A donation is a gift, given in support of causes, charities or designated funds for charitable purposes. Donations go a long way in building communities and supporting the less-privileged in our society.
Nigerian companies are generally taxed under the Companies Income Tax Act (CITA). The CITA exempts profits generated by companies engaged in certain public benefit activities from tax. However, the profits must not be derived from trade or a business undertaking.
Profits of companies established to promote sporting activities are also exempt. Nigerian companies may make tax-deductible donations to certain public benefit organizations that are listed in the Fifth Schedule to CITA. Donations made by individuals, on the other hand, are not tax-deductible. Nigerian not-for-profit companies are subject to a value added tax (VAT).
Donations made to research centres are deductible from your income tax liability. However, you cannot deduct more than 10% from your taxable income.
By virtue of the provisions of Section 25 of the Companies Income Tax Act (CITA), donations made by companies to designated funds, bodies or institutions in Nigeria are tax deductible subject to certain conditions. Paragraph 35 to the Fifth Schedule of the CITA, specifically provides that donations to any public fund established or approved by the Federal or State government in aid or relief for any national disaster will be tax deductible.
Qualities of Tax deductible donations
Section 25 of CITA provides the conditions or circumstances under which donations made by companies shall be tax deductible:
- The Company must donate to a public fund, statutory body/institution, ecclesiastical, charitable, educational or scientific
- The company should make the donation from its profits. It should not be a capital expenditure.
- Deductions are limited to 10% of your total profits for the year of assessment.
- The institution receiving the donation must be established/incorporated in Nigeria ;
- Donations made by a company should not include any payments made by the company for valuable consideration;
- Donations may be tax deductible notwithstanding the fact that such donation is revenue or capital in nature, where such donations are made to tertiary institutions and the deductions do not exceed an amount which is equal to 15% of the total profits or 25% of the tax payable in the year of the donation whichever is higher.
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