Do you want to know if Incorporated Trustees pay tax in Nigeria? If yes, let us find out.

Incorporated trustees, often known as non-profit organizations, play a vital role in addressing social, educational, religious, and charitable needs in Nigeria.

As these entities are established for public benefit rather than profit-making, their tax obligations differ from those of for-profit businesses.

This article delves into whether incorporated trustees pay tax in Nigeria, the specific tax exemptions they enjoy, and the compliance requirements they must meet.

Check out How to Manage and Reduce Business Debt – The Most Effective Ways.

Understanding Incorporated Trustees

Incorporated trustees are legal entities registered under Part C of the Companies and Allied Matters Act (CAMA) 2020.

They are typically established for religious, educational, literary, scientific, social development, cultural, sporting, or charitable purposes.

Examples include churches, NGOs, foundations, and community-based organizations. These entities do not distribute profits to their members but reinvest any surplus into their mission and objectives.

You can check out: Tax Strategies for Entrepreneurs: Maximizing Deductions and Credits

What are Tax Exemptions for Incorporated Trustees

One of the primary benefits of registering as an incorporated trustee is the potential for tax exemptions.

In Nigeria, incorporated trustees enjoy various tax exemptions, provided they meet specific criteria and comply with regulatory requirements.

1. Income Tax Exemption

Incorporated trustees are exempt from paying income tax on income derived from activities related to their primary objectives.

This exemption is grounded in the understanding that their operations are for public benefit rather than personal or commercial gain.

However, it is crucial to note that income derived from unrelated business activities may still be subject to tax.

• Primary Objective Income: Donations, grants, membership fees, and income from activities directly related to the organization’s mission are typically exempt from income tax.
• Unrelated Business Income: Income from unrelated business activities, such as renting out property or running a commercial enterprise, may be subject to income tax.

2. Value Added Tax (VAT) Exemption

Goods and services provided by incorporated trustees that directly relate to their primary objectives are generally exempt from VAT.

This means that organizations do not need to charge VAT on services such as educational programs, religious activities, or charitable services.

• Exempt Activities: Educational seminars, religious services, and charity events.
• Non-exempt Activities: The sale of goods or services not directly related to the organization’s mission may be subject to VAT.

3. Custom Duties Exemption

Incorporated trustees may be exempt from paying customs duties on imported goods intended for their primary activities.

This exemption supports organizations in acquiring essential resources for their missions without the additional financial burden of import taxes.

• Exempt Goods: Educational materials, medical supplies, and equipment for charitable activities.
• Non-exempt Goods: Items imported for unrelated commercial purposes may still incur customs duties.

4. Withholding Tax (WHT) Exemption

Payments made to incorporated trustees for services rendered in line with their primary objectives are generally exempt from withholding tax.

However, payments for commercial services not related to their mission may still attract WHT.

• Exempt Services: Consulting services related to charitable activities, educational training, and religious counseling.
• Non-exempt Services: Commercial consultancy services unrelated to the organization’s mission.

Compliance Requirements for Maintaining Tax Exemption

To enjoy these tax exemptions, incorporated trustees must comply with certain regulatory requirements. Non-compliance can result in the loss of tax-exempt status and potential penalties.

1. Proper Record-Keeping

Incorporated trustees must maintain accurate and up-to-date financial records.

These records should detail all income, expenditures, and activities to demonstrate that the organization operates within its charitable objectives.

• Financial Statements: Prepare annual financial statements, including income and expenditure accounts, balance sheets, and cash flow statements.
• Activity Reports: Document activities and programs conducted during the year to illustrate alignment with the organization’s mission.
• You can learn more about Tips For Organizing Financial Records For Bookkeeping.

2. Annual Returns

Incorporated trustees are required to file annual returns with the CAC. If you want to know whether Incorporated Trustees Pay Annual Returns, click here.

These returns include details of the organization’s financial activities, governance structure, and compliance with regulatory requirements.

• Filing Deadline: Annual returns must be filed within 18 months of incorporation and subsequently every year.
• Submission: Provide comprehensive details of trustees, financial statements, and reports of activities.

3. Tax Clearance Certificate

Incorporated trustees should obtain a tax clearance certificate from the Federal Inland Revenue Service (FIRS).

This certificate confirms that the organization has complied with tax obligations and is eligible for tax exemptions.

• Application Process: Submit financial statements and documentation of tax-exempt activities to the FIRS.
• Renewal: Renew the tax clearance certificate annually to maintain tax-exempt status.

Conclusion

Incorporated trustees in Nigeria enjoy significant tax exemptions, reflecting their role in promoting public welfare and benefiting society.

While income related to their primary objectives is generally exempt from taxes such as income tax, VAT, customs duties, and withholding tax, income from unrelated business activities may still be taxable.

To maintain these exemptions, incorporated trustees must adhere to strict compliance requirements, including proper record-keeping, filing annual returns, and obtaining tax clearance certificates.

For incorporated trustees seeking assistance with tax compliance and maintaining their tax-exempt status, Skypro Professional Services offers expert guidance and support.

Our experienced team can help ensure that your organization remains compliant with all regulatory requirements, allowing you to focus on achieving your mission and making a positive impact on society.

Contact Skypro Professional Services today via info@skyproservices.com.ng to learn more about how we can assist you.

Related Articles:

• Tax Preparation Tips for Small Business Owners
• Understanding Tax Deductions: What Small Businesses Need to Know