in Nigeria – Other Conditions of Nigerian Tax Laws for the Enterprises and their owners:
For those of you, business owners, seeking to know your tax obligations under the tax law, provided below is a succinct guide:
Sole Proprietorships and Partnerships Income Tax:
As hinted above, Taxation of sole proprietorships and partnerships are somewhat similar. This is because both are subject to the Personal Income Tax Act (PITA). PITA makes provision for the direct assessment of the tax liabilities of the business on the sole proprietor or partners.
Therefore, “Partnership” and “Sole Proprietorship” do not pay income tax as business entities. Rather, they pay their Personal Income Taxes based on the owner’s share of profit after the distribution of the profit or loss made by the business by the partners. The Sole Proprietor pays his Personal Income tax based on the income made on the business.
Value Added Tax (VAT):
VAT is an indirect tax imposed on the supply of goods and services in Nigeria, except for items that are exempted by the VAT Act . VAT is calculated at 5% flat rate.
Every business owner in Nigeria (whether an incorporated company, sole proprietorship or partnership) performs a dual responsibility here. One of that is to act as an agent of the Federal Government to collect and remit VAT (Value Added Tax). Every VAT collected is remitted to the Federal Inland Revenue Service (FIRS) on or before the 21st day of the month following the month the goods or services were sold. For example, VAT collected in January should be remitted on or before 21st February.
When your company (whether incorporated company, sole proprietorship or partnership) sells an asset, and make gain on the sale, it must pay 10% of the chargeable gains accruing from the sales. For purposes of computation, you must be guided by the provisions of the Capital Gains Tax Act. or contact us for professional attentions.
Withholding Tax (WHT):
WHT is an advance payment of tax and is deducted at source. The implication here is that your firm, sole proprietorship or partnership merely acts as collection agent for onward transmission to the appropriate tax authority. Your enterprise should deduct at source the WHT from gross payments made to individuals, partnership, community trustees, executors, family and body of individuals in respect of the following income sources:
- All aspects of building, construction, civil work and related activities;
- All types of contract activities or agency arrangements other than outright sales and purchase of goods and property in the ordinary course of business;
- Professional services;
- Technical services; and
Be Tax compliance, check out the following:
Facts You need to Know About Sole Trader’s Tax liability
How do I work out my taxable income in Nigeria?
How companies get their TCC
How Start-ups Get TIN
Business Initial TCC
How to Apply for Company Annual Tax Return Riling
How to Obtain Individual Tax Clearance Certificates
Individual Annual Tax Returns & TCC
Track Your With-holding Tax Credits
You can agree with me that a good understanding of how tax system operates in Nigeria is necessary to the long term success of your business. It is therefore imperative that you embrace the knowledge shared in this article and use it to structure your business for purposes of effective compliance with government tax regulations. Sole Proprietor & Partnership Tax Conditions in Nigeria is so relevant for every business man.
At any rate, we are available to support you in handling your tax matters. You can contact us on firstname.lastname@example.org or +234 8034347851
Founder/Managing Partner of Complete Full Marks Consultants Ltd. An Economist turned Chattered Accountant and Tax Practitioner with over 37 years of industrial experience.