ICANBusiness, Management and FinanceBusiness and its Environment2021

Abuja Capital Ltd, a Nigerian resident company, received a dividend of ₦12,000,000 from its 60% subsidiary, Kano Textiles Ltd, in 2023. Under CITA (as amended), what is the CIT treatment of this dividend in the hands of Abuja Capital Ltd?

AThe dividend is fully taxable at 30% CIT, giving a tax liability of ₦3,600,000
BThe dividend is exempt from CIT because it is received from a Nigerian resident subsidiary in which Abuja Capital Ltd holds at least 25% equityCORRECT
CThe dividend is subject to a 10% withholding tax which constitutes the final tax
DThe dividend is exempt only up to ₦5,000,000; the excess of ₦7,000,000 is taxed at 30%
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Why the answer is B, and why the others tempt you.
Under CITA (as amended), dividends received by a Nigerian company from another Nigerian resident company in which it holds at least 25% of the equity are exempt from CIT to avoid economic double taxation. Since Abuja Capital Ltd holds 60% of Kano Textiles Ltd—well above the 25% threshold—the ₦12,000,000 dividend is fully exempt from CIT in its hands. Withholding tax deducted at source would be a credit, not the final tax in this context.
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