Dividend Tax (Section 19)

The application of dividend tax as become something lot of companies don’t put in perspective when considering if to declare dividend or not. It is quite understandable that most business entities tend to be more concern about pushing business progress than considering the consequences especially on tax matter. I think it should be of more concern to every management to consider all factors especially those that relate to the regulators before making decision – personal saying “consult all experts before taking the next step”-

Dividend tax is governed by section 19 of the Company Income Tax Act….. “where a dividend is paid out as profit on which no tax is payable due to ….”

Section 19(a) “no total profit

Section 19(b) “total profits which are less than the amount of dividend which is paid, whether or not the recipient of the dividend is a Nigerian company”

The section and its sub are straight forward with emphases on the fact that any company with a tax loss or whose dividend declared is higher than the total profit then the tax rate will apply on the dividend declared . So why will you want to declare so much dividend without considering the tax implication? Never mind, this law can be hedged, all you need is to plan so you need an expert>

Furthermore, Dividend received by companies other than Nigerian companies

Companies that are not Nigerian company nor engage in a business or trade in Nigeria at any time during a year of assessment. This companies are not liable to tax in Nigeria in respect of any dividend received with exception to the withholding tax deducted at source by the dividend issuing company which is seen as the final tax on the non resident company. (Section 20)

Do you know that the Federal Inland Revenue Service have the power under Section 21 to actual declare dividend on behalf of a company? This applies to companies that is been controlled by not more that five persons (i.e the directors). Where it appears to the Revenue Service that the company intentionally did not declare dividend on profit made in any period for which accounts have been made up and which profit would have been distributed without detriment to the company’s business as it existed at the end of the period, the Revenue Service may direct that any of such undistributed profit in those period be treated as distributed.

This Section seems defective because the big question is what is the level of the Revenue Service assessment of “without detriment to the company’s business” . This is a big question yet to be answered. Though it is in the Act but the application looks vague.

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