Q: Will the form of my business organization affect the way I file taxes?
A: The forms of business organizations will affect the way you file your taxes except one; which is Value Added Tax.
Value Added Tax is a consumption tax which make all forms of business organizations both the agent of collection and also a tax payer.
By structure we mean the forms of business organization you adopt and for which you register your business.
In Nigeria, the forms of business structure or organization can be divided into six thus:
1. Sole Proprietorship: This is a form of business that is owned or controlled by individuals whether trading under his/her name or other names.
This form of business organization is expected to file for Personal Income Tax under the Personal Income Tax Act(Amended) 2011 thorough direct assessment as self-employed.
The law regards both the business and the owner as one and the same person.
It is also expected of this form of business organization to file for Value Added Tax (VAT) and withholding tax because they serve as agent of tax authorities in the collection of these taxes.
All these taxes with the exception of VAT are to be filed with the State Internal Revenue Services while the VAT is filed with Federal Inland Revenue Service.
This is an association of more than one person bound together by contract with the objective of carrying out specified business.
Under the Partnership Act, such association should not be more than 20 persons.
Partnership is a form of business organization where the partner share profit at the end of the year, and each individual file his or her income tax return.
However, the returns for all other taxes like value added tax, withholding tax, capital gains tax are filed just as it is under the sole proprietorship.
3. Incorporated Trustees:
This form of business organization are formed by any community or group of persons bound together custom, religion, kingship sociology or nationality or by a body of association of persons established for any religious, educational, literary, scientific, social or charitable purpose, who so appointed one or more trustees and authorize them to apply for registration.
This type of form of business organization are for non-business, not for profit making organization and non-governmental organization like churches, mosques, charitable organizations and NGOs.
This form of business organization are not subjected to corporate income tax.
However, it is expected of them to serve as agent to the tax authorities to collect taxes like PAYE tax of their staff; value added tax and withholding tax from persons or organizations that work for them.
As a result of this, they will the expected to file Employment Income Tax returns annually, value added tax and withholding tax returns monthly.
4. Co-operative Societies:
These are associations of persons who voluntarily come together through member contributions for mutual social and economic benefits through advancement of their economic interests.
The law allows them to do business and make profit however, there profit is not liable to tax.
5. Company Limited by Guarantee:
This type of companies has no share capital, rather the liability of its members are limited to the amount the members respectively guarantee to contribute in the event of its being wound up.
Although it is allowed to do business, the income, profit and property of the company are not allowed to be distributed to the members but are applied solely towards the promotion of the objects of the company.
It is the kind of company one forms where the object is not profit-making but the promotion of things like commerce, art, sports, education (schools), religion, etc.
6. Registered or Incorporated Companies:
These forms of business organizations are registered as both limited liability companies or unlimited liability companies.
They have separate legal personality that are different from their owners.
The limited liability company by shares can be further categorized into public limited liability company and private limited liability company.
Both the public and private companies are expected to file tax returns in all ramifications except where they enjoy certain reliefs, exemptions and incentives.
Most of the returns of this forms of business organizations are filed with Federal Inland Revenue Services in form of Company Income Tax (CIT), Value Added Tax (VAT), Withholding Tax (WHT) and Capital Gains Tax (CGT).
They remit the Personal Income Tax (PIT) of their employees which is Pay As You Earn to State Internal Revenue Services and also file their Employment Income Tax Annual Return.
The essence of this explanation of forms of business organization and filing of taxes is to let you know that different forms of business organization has different ways of filing their taxes, not all taxes are applicable to all of them and that in some instances they have different tax authorities.
Indeed, there are always confusion in the mind of taxpayers as to what do I need to do in respect of tax for my form of business organization. I’m sure this has cleared the cloudy area.
To know more about this and have opportunity of asking further question download this TOP 10 SECRETS TO DRASTICALLY REDUCE YOUR BUSINESS TAXES.