INCOME FROM DIVIDEND: 8 THINGS YOU NEED TO KNOW AS REGARD YOUR TAX LIABILITY UNDER PITA?

Are dividends derived or earned by you really taxable under the Personal Income Tax Act (PITA) 2004 as amended? And if taxable, how, and to what extent are they taxable? Are you really aware of some facts

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about the implication of the dividends you earn on your shares in a company, and their relationship to your personal income tax liability under the Personal Income Tax Act (PITA) as amended?

It seems that tax must be deducted or withheld from all dividends at the point of payment given that section 32 of the 3^rd schedule categorically stated that nothing in the Act shall exempt dividend, interest or royalty from tax deduction at source as mentioned under section 69 or 70. But since it is section 71 that is applicable to tax deduction from dividend at source, it can be contended that dividends or rather precisely, certain dividends are exempted from such tax deductions.

Frankly speaking, Section 3(1)(b) of PITA 2004 as amended listed dividend as part of your incomes that are chargeable to tax thus loosely giving us an indication that this income (i.e. dividend) is taxable under this Act. But is this really as straightforward as it purports to be? Since, there are various dimensions to dividend under this Act; what then is the conclusion that can be drawn as regard your tax liability to dividend under PITA? And what are those facts you need to know about your incomes from dividends and the bearing they have on your personal liability to income tax under PITA?

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Therefore, in answer to the following questions and other related ones, here are 8 important facts about your incomes from dividend pari passu your personal income tax liability under PITA.

1. Dividend: Its Meaning under the Act

For a company that is still a going concern (i.e. not in the process of winding up), dividend is any profit distributed to you, including an amount which is equal to the bonus shares, debentures or securities awarded to you as a shareholder. But the description of dividend does not just stop there: In the Act, dividend also includes the profit distributed to you by a company in liquidation in the form of money or otherwise apart from those of capital nature earned by you before the winding up or liquidation of the company.

By this definition, dividend means not only the cash dividend paid you by the company but it also includes the scrip issue or bonus dividend given to you. The amount taken for tax purpose is usually the nominal value of the scrip issue or bonus share.

2. Meaning of Nigerian dividend

A Nigerian dividend is a dividend that is paid you by a Nigerian company. That is, if a company incorporated in Nigeria distributes dividends to you such dividend is deemed a Nigerian dividend.

3. Meaning of Foreign Dividend

Foreign dividend is a dividend you derive from a non-Nigerian company or outside Nigeria, and brought into or received in Nigeria by you.

4. Dividend: Relevant Tax Authority

The relevant tax authority to assess your income from dividend for tax is usually the tax authority of the state where you reside in Nigeria provided the company paying the dividend is a Nigerian company.

But if you are not resident in Nigeria though you derive the dividends from a Nigerian company, the relevant tax authority is usually the Federal Inland Revenue Service.

5. Withholding Tax on Dividend

Under PITA, withholding tax (WHT) is expected to be deducted at source from the dividend paid to you by the company paying the dividend. The amount deducted from the dividend paid to you is at the rate of 10%. If such WHT is deducted, this should be accounted for in a schedule containing the following information to the relevant tax authority.

a.       The gross amount of the dividend

b.      Name and address of the recipient of the dividend

c.       The accounting period of the company in respect of the profit from which dividend is declared to be payable.

d.      The date of payment.

6. WHT on dividend: Final Tax

Once WHT on dividend is paid to the relevant tax authority, the tax becomes the final tax on the income from such dividend.

7. Government approved channels: Dividend derived outside Nigeria

The following are the government approved channels for dividend derived outside Nigeria:

a.       Central Bank of Nigeria (CBN)

b.      Any bank or corporate body appointed by the minister as authorized dealer under the foreign exchange (monitoring and miscellaneous provisions) Act.

8. Tax-exempted Dividend

Income from dividend that is earned abroad by a Nigerian who is resident in Nigeria; if such dividend is brought into Nigeria in convertible currency and paid into a domiciliary account approved by the government is tax-free.

In the same vein, dividend derived or earned by you from a company incorporated in Nigeria is also tax-free if:

a.       You paid for the equity capital or part of the equity capital of the company fully using foreign currency, or the assets of the company are brought into Nigeria between 1 January, 1987 and 31 December, 1992.

b.      You own not less than 10% of the equity share capital of the company.

Please, understand that the tax-exemption you enjoy on the dividend received from such company is only for 3 years, and 5 years if the company is into agricultural business, processing of agricultural produce and petrochemical or liquefied natural gas.