Property tax (real estate tax) is charged on immovable property—land and structures that are permanently attached to the ground such as a house, building, or land. This article introduces you to the various types of Property taxes in Nigeria.
Real estate tax is the same as property tax, though the latter is commonly used. Albeit the purpose of this article is not to distinguish between real estate tax and property tax but to describe the various types of property taxes.
Some of us do not realize that there are various taxes that are directly and indirectly applicable to real estate transactions in Nigeria. Just in case it has never been brought to your notice, there are quite a couple of taxes that apply to real estate and real estate transactions in Nigeria.
The various types of property taxes in Nigeria will be discussed below:
1. Personal Income Tax
Companies Income Tax (CIT) is tax on the profits of incorporated entities in Nigeria. It also includes the tax on the profits of non-resident companies carrying on business in Nigeria. The tax is paid by limited liability companies inclusive of the public limited liability companies. It is therefore commonly referred to as corporate tax.
The CIT rate in Nigeria is 30%, assessed on a preceding year basis (i.e. tax is charged on profits for the accounting year ending in the year preceding assessment). Investment income paid by a Nigerian resident to a non-resident is sourced in Nigeria and subject to Withholding Tax (WHT) at source, which serves as the final tax.
2. Personal Income Tax
Personal Income Tax (PIT) is a direct tax levied on income of a person. A person means an individual, an ordinary partnership, a non-juristic body of person and an undivided estate.
The Personal income tax comes into play in real estate when you sell a property or when you receive rent from rental properties you own. These are earnings and you will rightly be expected to pay taxes on these earnings.
What is the applicable tax in terms of percentage of income earned?
In Lagos state Nigeria, the percentage tax you pay is dependent on the level of income you earn. It starts form 5% all the way to a flat rate of 20% for people who earn as much as 1 million Naira per month.
In determining the tax rate, a simplified calculation would be;
Income – Expenses and Deductions = Taxable Income
Taxable Income/Tax rate = Tax Due
Under Nigerian Personal Income Tax Laws all taxable persons are entitled to a consolidated relief allowance of 20% of gross income plus higher of 1% of gross income or N200,000.
The tax rate payable is:
|Annual Taxable Income||Rate|
3. Withholding Tax
A withholding tax is basically an advance and indirect source of taxation deducted at source from the invoices of the tax payer. Its main purpose is to capture as much tax payers that may have evaded tax into the tax net. Withholding tax rates are usually 10% or 5% depending on the type of transaction and collecting authority for the tax (which can be a Federal Inland Revenue or the State Inland Revenue).
When a company or individual supplies goods or services to another company an invoice will usually be issued as evidence of a transaction. If for example the amount payable by the purchaser is N1million at the relevant tax rate is 10% then upon payment the purchaser will deduct N100,000 from the invoice of the supplier and then remit to the relevant tax authority.
The Purchaser is also obligated to obtain evidence of remittance in the form of a withholding tax credit note on behalf of the supplier. The Supplier can now use the tax credit not to reduce any income tax payable at the end of his year of assessment
4. Education Tax
An education tax of 2% of assessable profits is imposed on all companies incorporated in Nigeria. This tax is viewed as a social obligation placed on all companies in ensuring that they contribute their own quota in developing educational facilities in the country.
5. Value Added Tax (VAT)
VAT is a tax on the supply of goods and services which is eventually borne by the final consumer but collected at each stage of the production and distribution chain. It is eventually borne by the final consumer, (however sometimes multiple layers do bear part of the burden e.g. VAT on tax on services and fixed assets). The standard rate of tax is currently 5% of invoice value of goods and services except items specifically stated as exempt or zero-rated. The VAT system in Nigeria is administered by the Federal Inland Revenue Service (FIRS)
6. Capital Gains Tax
Capital Gains Tax is a tax on the profit obtained from a disposal or exchange of certain kinds of assets. In Nigeria, Capital Gains tax is 10% of the profits from the sale of the qualifying assets. It is recognized in law under the Capital Gains Tax Act.
While CGT is 10% of your Capital Gains, the tax authorities provide guidelines for determining what can be deducted from the sales proceeds before arriving at the Capital Gains
7. Stamp Duty Tax
A stamp duty is the tax placed on legal documents usually in the transfer of assets or property. Where enforced, this tax is placed on the transfer of homes, buildings, copyrights, land, patents and securities The transfer of documents in locations where this law exists, is only legally enforceable once they are stamped, which shows the amount of tax paid
8. Lagos State Land Use Charge
The land use charge is like a ground rent paid annually by property owners in Lagos Nigeria. As the name implies, this tax is more or less like a tenement rate you pay to the government for granting you your request to lease the land (government owns all land by law).
So, what is the value of the land use charge?
It is calculated as a percentage of the assessed value of the land. Read more about the Lagos state land use charge here
9. Federal Capital Territory Property Tax Bill
A bill for an Act to provide for the collection of property tax in the Federal Capital Territory (FCT) has passed second reading in the senate.
The bill seeks to boost revenue generation in the FCT by enhancing the capacity of the FCT administration to impose property tax on land and buildings in specified areas of the FCT.
Federal Inland Revenue Service (FIRS) is the national agency charged with taxation issues in the country.