Category: Tax

The Federal Inland Revenue Service (FIRS) adopted the treatment of leasing by the International Accounting Standards on Leases SAS 11, and accordingly classifies leases for tax purposes as either finance or operating leases, together with other variants of leasing such as leveraged leases, sale and lease back and sale – type lease. At this point, it is important to explain some general principles as background to the specific tax issues in leasing to be discussed. Capital Allowance granted in…

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All lessees, especially a business entity, must treat their taxes appropriately in its books, and this should comply with the provisions of the latest circular “Guidelines on Tax Implications of Leasing” issued by the in Federal Inland Revenue Services (FIRS) in April 2010. The following specifies how  taxes should be treated by a lessee (user of asset): Finance Lease Treatment for Lessee The Companies Income Tax Act (CIT) regards the interest portion of the periodic lease rental and other…

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Leasing is subject to: Value Added Tax (VAT) Withholding Tax and Capital Gain Tax, CITA. Finance Lease VAT is not applicable, that is you don’t have to charge VAT on your finance leases The interest portion of the rental is taxable income Capital portion is a repayment and no tax implication Withholding tax is on the interest portion of rental Lessee has a duty to withhold tax at 10% of interest portion Operating Lease : The total lease rental…

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