This article provides a comprehensive explanation of whether a company must pay company tax even when it operates at a loss, the types of taxes applicable, and possible exemptions.
Understanding Company Income Tax in Nigeria
Under the Companies Income Tax Act (CITA), all companies operating in Nigeria are required to pay Company Income Tax (CIT) on their taxable profits. The Federal Inland Revenue Service (FIRS) is responsible for administering and collecting this tax.
Applicable CIT Rates:
0% CIT for small companies with a turnover of N25 million or less.
20% CIT for medium-sized companies with a turnover between N25 million and N100 million.
30% CIT for large companies with a turnover above N100 million.
However, when a company makes no profit, its tax liability changes.
What Happens When a Company Makes No Profit?
If a company records no profit or a financial loss, it is not required to pay Company Income Tax (CIT). However, this does not mean that the company has no tax obligations. Certain taxes and compliance requirements still apply.
Taxes Payable by a Company Even When It Makes No Profit
- Minimum Tax (Applicable to Some Companies)
Even when a company makes no profit, it may still be required to pay Minimum Tax under Section 33 of CITA. The minimum tax ensures that all companies contribute to the economy, even if they operate at a loss.
Who Must Pay Minimum Tax?
Companies that have been in business for at least four years.
Companies that do not qualify for the small business exemption (turnover above N25 million).
Minimum Tax Calculation
0.5% of turnover (excluding franked investment income).
Companies engaged in agricultural business are exempt from minimum tax.
Companies with at least 25% imported equity capital are also exempt.
- Value Added Tax (VAT) – 7.5%
Even if a company makes no profit, it must collect and remit VAT if it provides taxable goods and services. VAT is paid by customers and remitted to FIRS monthly.
- Withholding Tax (WHT)
A company must deduct and remit WHT on applicable transactions, even when making a loss. This applies to contracts, professional services, rent, and interest payments.
- Pay-As-You-Earn (PAYE) Tax
If the company has employees, it must deduct PAYE tax from salaries and remit it to the relevant State Internal Revenue Service (SIRS).
- Tertiary Education Tax (TET) – 2.5%
Applicable only to profitable companies.
If the company records a loss, it is not required to pay TET.
- Business Premises Levy
Some states impose an annual business premises levy on registered businesses, regardless of profitability.
Can a Company Carry Forward Losses to Offset Future Taxes?
Yes. Nigerian tax laws allow companies to carry forward tax losses for up to four years, meaning future profits can be adjusted against previous losses before calculating Company Income Tax.
Conclusion
While a company in Nigeria does not pay Company Income Tax (CIT) when it makes no profit, it may still be liable for Minimum Tax, VAT, PAYE, WHT, and other levies. Small companies with turnovers below N25 million are exempt from Minimum Tax.
Understanding these tax obligations helps businesses remain compliant and avoid penalties from tax authorities. If your company operates at a loss and you need tax guidance, contact us for professional assistance.
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