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- April 18, 2025
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INCOME TAX IN NIGERIA IN PROPERTY SECTORS.
Nigeria’s property sector involves several income-related taxes at both the federal and state levels. Here’s a breakdown of the key taxes:-
1. INCOME TAX:
•Rental Income: Individuals and companies earning income from renting out properties are subject to income tax.
•For individuals, this is governed by the Personal Income Tax (Amendment) Act 2011. Income tax rates for individuals in Nigeria range from 7% to 24%, depending on the individual’s total taxable income.
•For companies, the Companies Income Tax Act applies. The rate is generally 30% for large companies (turnover above NGN 100 million). However, there are reduced rates for small (0% for turnover below NGN 25 million) and medium-sized companies (20% for turnover between NGN 25 million and NGN 100 million).
•Withholding Tax on Rent: When rent is paid to a property owner, the payer is legally obligated to withhold 10% of the rent and remit it to the tax authority as an advance payment of the property owner’s income tax. The property owner then receives a tax credit note for this amount.
•Real Estate Investment Companies (REICs): Rental income earned by REICs approved by the Securities and Exchange Commission (SEC) may be exempt from income tax, provided that at least 75% of the income is distributed to shareholders within 12 months of the financial year-end. However, any further distribution to the shareholders may be subject to withholding tax.
2. CAPITAL GAINS TAX (CGT):
•This tax applies to the profit made from the sale or disposal of property.
•The current rate of CGT in Nigeria is a flat 10% of the capital gain.
•Chargeable Assets: CGT applies to gains from the disposal of various assets, including land, buildings, shares, and other properties.
•Exemptions: There are certain exemptions from CGT, such as gains from the disposal of Nigerian government securities, treasury bonds, and awards for valour.
3. PROPERTY TAX:
This is a broad term encompassing various taxes levied on property ownership and transactions, primarily at the state and local government levels.
• Land Use Charge: This is an annual tax levied by state governments on properties based on their location, size, and usage (residential, commercial, or industrial). Rates vary depending on the state and these factors. For instance, in the Federal Capital Territory (FCT), rates are 0.3% for recreational property, 0.4% for residential, 0.6% for commercial, and 0.7% for other property types. Lagos State uses a rate of 0.394% of the assessed property value for commercial properties and investment residential properties.
•Tenement Rate: Collected by local governments, this tax is typically based on the rental value of residential properties.
•Stamp Duty: This tax is payable on documents related to property transactions, such as deeds of assignment and leases. The rate is typically 1.5% of the property value and is usually borne by the buyer.
•Consent and Registration Fees: For property transfers to be valid, the Governor’s consent is often required, attracting a consent fee. Additionally, registration of property interests (especially leases exceeding three years) at the state land registry incurs a registration fee. Rates for these vary by state; for example, Lagos State charges 1.5% for consent and 0.5% for registration.
•Development Levy: This may be imposed by state or local governments to fund infrastructure development in specific areas.
•Rent Tax: Some states may levy a direct tax on rental income in addition to the general income tax.
IMPORTANT CONSIDERATIONS:-
Tax laws and rates can change, so it’s crucial to stay updated on the latest regulations.
•Tax administration for different property-related taxes is handled by various levels of government (federal, state, and local).
•Compliance with tax obligations is mandatory and contributes to government revenue for public services and infrastructure.
It’s recommended to consult with a tax professional in Nigeria for specific advice related to your property holdings and income in the property sector. They can provide guidance based on the current laws and your circumstances.