Q: “My business lost money last year, so I don’t owe any taxes. Do I need to file a tax return?”
A: I want to believe what the entrepreneur or the business man is talking about is that the business made loss and not profit last year. I also want to further believe that the business man is referring to Personal Income tax in the case of enterprises and Company Income Tax in the case of limited liability company.
The fact that an enterprise or a limited liability company made loss does not exempt such business from paying either Personal Income Tax or Company Income Tax as the case may be. Such businesses will be subjected to MINIMUM TAX.
However, some businesses may be in a certain situation which the law exempt from the payment of minimum tax. Such businesses are:
1. Companies within the first four calendar years of operation
2. Companies with foreign equity capital of at least 25%
3. Companies in the agricultural sector.
For the mere fact that a company made loss does not exempt such companies from paying and rendering returns on value added tax, withholding tax, capital gains tax and all other taxes that are not related to the income tax.
Minimum tax payable is calculated as follows:
- Where the turnover of the company is NGN 500,000 or below, minimum tax is the highest of:
- 0.5% of gross profits
- 0.5% of net assets
- 0.25% of paid-up capital, or
- 0.25% of turnover of the company for the year.
- Where the turnover is higher than NGN 500,000, minimum tax is the highest of the calculations listed above plus 0.125% of turnover in excess of NGN 500,000.
The second question ‘Do I need to file a tax return? Once you register your business with the tax authority, you are bound to file all the tax returns for example monthly VAT and WHT returns, yearly income tax returns both for Direct Assessment and the Company Income Tax.
Please note that being assessed on minimum tax does not mean you will be paying a lesser amount of tax, in fact there are instances where companies even pay more.
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