A Guide to Tax Compliance for Property Developers in Lagos
Introduction
Property development in Lagos is one of the most lucrative industries in Nigeria. The demand for residential, commercial, and mixed-use properties continues to rise as the population of Lagos expands beyond 20 million people. Yet, while property development brings huge profits and opportunities, it also comes with substantial legal and tax responsibilities. Many developers focus on construction and sales but overlook the importance of tax compliance, which can have serious financial and legal consequences.
Understanding and complying with tax obligations is crucial for any developer seeking long-term success, investor confidence, and smooth operations in Lagos. Tax compliance is not just about paying taxes—it involves proper record-keeping, registration, filing returns, and meeting all obligations under Nigerian tax laws. A non-compliant developer may face penalties, project delays, or even loss of government approvals.
This guide provides a detailed, step-by-step explanation of all major taxes applicable to property developers in Lagos, their rates, payment processes, compliance requirements, and how to avoid common pitfalls. It also includes insights from a legal and real estate perspective to help developers—both local and diaspora—operate within the law and maximize profitability.
Understanding the Tax Environment for Property Developers in Lagos
Lagos is not only Nigeria’s commercial capital but also the hub of real estate development. With several ongoing residential estates, commercial complexes, and mixed-use projects, the Lagos State Government closely monitors the sector through taxation and regulation. Property developers are expected to comply with both federal and state tax requirements.
At the federal level, the Federal Inland Revenue Service (FIRS) administers taxes such as Corporate Income Tax, Value Added Tax (VAT), Capital Gains Tax (CGT), and Withholding Tax (WHT). At the state level, the Lagos State Internal Revenue Service (LIRS) and the Lagos State Ministry of Finance manage taxes like Personal Income Tax (for individuals), Land Use Charge, and certain transaction-related levies.
Failure to comply with these tax obligations can result in heavy penalties, project disruption, and damage to a developer’s reputation. For property developers, tax compliance is both a legal duty and a business necessity.
1. Key Taxes Applicable to Property Developers in Lagos
Below are the major taxes and levies that every property developer in Lagos should understand and comply with:
A. Company Income Tax (CIT)
Company Income Tax is a federal tax charged on the profits of property development companies under the Companies Income Tax Act (CITA) Cap C21 LFN 2004 (as amended). All registered companies are required to pay 30% of their net profit as CIT annually.
Key points:
Payable to the Federal Inland Revenue Service (FIRS).
Computed based on audited financial statements.
Filing deadline: Six months after the end of the company’s accounting year.
Late payment penalty: 10% of unpaid tax plus interest.
Property developers must maintain proper accounting books and engage qualified auditors to ensure accurate profit computation. Note that the Finance Act 2020 introduced progressive tax rates:
Small companies (turnover < ₦25 million): 0%
Medium companies (₦25–₦100 million): 20%
Large companies (> ₦100 million): 30%
B. Value Added Tax (VAT)
VAT is a consumption tax charged at 7.5% on goods and services, including construction materials and property sales. Under the Value Added Tax Act, developers must charge VAT on sales of newly built properties and remit it to FIRS.
Example:
If a developer sells a flat for ₦50 million, VAT payable = ₦3.75 million. This should be charged to the buyer and remitted to FIRS by the 21st day of the following month.
Developers must register for VAT, issue VAT invoices, file monthly returns, and remit the collected tax promptly. Failure to remit VAT collected from buyers is a serious offence and attracts penalties under the law.
C. Withholding Tax (WHT)
WHT is an advance payment of income tax, deducted at source when payments are made to contractors, suppliers, professionals, or service providers. Developers are legally required to deduct WHT and remit it to FIRS or LIRS depending on the type of transaction.
Applicable rates:
Individuals: 5%
Companies: 10%
Example:
If a developer pays ₦10 million to a contractor for building work, they must deduct ₦500,000 and remit it to the tax authority on behalf of the contractor.
Failure to remit WHT on time attracts penalties equal to 10% of the tax amount and interest at the prevailing Central Bank of Nigeria rate.
D. Capital Gains Tax (CGT)
CGT is payable at 10% on any gain realized from the sale of land or buildings. Developers who sell properties at a profit are required to compute and remit this tax to FIRS before applying for Governor’s Consent or registration.
Example:
If a developer bought a plot for ₦20 million and sold it for ₦30 million, the ₦10 million gain is subject to 10% CGT, amounting to ₦1 million.
This tax is critical for title perfection and is one of the most frequently ignored obligations by developers.
E. Land Use Charge (LUC)
The Land Use Charge Law 2018 (as amended) consolidates ground rent, tenement rate, and neighborhood improvement levy into one single annual property tax. Every property owner or developer holding land in Lagos must pay LUC annually.
The charge varies depending on the property’s value, use, and location, ranging from 0.076% to 0.76% of the assessed market value. Non-payment can lead to penalties, sealing of property, or legal action by the Lagos State Government.
Developers are expected to pay LUC for properties under development and transfer proof of payment to buyers after completion.
F. Stamp Duties
Stamp duties apply to all executed legal documents such as Deeds of Assignment, Leases, and Joint Venture Agreements. It is charged at 1.5% of the property value and is payable before registration or Governor’s Consent.
G. Building Plan Approval and Development Levies
Before commencing construction, every developer must obtain building plan approval from the Lagos State Physical Planning Permit Authority (LASPPPA) and pay statutory fees, which include:
Building plan approval fees
Infrastructural development levy
Inspection and monitoring charges
Waste management and environmental fees
Failure to obtain approval before construction can result in demolition or sealing by LASBCA (Lagos State Building Control Agency).
H. Personal Income Tax (for Individual Developers)
Individual developers operating under business names rather than limited liability companies must pay Personal Income Tax (PIT) under the Personal Income Tax Act (PITA). Tax is computed based on annual income and paid to the Lagos State Internal Revenue Service (LIRS).
2. Registration and Filing Requirements for Developers
To comply with Nigerian tax laws, every property developer must:
Register with the FIRS and LIRS to obtain a Tax Identification Number (TIN).
Register for VAT and start issuing VAT invoices.
Maintain proper accounting records including project costs, sales, and income.
File monthly VAT and WHT returns by the 21st of each month.
File annual CIT returns with audited accounts within six months of the financial year-end.
File annual returns with LIRS for employee PAYE and personal tax compliance.
Keep receipts of all payments (CGT, Stamp Duty, LUC) for documentation.
Developers should also ensure that all contractors and consultants engaged on projects are tax-compliant to avoid disallowances during audits.
3. Tax Compliance During Property Development Stages
Property development typically goes through four stages—each with distinct tax implications.
Stage 1: Land Acquisition
Pay Stamp Duty and Capital Gains Tax.
Verify that previous owners have cleared Land Use Charge and ground rent.
Obtain tax clearance before applying for Governor’s Consent.
Stage 2: Construction
Deduct and remit Withholding Tax on all contractor payments.
Pay VAT on construction materials and professional services.
Ensure all employees are registered for PAYE tax.
Stage 3: Sales and Leasing
Charge and remit VAT on property sales.
Pay Capital Gains Tax on profit made from each sale.
Deduct WHT on agent commissions and legal fees.
Stage 4: Property Management
File annual tax returns on rental income.
Pay LUC annually.
Deduct WHT from contractors for maintenance and repairs.
4. Penalties for Non-Compliance
Tax non-compliance attracts severe sanctions under Nigerian law. The penalties include:
Failure to register for tax: Fine of ₦25,000 for the first month and ₦5,000 for each subsequent month.
Failure to file VAT/WHT returns: ₦50,000 for the first month and ₦25,000 monthly thereafter.
Non-payment of CIT: 10% of unpaid tax plus interest.
Late filing of annual returns: ₦25,000 for companies, ₦10,000 for individuals.
Failure to pay Land Use Charge: 25–100% penalty, property sealing, and possible court action.
Developers with poor compliance records also face reputational risks, audit investigations, and denial of government contracts or approvals.
5. Common Tax Challenges for Property Developers
Multiple taxation: Overlaps between federal and state tax authorities.
Complex computation: Difficulty determining chargeable profit due to project costs.
Informal transactions: Many cash-based deals make documentation difficult.
Ignorance of law: Developers underestimate their tax liabilities.
Delays in approval: Late issuance of receipts and certificates by authorities.
To overcome these challenges, developers should hire tax consultants or legal advisors with deep knowledge of real estate taxation.
6. Tax Incentives and Reliefs for Developers
The Nigerian government provides incentives to encourage real estate investment, including:
Pioneer Status Incentive (PSI): 3–5 years tax holiday for companies in construction or housing development.
Capital allowances: Deductions for depreciation of buildings, machinery, and equipment.
Investment allowances: Up to 10% of qualifying capital expenditure.
Exemption from VAT for housing built for low-income earners (subject to approval).
Lagos developers can take advantage of these incentives to reduce overall tax burden while maintaining full compliance.
7. Tax Compliance Strategy for Developers
Step 1: Conduct a Tax Audit and Compliance Review
Engage professionals to evaluate your company’s tax status, liabilities, and obligations.
Step 2: Establish Proper Accounting Systems
Implement digital bookkeeping for all project-related transactions, invoices, and receipts.
Step 3: Register for All Relevant Taxes
Ensure you have valid TIN, VAT, and PAYE registrations.
Step 4: File Returns Promptly
Submit monthly and annual tax returns on or before due dates.
Step 5: Maintain Records
Keep copies of all receipts, remittance proofs, and tax clearance certificates.
Step 6: Work with Tax Consultants
Consult property lawyers and accountants who specialize in real estate tax law.
Case Study: The Lekki Developer Who Ignored Tax Compliance
A developer in Lekki completed a 10-unit luxury apartment project and sold all units within one year. However, he failed to remit VAT, Withholding Tax, and Capital Gains Tax. When he later applied for Governor’s Consent for each unit, the Lands Bureau rejected the application due to missing tax receipts. FIRS also issued a tax audit notice demanding ₦35 million in unpaid taxes, penalties, and interest.
The project profits were eventually wiped out by back payments and legal costs. The developer’s reputation suffered, and his company was blacklisted from future government housing partnerships. This case underscores that non-compliance can destroy profitability and credibility.
8. Role of Property Lawyers in Tax Compliance
Property lawyers play a critical role in helping developers stay compliant by:
Conducting due diligence during land acquisition.
Structuring contracts to reflect accurate tax obligations.
Liaising with FIRS and LIRS for filing and remittance.
Assisting in obtaining Governor’s Consent and registration.
Representing developers during tax audits or disputes.
At Chaman Law Firm, we combine legal expertise with real estate knowledge to guide developers through every stage of tax compliance—from project inception to sales completion.
9. Tax Compliance for Diaspora Developers
For Nigerians in the diaspora developing properties in Lagos, compliance can be challenging due to distance and reliance on agents. Diaspora developers must:
Appoint a trusted lawyer or firm via Power of Attorney.
Ensure their company is registered with FIRS and LIRS.
Remit taxes through online channels.
Obtain and store digital copies of all receipts and certificates.
Chaman Law Firm provides tailored services for diaspora investors to manage taxes, legal documentation, and compliance remotely.
10. Benefits of Tax Compliance for Developers
Builds investor and buyer confidence.
Prevents government sanctions or enforcement.
Ensures smooth property registration and consent approval.
Enhances reputation and eligibility for contracts.
Provides access to tax incentives and financing.
A compliant developer not only avoids penalties but also gains a competitive edge in Lagos’s growing real estate market.
Frequently Asked Questions (FAQs)
1. Do developers pay both VAT and Capital Gains Tax?
Yes. VAT applies to property sales, while CGT applies to profits from such sales.
2. Is Land Use Charge mandatory for undeveloped properties?
Yes. LUC applies to all land within Lagos, whether developed or not.
3. What happens if I fail to file my tax returns?
You will incur penalties and risk audit investigations from FIRS or LIRS.
4. Can I pay my taxes online?
Yes. Most taxes can be paid via the Remita platform or FIRS/LIRS online portals.
5. Do developers need a tax clearance certificate?
Yes. A Tax Clearance Certificate (TCC) is required for title registration, government contracts, and corporate transactions.
Conclusion
Tax compliance is the foundation of sustainable property development in Lagos. Every successful developer understands that paying taxes is not a burden but an investment in legality, reputation, and long-term profitability. Non-compliance can ruin projects, while proper compliance ensures credibility and smoother operations.
Understanding and adhering to all applicable taxes—from Company Income Tax to Land Use Charge—keeps your projects legally secure and commercially viable. Whether you are an emerging developer or an established real estate firm, prioritizing compliance is non-negotiable.
Call to Action
Are you a property developer or real estate investor in Lagos seeking clarity on your tax obligations? Let the experts handle it for you.
At Chaman Law Firm, we provide professional legal guidance on Property Law, Tax Compliance, Title Perfection, and Corporate Structuring for developers. We also represent clients during FIRS/LIRS audits, prepare tax filings, and ensure your projects remain fully compliant.
