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Full List of Income Exempted From Tax in Nigeria

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WHAT IS EXEMPT INCOME?

Exempt income refers to any income that is not subject to income tax. Several types of income are susceptible to income tax throughout a financial year, according to Section 10 of the Income Tax Act of 1961. That is, if they follow specific rules and criteria.

EXEMPT INCOME: WHAT ARE THE DIFFERENT TYPES?

The types of income that are tax-free are as follows:


  • House Rent Allowance
  • Allowance for transportation, schooling for children, and a hostel fee subsidy.
  • Housing Loan Exemption.
  • Income defined as per Section 10, Section 54 of the Income Tax Act, 1961.
  • Leave and Travel Allowance.

TAX EXEMPT LEGISLATION

Several other Acts or Agreements can confer tax exemptions on profits, incomes, gains, transactions, goods and services, in addition to the Companies Income Tax Act (CITA) Cap. C 21 LFN 2004 as amended, which contains generous exemptions from company profits.

The following pertinent Nigerian tax laws specify the legislative bases for granting tax exemptions:


  • Profits of a firm created for the aim of promoting sporting activities that are entirely expendable for that purpose;
  • Unit Trust — dividend distributed by Unit Trust;

LIST OF INCOME EXEMPTED FROM TAX IN NIGERIA

The following income are tax-exempt in Nigeria:

DIVIDEND INCOME

Dividends received by a Nigerian resident firm from another Nigerian resident company are taxed at the source and are not subject to additional taxation.

Non-resident company dividends are taxable unless they are repatriated into Nigeria through government-approved methods. Any financial institution authorized to deal in foreign currency transactions by the Central Bank of Nigeria.

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Throughout the first five years of operation, dividends earned from small manufacturing enterprises are tax-free. Dividends from investments in enterprises that are solely focused on exports are likewise exempt.

INTEREST INCOME

Interest received by a Nigerian corporation is subject to CIT at the applicable rate, with 10% tax withheld accessible as an offset against the final tax liability.

Government bond interest is tax-free (a portion of this will expire by 1 January 2022). Interest on domiciliary accounts in foreign currencies is likewise exempt.

WHT is imposed on interest paid to a non-resident investor at a rate of 10%, which is the final tax. Recipients who live in a nation that has a DTT with Nigeria get a 7.5 percent discount.

ROYALTY INCOME

Royalties earned by a Nigerian corporation are subject to the applicable CIT rate. WHT can be used to offset the ultimate CIT liability at a rate of 10%.

Non-resident royalties received by a Nigerian corporation are taxed unless they are transferred into Nigeria through government-approved means.

Non-resident corporations receiving Nigerian royalties are only liable to 10% WHT, which is lowered to 7.5 percent if a treaty with Nigeria is in effect.

FOREIGN INCOME

A Nigerian-based corporation is subject to taxation on its worldwide earnings. A non-resident corporation, on the other hand, is only taxed on income derived from Nigeria.

Dividends, interest, rents, and royalties received outside of Nigeria and transferred into Nigeria through government-approved methods are tax-free; otherwise, the income is taxable at the CIT rate appropriate to the company’s classification (small, medium, or large) and a 2% tertiary education tax.

The Central Bank of Nigeria and any bank or financial institution authorized to conduct foreign exchange transactions are examples of government-approved channels.

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A Nigerian tax resident entity’s taxable overseas income cannot be legitimately delayed.

CAPITAL GAINS

CIT does not apply to capital gains, however CGT may apply. For more details, go to the Other taxes page and look up capital gains tax.

STOCK DIVIDENDS

Stock dividends (bonus shares) are subject to WHT in the same way that cash dividends are, although they are not considered in the recipient company’s taxable income.

OTHER SIGNIFICANT INCOME EXEMPTED FROM TAX

The income or profit of the following entities is exempt from CIT:

  • Friendly societies that are either statutory or registered.
  • Cooperative societies with a public character that are registered under any ecclesiastical, philanthropic foundation.
  • Profit of a business operating in an EPZ or FTZ.
  • A recognized trade union’s profit.
  • Profits from exports can be invested in raw materials, spare parts, and equipment and machinery if they are imported into Nigeria through government-approved routes.
  • Profit of a small business.

CONCLUSION

An amount granted by law as a diminution of income or profit which would otherwise be taxed has been variably described as a tax exemption. It is a portion of a taxpayer’s income that is not taxed. In this article, we go over the entire list of income that is tax-free in Nigeria.


Source: Nigerian Info Pedia

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