We began a discuss on the Tax obligations of Incorporated Trustees in our last edition, highlighting the mandatory requirement to register at the designated Federal Inland Revenue Service Medium Tax Offices (FIRS’ MTOs) in the relevant geo-political region and obtain Taxpayer Identification Number (TIN) for tax purposes, and the tax returns and remittances under the Companies Income Tax Act (as amended)
In today’s edition, we will examine the tax obligations of Incorporated Trustees under the provisions of Personal Income Tax Act (PITA) (as amended), Capital Gains Tax Act (CGTA) (as amended) and the Value Added Tax (VAT) Act (as amended).
1. Obligations Under the Personal Income Tax Act (PITA)
1.1. Personal Income Tax (PIT) Liability:
The profits that are not derived from a trade or business carried on by Incorporated Trustees are exempt from income tax pursuant to the provisions of Section 19 (1) and Paragraph 13 of the Third Schedule of Personal Income Tax Act (PITA), Cap. P8, LFN 2004 (as amended).
By virtue of Section 3 of PITA which provides for the types of income chargeable to tax, individual promoters and employees Incorporated Trustees are not exempt from tax and, as such, the following incomes are liable to Personal Income Tax:
a. Emoluments of promoters.
b. Fees, other remuneration or benefits-in-kind paid to Trustees and Guarantors.
c. Salaries or other remuneration paid to employees.
1.2. Personal Income Tax Remittance and Returns:
Incorporated Trustees have the Pay-As-You-Earn (PAYE) obligation to deduct tax at source from salaries and other emoluments of their employees, directors, officers, trustees, etc., and remit same to the relevant tax authorities in the currency of the emoluments, salaries, wages, benefits were paid on the 10th day of every succeeding month of the payments.
The PIT returns for tax deducted from chargeable income paid to employees in a preceding year is required to be filed not later than 31st of January of the succeeding year.
2. Obligation under the Capital Gains Tax Act (CGTA)
2.1 Capital Gains Tax (CGT) Liability:
Capital Gains Tax (CGT) is a tax levied on the profit from the disposal of property or an investment, in accordance with the provisions of the Capital Gains Tax Act (CGTA), Cap. C1 LFN 2004 (as amended)
In Nigeria, all chargeable assets, whether situated in Nigeria or not, are subject to CGT at a flat rate of 10% when disposed at a gain, with the exemption of assets specifically excluded by the CGTA. This includes gains from the disposal of chargeable assets of NGOs, under which Incorporated trustees are classified.
Section 26 of the CGTA exempts gains that accrue to Incorporated Trustees from tax. This exemption is, however, only effective on the joint fulfilment of the following two (2) conditions:
a) That the gains are not derived from the disposal of any assets acquired in connection with any trade or business carried on by the Incorporated Trustees.
b) That the gains are applied purely for the purpose of the activities of the Incorporated Trustees.
2.2. CGT Remittance and Returns:
The foregoing implies that where the gains are derived from disposal of assets acquired in connection with any trade or business carried on or where the gains are not applied purely for the purpose of the Incorporated Trustees, such gains (chargeable gains) shall be subject to tax at the statutory tax rate.
Consequently, if an Incorporated Trustees realizes chargeable gains, it has a duty to remit the Capital Gains Tax and file the relevant returns within the time frame stated below:
a. Taxes in respect of chargeable assets disposed from 1st of December in a year to 31st of May of the immediately following year – Not later than 30th of June.
b. Taxes in respect of chargeable assets disposed from 1st of June to 30th of November of the same year – Not later than 31st December.
3. Obligations under the Value Added Tax (VAT) Act
3.1 Value Added Tax Liability and Remittance:
Incorporated Trustees are not exempt from VAT and, as taxable persons, are required to register for VAT immediately they are registered with Corporate Affairs Commission (CAC) or commencement of business.
Furthermore, goods purchased for humanitarian donor-funded projects are zero-rated (i.e., VATable but the applicable rate is zero percent (0%)) under Part III of the First Schedule of the Value Added Tax Act, Cap. V1, LFN 2004 (as amended). Hence, Incorporated Trustees are liable to charge or pay VAT under the following circumstances:
a) Procurement of contracts or purchases goods that are not directly used in humanitarian donor-funded projects, VAT shall apply at the prevailing rate.
b) Procurement of any service except for services exempt under Part II of the First Schedule of the VAT Act.
In addition, Incorporated Trustees are required to self-account for and remit the VAT on goods or services procured from persons that are not liable to charge VAT or from non-resident suppliers.
Remittance of VAT is to the Federal Inland Revenue Service (FIRS) and is due on the 21st day of the month following the month of the transactions.
See the previous edition “Tax obligations of Incorporated Trustees in our last edition” here
For further discussion and assistance with filing any of your organization’s compliance returns to the Corporate Affairs Commission, the Nigeria Immigration Service, and application for Business Permit, Expatriate Quotas and the Combined Expatriate Resident Permit and Aliens Card (CERPAC), as well as providing you with Board Evaluation and Nominee services, please contact us below: