15 Must-Know Facts About Dividend Taxation in Nigeria

 

So, you've got some dividends rolling in? Whether it's from a Nigerian company or a foreign investment, income from dividends can feel like a sweet reward for your financial savvy. But before you pop the champagne, there’s one more thing you’ll want to understand—how your dividends fit into your tax liabilities under Nigeria's Personal Income Tax Act (PITA). Don’t worry; we’ll break it down into bite-sized pieces. Here are 15 things every investor needs to know.

1. Yes, Your Dividends Are Taxable!

Under PITA, income from dividends is taxable. So if you’re receiving dividends from a Nigerian company or even from a foreign one, it’s likely on the tax radar. Taxable income includes “any dividend, interest, or discount,” meaning that cash you earned as a shareholder will face a little slice taken by the tax authorities.

 

2. Dividends Are Deemed as Nigerian Income

Dividends from a Nigerian company are treated as Nigerian-sourced income. PITA states that if a dividend is distributed by a Nigerian company, it's considered “derived from Nigeria” even if it’s from a foreign company. This means that, as long as you’re Nigerian, the income from these dividends is expected to be taxed locally.

 

3. What Counts as a Dividend?

Under PITA, a “dividend” is not just money in the form of cash. It’s any profit distributed by a company, including those bonuses and debentures awarded as shares to a shareholder. So, even if you receive bonus shares, these could fall under taxable income!

 

4. Foreign Dividends Count Too

Have some income rolling in from a foreign company? Don’t forget that foreign dividends also count as taxable income. PITA specifies that any dividend earned outside Nigeria must be declared if it's received in Nigeria. However, only the amount brought into the country is subject to tax.

 

5. Where Foreign Tax Credits Come In

Paying tax on your foreign dividends can be a little tricky. If foreign tax isn’t deducted directly, PITA allows this amount to be factored in for credit, reducing double taxation. This way, you’re not taxed twice on income received both abroad and in Nigeria, keeping your income from being unduly hit by taxes.

 

6. The Timing of Your Dividend Matters

According to PITA, income from a dividend is considered “accrued” or earned when it becomes due—not when you actually receive the cash. For instance, if your dividend payment becomes due in December but hits your account in January, it's the December tax period that matters.

 

7. Exemptions on Dividends from Specific Investments

There are a few lucky cases where dividends can be exempted. Under PITA, if you own at least 10% of the shares in a Nigerian company and that equity was paid for in foreign currency or by bringing assets into Nigeria between 1987 and 1992, your dividends may be exempt for a limited period. For agricultural or petrochemical companies, this exemption can last up to five years!

 

8. Tax-Free Period for New Capital in Nigeria

If you’re investing new capital into Nigeria (especially in agricultural production, processing, or petrochemicals), your dividends might benefit from a tax-free period. This lasts five years for agriculture and petrochemical ventures and three years for other sectors, giving you a breather before taxes kick in.

 

9. No Tax on Repatriated Foreign Income in Domiciliary Accounts

Great news if you’re bringing income earned abroad into Nigeria! As long as your dividends, interest, or other income comes in through a domiciliary account in a convertible currency, it can be tax-exempt. But make sure it goes into a government-approved bank to qualify for this exemption.

 

10. Automatic 10% Withholding Tax on Nigerian Dividends

When a Nigerian company distributes dividends, it’s legally required to withhold 10% as tax before sending the remainder your way. This withheld tax is then handed over to the relevant tax authority, so you don't have to worry about paying it yourself. It’s essentially a “tax at source” system.

 

11. Dividends in Liquidation—Taxed Differently

If a company is winding up or liquidating, dividends from capital gains made during this process are treated differently under PITA. These liquidated earnings are still considered income and may be taxed, but any gains made before liquidation are not considered dividends.

 

12. State Tax Authority Takes Charge

So, who do you pay? The tax authority for dividends under PITA is based on the taxpayer’s residence. So, if you’re in Lagos, the Lagos State tax authority manages your tax. This tax authority is the one to whom all filings, payments, and inquiries are made.

 

13. Is It Final Tax?

When a company withholds 10% on dividends, this is considered the “final tax” on this income, meaning that it's usually all the tax you owe on this income—no need for further adjustments or calculations. It’s a straightforward tax treatment.

 

14. Special Cases for Investments in Agribusiness

Investing in agribusiness has its perks. If dividends are from agricultural companies or processing of local Nigerian products, those earnings can enjoy special tax treatment under PITA, including longer tax-free periods.

 

15. Dividend Reinvestment—Not Always Tax-Free

If you choose to reinvest your dividends instead of receiving them as cash, remember that this does not automatically exempt them from tax. PITA still considers them as income, so if the tax authorities come calling, you may still owe the 10%.

 

And there you have it! If you're investing in or planning to invest in Nigerian companies, knowing these 15 points can help you stay in good standing with the tax authorities and make the most of your income. Whether you’re a first-time investor or a seasoned one, staying informed about dividend tax liabilities keeps your finances steady, giving you confidence as you grow your wealth.