Basis of liability to companies income tax
Tax is payable for each year of assessment on the profits of any company accruing in, derived from, brought into or received in Nigeria in respect of all kinds of income: that is income derived from a trade, business or investments. Thus, the tax holiday of companies in Nigeria is primarily on species of income having their source or deemed sourced within the country as well as on remittances. From 1996 the rate of companies income tax in Nigeria has been 30 per cent.
Dividends and other company distribution
A company paying dividends to its shareholders is first of all obliged to pay tax on its profits at the companies tax rate before paying dividends to its shareholders. As a general rule, any dividend or other company distribution whether or not of a capital nature made by a Nigerian company is liable to a withholding tax at source of 10 per cent. However, any dividend paid by a company in the form of bonus/scrip share issue is not taxable in the hands of individual shareholders and is excluded from the profits of any other company that is a shareholder in such company.
DOUBLE TAXATION AGREEMENTS
In the last few years, Nigeria has entered into double taxation agreements with a number of countries. These agreements are entered into with a view to affording relief from double taxation in relation to taxes imposed on profit taxable in Nigeria and any taxes of similar character imposed by the laws of the country concerned.
The method of relief from double taxation under Nigeria 's tax treaties is by way of a tax credit”. The mechanism of the tax credit is such that the tax payable in Nigeria on profits of a Nigerian company being remitted into the country is reduced by the amount of “foreign tax” paid abroad. The converse position is equally true where an overseas company receives profits from Nigeria that have already been taxed in Nigeria .