Tax & Business Matters - Nigeria

Life premiums are tax deductible but not the savings component says LIRS

Some life assurance policies contain elements of savings or investment. Such policies often mature during the active lifetime of the policyholder or based on an agreed tenure.

Section 33(4d) of the Personal Income Tax Act (PITA), 2011 as amended provides for tax deductibility of premium on life insurance and deferred annuity on an individual’s life or their spouse subject to certain conditions.

Read our alert below for further details.

Download PwC Tax Alert_Treatment of Life Insurance Premium_Sep2017

Download LIRS NOTICE_TREATMENT OF SAVINGS ELEMENT ON INSURANCE PREMIUM_SEP 2017

LIRS clarifies conditions for tax deductibility of interest on property loan

The Lagos State Internal Revenue Service (LIRS) has released a public notice to provide clarification on the conditions and compliance requirements for individuals to qualify for tax deduction of interest on their property loans.

The LIRS defines an “owner-occupied residential house” as any residential property (i.e. not an investment property) on which an individual has incurred expenditure on the purchase, construction, or conversion for his/her occupation. This excludes all temporary fixtures such as paintings, furniture, and electrical equipment etc. It must be used by the individual as the sole or main residence.

Read more here Download PwC Tax Alert_Tax deduction for interest on owner occupied houses_Sep2017

Download LIRS NOTICE_ALLOWABLE INTEREST DEDUCTIONS ON OWNER OCCUPIED PROPERTY

Taxation of accommodation benefit provided by employers – LIRS position

The Lagos State Internal Revenue Service (LIRS) has issued a public notice on the valuation of accommodation benefit provided by employers to their employees.

According to the notice, the taxable value of a leased accommodation is the rent paid and where the accommodation is owned by the employer this shall be the commercial rental value of comparable properties in a similar location. The taxable benefit of a hotel accommodation exceeding 90 days is the amount paid by the employer for the hotel room or the room rate.

Read our alert for more:

Download PwC Tax alert_Valuation & taxation of accommodation benefit_Sep2017

Download LIRS NOTICE_VALUATION OF ACCOMMODATION PROVIDED BY EMPLOYERS 2017

Compensation for loss of employment is taxable says LIRS

The Lagos State Internal Revenue Service (LIRS) has issued a public notice distinguishing between terminal and termination benefits, their respective tax treatments and compliance obligations.

Compensation for loss of employment will qualify for exemption under PITA if the amount paid is not pre-agreed. However such payments are liable to capital gains tax (CGT) under section (6)(1a) of the CGT Act. The LIRS holds the view that all pre-agreed payments are taxable under the PITA.

Read our alert for details:

Download PwC Tax alert_Compensation for loss of employment_Sep 2017

Download LIRS NOTICE_Compensation for Loss of Employment_Sep2017

LIRS clarifies issues relating to the taxation of non-nationals

Overview

A public notice has been published by the Lagos State Internal Revenue Service (LIRS) on the taxation of foreigners who perform employment duties in Nigeria. It also specifies the compliance requirements for different categories of non-nationals with a Temporary Work Permit (TWP).

Interestingly the LIRS is now paying attention to transfer pricing considerations as one of the factors in the determination of tax liability in the state.

Read our alert for details.

Download PwC Tax Alert_Taxation of non-nationals_Sep2017

Download LIRS NOTICE_Taxation of non-nationals with temporary work permit_SEP2017

LIRS issues clarification on the taxation of employees’ share schemes

The Lagos State Internal Revenue Service (LIRS) has released a public notice to provide clarification on the taxation of share schemes where an employee derives a gain or benefit from the arrangement.

Employers are required to deduct PAYE on the benefits at the date of exercise. The amount to be subject to tax is the difference between the price paid for the shares and the value of the shares at the date of exercise. For listed entities, the value of the shares will be the price of the stock as traded on the relevant exchange, while for non-listed entities, the value of the stock will be the net asset per share. Where the employee pays no price, the total number of the shares (based on market value) awarded to the employee will be subject to tax.

Any gains accruing to the employee post exercise will be treated as capital gains which is currently exempt from tax. Any dividend or phantom dividend earned by the employee during the vesting period will be treated as employment income and taxed at applicable rates rather than withholding tax.

See below for more:

Download PwC Tax alert_Taxation of Share Options_Sep2017

Download LIRS NOTICE_TAXATION OF EMPLOYEES SHARE SCHEMES_SEP2017

LIRS issues clarification on the taxation of interest benefit on loans granted to employees

Interest benefit to be deemed at MPR -3%, that is, 11% (currently MPR at 14% - 3% = 11%).

Over time, employers have adopted various practices in the treatment of loans that were granted to their employees for tax purposes. The Lagos state Internal Revenue Service (LIRS) has now issued its position on what should be an appropriate tax treatment of loans that are granted to employees by their employers.

While the basis of determining the taxable benefit may be debatable, it is clear that a benefit arises when a loan is granted to an employee at below commercial interest rates. As a result the LIRS Notice will help reduce the uncertainty regarding taxation of employee loans.

The LIRS should therefore take further steps to seek specific amendments to the law to clearly specify the basis and manner of determining the taxable benefit. It may also be useful to provide a tax exemption threshold by amount and tenor to avoid significant administrative cost to employers.

Given that this is a change in established practice of the LIRS, a cut-off point and transition period should be provided.

Read our alert for more.

Download PwC Tax alert_Taxation of employee loans_Sep2017

Download LIRS NOTICE_TAXATION OF EMPLOYEE LOAN 2017