Introduction – Property Taxes in Nigeria
There are various taxes that apply to real estate or real property transactions in Nigeria. The common public representation or perception that there are no real property or real estate taxes in Nigeria is not correct.
Some of the common taxes that apply to real property transactions in Nigeria, which will be discussed in summary formats, in this Legal Alert, are the following:-
a) Companies Income Tax and Personal Income Tax.
b) Education Tax.
c) Value Added Tax.
d) Capital Gains Tax.
e) Stamp Duties Tax.
f) State Property Taxes – Lagos State Land Use Charge Law and the Federal Capital Territory Property Tax.
Companies Income Tax & Personal Income Tax
Any income with the resulting profit earned by any person from such income, whether such a person is a corporation or an individual, from a property transaction, is liable to the payment of tax.
Where the income earner is a corporation, the corporate tax rate in Nigeria is thirty per cent (30%) of the annual profit of the corporation; and where the income earner from a property transaction is an individual or a registered business enterprise or partnership, the graduated tax rate is twenty-four per cent (24%) for individuals earning N3,200,000 and above, per annum.
One of the tax avoidance regulations in Nigeria is the withholding tax regime which applies to both corporate bodies and individuals.
The withholding tax requirement mandatorily requires the payer of any income to withhold ten per cent (10%) of such income earned, where the recipient of the income is a corporate body, and 5% where the recipient is an individual. The withheld tax amount is an advance tax payment which must be remitted by the payer of the income to the relevant tax authorities simultaneously with the payment of the income.
The recipient, from whose income this advance tax is withheld, is entitled to utilise this advance tax so withheld, to reduce his or her or its final tax liability provided that a withholding tax credit note or certificate is obtained on the recipient’s behalf from the State or the Federal tax authority to whom this advance tax was remitted.
In addition to paying Companies Income Tax, incorporated corporations in Nigeria, engaged in any commercial activity, including real estate or real property transactions from which they make a profit, are liable to pay two per cent (2%) of such profit as Education tax to the Education Trust Fund. This Tax is collected on behalf of the Education Trust Fund by the Federal Inland Revenue Service (“FIRS”).
Value Added Tax
All goods and services in Nigeria, including goods and services utilised in the real estate industry, are liable to be invoiced and to the payment of Value Added Tax (“VAT”) at the rate of five per cent (5%) of the value of such real estate goods and services.
All taxable persons are required to ensure that within six months of their commencing business, they are registered for VAT, and mandatorily file monthly VAT returns.
Any failure to register for VAT, or to collect VAT, or to issue a VAT invoice, etc is an offence which entitles the Federal Inland Revenue Service (“FIRS”) to assess the tax payer for the VAT payable based on FIRS’ best of judgment of the VAT that is liable for payment; this is in addition to fines and interest at commercial interest rates on the unpaid VAT. The decisions of FIRS are however subject to further appeals where the tax payer disputes any decision of FIRS.
Capital Gains Tax
The Capital Gains Tax Act provides that any time an asset, including a real estate asset, whether situated in Nigeria or outside of Nigeria, is disposed off by a Nigerian tax payer, and a gain is derived as a result of such disposal, the resulting gain or profit shall be liable to a ten per cent (10%) Capital Gains Tax (“CGT”) less such allowable expenditures that were utilised to enhance or preserve or defend the title to the asset.
However, gains arising from the disposal of an individual’s principal private residence for another person’s principal private residence are exempted from the provisions of the Capital Gains Tax Act. Also exempted from CGT are commercial motor vehicles and personal Gifts from which no monetary gain is derived.
In Lagos State however, the Capital Gains Tax, when applying for Governor’s consent of a transfer of any interest in a property, is a flat rate of 2% of the consideration of the property transaction.
Stamp Duties Tax
The Stamp Duties Act requires that all written instruments, including instances where any property or interest in property is or are transferred or leased to any person, must be stamped.
Generally, Stamp Duties is charged at the rate of 75 kobo for every N200 of the consideration of certain real estate transactions like mortgages, while for conveyances or the tra