In Nigeria, the incorporation, post-incorporation regulation of operations and activities and taxation of the income of Not-for-Profit Organizations (NGOs or NGO) are governed by statutory laws.
Incorporated Trustees are a form of NGO registrable in Nigeria in accordance with the provisions of the Companies and Allied Matters Act, 2020 (CAMA).
The non-profit making nature of Incorporated Trustees usually raises the question of its tax liability under the various applicable Tax legislations which includes the Companies Income Tax Act (CITA) (as amended), Personal Income Tax Act (PITA) (as amended), Capital Gains Tax Act (CGTA) (as amended) and the Value Added Tax (VAT) Act (as amended) (altogether the “Tax Laws”). Are they liable or not?
The Federal Inland Revenue Service (FIRS) through a circular issued on the 31st of March 2021, “Guidelines On The Tax Treatment Of Non-Governmental Organisations (NGOs)” (the “Circular”) defined NGOs to include Companies Limited by Guarantee, Incorporated Trustees or any Organisation registered under any law of the Federation of Nigeria as a co-operative society.
This is the first of a two part series. See the second part here.
In today’s edition, we discuss the application of the relevant Tax Laws to the income of Incorporated Trustees, as clarified by the FIRS through its Circular.
Tax Obligations of Incorporated Trustees
For tax purposes, the FIRS defines the NGOs as “organisations, institutions and companies engaged in ecclesiastical, charitable, benevolent, literary, scientific, social, cultural, sporting or educational activities of a public character.”
Section 105 of CITA defines ‘public character’ to mean an organisation or institution that is registered in accordance with the relevant Nigerian law and does not distribute or share its profit in any manner, whether in cash or in kind, to its members or promoters.
The tax obligations are examined under separate headings of FIRS registration, obligations under Companies Income Tax Act, Personal Income Tax Act (PITA), Capital Gains Tax Act (CGTA), Value-Added Tax Act (VATA) and the Withholding Tax requirements.
1. Mandatory Registration with the FIRS:
Further to being incorporated with the Corporate Affairs Commission (CAC), Incorporated Trustees are required to register at the designated FIRS’ Medium Tax Offices (MTOs) in their respective geo-political regions and obtain Taxpayer Identification Number (TIN) for tax purposes.
The documents for this registration are:
a. A copy of Certificate of Incorporation issued by CAC.
b. Certified True Copy (CTC) of the Constitution of the Incorporated Trustees.
c. List and Profiles of the Trustees.
d. Other relevant documents which may be specified at the registration point.
2. Obligations Under the Companies Income Tax Act (CITA)
2.1 Companies Income Tax (CIT) Returns:
Section 55(1) of CITA, mandates every NGO to file tax returns every year. Hence, Incorporated Trustees are to file the statutory CIT returns at the designated MTOs by submitting the following:
a. The audited accounts, tax and capital allowances computations and a true and correct statement in writing containing the amounts of surplus from every source computed in accordance with the provisions of CITA.
b. Other information required on the returns form with respect to profits, allowances, reliefs, and deductions.
c. A declaration to be signed by a Trustee, Director, Secretary or any authorised person that the information contained in the return is true and correct.
2.2 Remittance of Companies Income Tax:
By virtue of section 23(1)(c) of CITA, the profits of NGOs are exempt from Companies Income Tax, provided that such profits are not derived from any trade or business carried on by such NGOs. This exemption covers subscription fees by members, donations, grants, zakkat, offerings, tithes, funds realised from launchings, levies, etc.
Accordingly, where an Incorporated Trustees engages in any trade or business, or invests its assets in any institution, however, the profit or active or passive income derived is liable to tax. Thus, the income or profits liable to Companies Income Tax include the following:
a. Profits derived from trade or business carried such as proceeds from sale of goods or merchandise, provision of consultancy, professional services, or other expertise for a fee.
b. Investment Income such as interest, rent, royalty, dividend, or similar income.
3. Requirements to Withhold Tax:
Incorporated Trustees have the obligation to deduct Withholding Tax (WHT) on the fees paid, and other qualifying payments, for contracts awarded to suppliers and contractors, and remit the WHT to the relevant Tax Authorities in the currency of transaction.
WHT is deducted at varying rates ranging from 5% to 10% depending on the transaction. WHT returns are due on the 21st day of every succeeding month. Late filing of the WHT returns attracts a fine of N25,000 for the first month of default and N5,000 for each subsequent month the default persists.
Likewise, the payer of investment income, sale proceeds, professional fees and other like payments to Incorporated Trustees have an obligation to deduct WHT from the payments and remit same to the relevant Tax Authorities.
In a subsequent 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).
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