Getting a Tax Clearance Certificate (TCC) In Nigeria - Federal Inland Revenue Service (FIRS)

A Tax Clearance Certificate is a written confirmation from Revenue that a person's tax affairs are in order at the date of issue of the Certificate. In some instances a Certificate may be issued to a customer who has tax arrears provided such arrears are covered by an installment arrangement that has been agreed with Revenue.

The requirement to produce a Tax Clearance Certificate usually arises in the context of a person seeking State money (e.g. Government contracts, grants) or obtaining licences (e.g. excise licence, road transport licence) but can also arise in other cases (e.g. the Standards in Public Office Act, 2001 applied tax clearance requirements to persons elected to the Dail or Seanad, judicial appointees and senior office appointees). Apart from situations where a person is legally required to produce a Tax Clearance Certificate, Revenue is also prepared to issue a Certificate to any customer whose tax affairs are in order.

In this discourse I am going to take you through a practical way of obtaining a tax clearance certificate from the Federal Inland Revenue Service. It’s not a one size fits all solution but large enough to help a Small Company (XYZ an Hypothetical company).

These days’ government agencies and companies require long list of documentation before
you can be considered a supplier or contractor. Amongst them is a Tax Clearance Certificate (TCC).

The process of obtaining a tax clearance certificate can be different for several organizations. It all depends on the dynamics of your company. However, since XYZ just started business the following steps may be applicable:

Step 1: If you are yet to do so, get in touch with FIRS and register your company. The FIRS usually maintain offices in almost every local government area. For instance, if your office is located in Surulere, you will have to register with the Integrated Office at Alaka. After registration, your company will be given a Tax Identification Number (TIN). Your TIN will be used for every tax related transaction you do like VAT and WHT. It is however not to be used for your state related taxes like the ones collected by the LIRS.

Step 2: Whatever you do, never approach a FIRS official or office by yourself, it can make or mar you. At this point you should get a tax consultant. However, the next steps guide you with what the processes will be.

Step 3: The tax consultant will ask you questions like when your company was incorporated and when it commenced business? A company may be incorporated but yet to commence business. Incorporation simply means you have registered your company with the Corporate Affairs Commission. Commencement means the date you started using the company you registered for business. It doesn't matter if the business is generating income or not. Once it has a bank account that shows inflow and outflow of money, it is typically considered to have started business by the tax man.

Step 4: if your company commenced business in January 2010 like XYZ and have never filed for tax then you will be asked by your consultant to provide an audited Financial Statement (FS) or Statement of Affairs. An FS is a document that contains the financial state and performance of your business for the period under consideration. It includes things like your Balance Sheet and Profit and loss account.

Step 5: Once the Financial Statement is prepared and signed by the representative of the company and the auditors, hand it over to your consultant. The Financial Statement for a company in operation also includes your estimated tax payable. Your estimated tax payable is the amount of tax you are telling the FIRS that you are liable to pay. However, this is not usually acceptable by the authorities as they often make their own computation. But you should do yours and make it as conservative as possible.

Step 6: Your consultant will give you several forms to fill. You will be guided as you fill the forms. However, it is important that you read through the forms as most of the information you reveal in it are confidential and so you will not want to give out something that might implicate you because it is wrong. You will also be told to provide copies of your letter head. These copies are used for correspondences with the tax authority which will typically include your application for tax clearance certificate. You will also need to give your consultant your Certificate of Incorporation and Memorandum and Articles of Association (often called MEMAT). You will also give the tax man a copy of the personal tax clearance certificate of your MD or/and any Director which you will obtain from the state Inland Revenue service. For example, in Lagos it is obtained from the LIRS.

Step 7: Your tax consultant will then submit your documents with the FIRS. The role of the tax consultant is very critical as their handling of your case with the authorities usually determines if the tax man will accept your figures and give you a certificate on time. In a situation where the account you prepared is not acceptable to the authorities they can by law use a Best of Judgment (BOJ) decision to compute the amount of tax you should pay. This is often a drastic and unfavourable scenario for the tax payer. However it can be minimized or all together avoided.

Step 8: You will be given a Tax Clearance Certificate that is signed by an Inspector of Taxes. The tax clearance certificate is usually for the 3 years preceding your application.

The cost of a tax consultant differs for small businesses. However, it can fall between N50k to N100k depending on the peculiarity of your case.

It is crucial to note that once a company is submitting a Statement of Affairs, the TCC will be Nil. This is because; the company prepared a Statement of Affairs. In the case of submitting a Financial Statement, TCC will show the Figures of Turnover, Taxable Profit, Assessable Profit, penalties paid (if any) and all taxes paid. 

Ajibola Aderonke is an auditor at professional services firm Ernst & Young (EY). She previously worked another Big 4 accounting firm PwC. She can be reached at ajibolaaderonke@gmail.com for ideas and suggestions. The post above and its ensuing comments, if any, is purely the opinion of the writer.