Here’s a break down of how companies will pay tax under this new regime in layman’s terms.
What the Law Recognizes as a Company
Under Section 2 of the Nigeria Tax Act, 2025, a company means any body corporate or unincorporated association — whether formed in Nigeria or elsewhere — that carries on business in Nigeria and derives profits from it. This includes:
- Companies registered under the Companies and Allied Matters Act (CAMA),
- Foreign corporations operating through a branch, representative office, or agent in Nigeria, and
- Statutory corporations (government-owned enterprises that conduct commercial activity).
Many Nigerians casually refer to any business with a name, signboard or registration certificate as a “company.”
But the law draws sharp distinctions:
- A business name, sole proprietorship, or partnership is not a company under the Act. These are taxed under Personal Income Tax (PIT) at the state level, not under CIT.
- Only entities incorporated with the Corporate Affairs Commission (CAC) and issued a Certificate of Incorporation qualify as companies for CIT purposes.
So, if you run “Mama Ngozi Catering” as a registered business name, you pay state income tax. But if you run “Mama Ngozi Foods Limited,” you pay federal corporate income tax through the FIRS (or under the new unified Nigeria Revenue Service, if implemented).
The Basic Rate Is 30% for Most Companies
For starters, a corporate income tax or CIT is the tax companies that operate in Nigeria pay on their profits. According to the new Tax Act, 2025, which enters into effect on January 1, 2026, the corporate income tax rate is straightforward: 30% of your total profits. This rate applies to what the law calls “total profits,” which is essentially your company’s income from all sources after allowable deductions have been made.
It’s not based on turnover or revenue but on net profits, that is, what remains after legitimate business expenses are deducted from income. In simple terms:
CIT = (Gross Income – Allowable Deductions) × Applicable Rate
According to the law, every company that earns income from Nigeria, whether incorporated locally or abroad, must pay CIT on those profits, unless specifically exempted. But here’s what makes this interesting, not all companies pay the same rate, and the definition of “total profits” matters enormously because it determines what you’re actually taxed on.
Zero Tax for Small Companies
Perhaps the most significant change in the new Act is the introduction of a 0% tax rate for small companies.
But what qualifies as a “small company”? The law defines it clearly: any company earning gross turnover of ₦50 million or less per annum with total fixed assets not exceeding ₦250 million.
There’s an important caveat though since professional services firms don’t qualify as small companies regardless of their size. So if you’re running a law firm, accounting practice, consulting business, or similar professional service, you’ll pay the standard 30% rate even if you’re under these thresholds.
This zero-rate provision is huge for micro and small businesses. It means if you’re running a trading company, a small manufacturing outfit, or a modest retail operation and you stay within these limits, every naira of profit remains with your business. That’s capital you can reinvest in growth, hire more staff, or weather difficult economic times.
Applicable Tax Rates under the 2025 Act
The Nigeria Tax Act, 2025 maintains a tiered rate system to reflect business size and capacity. This system, first introduced in the Finance Act 2019, is now fully codified and streamlined for clarity:
| Category | Annual Turnover | CIT Rate | Remarks |
|---|---|---|---|
| Small Companies | Less than ₦25 million | 0% | Fully exempt from CIT but must still file returns. |
| Medium Companies | ₦25 million – ₦100 million | 20% | Encourages SMEs to formalize and grow. |
| Large Companies | Over ₦100 million | 30% | Standard rate for established corporations. |
Additional levies, such as the Tertiary Education Tax (TET) and National Information Technology Development Levy (NITDL), may also apply to specific sectors, but these are separate from CIT itself.
What Counts as Taxable Profit?
The Act defines taxable profit as all profits accruing in, derived from, brought into, or received in Nigeria, regardless of where payment originates. This broad definition ensures that: resident companies are taxed on their worldwide income, unless exempted by double taxation treaties (DTTs). And that foreign companies earning Nigerian income (e.g., through services or digital platforms) are taxed on that income, even if the money is paid abroad.
Allowable and Non-Allowable Deductions
Not all expenses reduce your tax bill. The Act specifies that only costs “wholly, exclusively, necessarily and reasonably incurred” in producing income can be deducted.
What You Can Deduct:
The law is fairly generous with allowable deductions. You can deduct expenses “wholly and exclusively incurred in the production of income,” which includes:
- Employee salaries and benefits
- Rent for business premises
- Interest on business loans (subject to certain limits)
- Contributions to approved pension schemes
- Bad debts that you can prove are genuinely unrecoverable
- Research and development expenses
- Donations to approved charities and causes (up to 10% of your profit before tax)
What You Cannot Deduct:
Certain expenses are explicitly non-deductible:
- Personal or domestic expenses
- Capital expenditure (though you can claim capital allowances instead)
- Fines and penalties
- Taxes on profits
- Expenses where you haven’t paid the required VAT or import duties
- Entertainment expenses beyond reasonable limits
One particularly important restriction involves interest payments to related parties. If you’re borrowing from a connected company, the deductible interest is capped at 30% of your earnings before interest, taxes, depreciation, and amortization. This prevents companies from artificially shifting profits out of Nigeria through excessive interest payments.
While you can’t deduct capital expenditure directly, the Act provides for capital allowances – a way to write off the cost of assets over time. This is where many companies find significant tax savings.
Different assets qualify for different rates:
- Buildings, agricultural equipment, and intangible assets: 10% annually
- Plant and equipment, mining expenditure, and furniture: 20% annually
- Motor vehicles and software: 25% annually
These allowances mean that if you invest ₦10 million in manufacturing equipment, you can deduct ₦2 million annually for five years when calculating your taxable profit. For a company in the 30% tax bracket, that ₦2 million deduction saves ₦600,000 in taxes each year.
Special Rates and Incentives
Not all companies pay 30%. The Act recognizes that certain sectors need encouragement and provides targeted incentives.
Agricultural Companies engaged in crop production, livestock farming, forestry, or dairy production pay zero tax for the first five years of operation. This is a substantial benefit for anyone looking to invest in Nigeria’s agricultural sector.
Companies in Priority Sectors can qualify for economic development incentives. These sectors include manufacturing, renewable energy, mining, healthcare equipment production, and several others. Companies that meet the investment thresholds (which vary by sector but can be as low as ₦500 million for some activities) can receive tax credits that effectively reduce or eliminate their tax liability for five years, with possible extensions.
Export-Oriented Businesses also enjoy favorable treatment. Profits from goods or services exported from Nigeria are fully exempt from tax, provided the proceeds are repatriated through official channels.
When and How to Pay
Companies are required to make advance payments based on their previous year’s tax or estimated current year liability. These advance payments are typically made in installments throughout the year.
At year-end, you file your annual tax returns, and if you’ve paid too much, you get a refund. If you’ve underpaid, you settle the balance. The Act empowers tax authorities to assess your taxes if you don’t file, and trust me, you don’t want that – it’s usually higher than what you’d calculate yourself.
The Development Levy: An Additional 4%
Here’s something many business owners might miss: in addition to corporate income tax, most companies must pay a 4% development levy on their assessable profits. This levy funds various national development initiatives including education, technology, science infrastructure, and defense.
Small companies are exempt from this levy, as are non-resident companies. But for everyone else, it’s an additional cost to factor into your tax planning. For instance, on a profit of ₦10 million, that’s an extra ₦400,000 on top of your income tax.
The Minimum Tax Rule
Even if your company declares a loss, the law ensures that every operating business contributes something to public revenue. Thus, if a company reports no taxable profit or declares an unreasonably low one, it must pay minimum tax, calculated as a small percentage of gross turnover (usually around 0.25% to 0.5%, depending on the company’s nature).
This prevents “book losses” from becoming a loophole for tax avoidance.
Value Added Tax Requirements
Beyond income tax, if your company makes taxable supplies (sells goods or services), you’ll need to charge VAT at 7.5% and remit it monthly to the tax authorities. While technically your customers pay this tax, you’re responsible for collecting and remitting it.
The good news is that you can claim credit for VAT paid on your business purchases, so you only remit the net amount. Still, VAT compliance is a monthly obligation that requires careful record-keeping.
Special Considerations for Special Sectors
Foreign Companies: If you’re a foreign company operating in Nigeria through a permanent establishment, you pay tax on profits attributable to your Nigerian operations. The Act also has an interesting provision: if you’re a Nigerian company with foreign subsidiaries that pay less than a 15% effective tax rate abroad, you may need to pay additional tax to bring their rate up to 15%. This is Nigeria’s implementation of global minimum tax standards.
Related Party Transactions: The Act is strict about transactions between related companies. These must be conducted at “arm’s length” – essentially at market rates. If tax authorities believe you’re shifting profits to related parties through artificial pricing, they can adjust your taxable income accordingly.
Enforcement, Transparency, and Digitalization
The new law builds digital oversight into corporate taxation. Companies must maintain verifiable accounting records accessible to the tax authorities. The Tax Identification Number (TIN) remains the universal reference for all filings, linked across the Single Tax Account system. The Act also empowers the FIRS (and the restructured Nigeria Revenue Service, once fully established) to:
- Conduct digital audits
- Cross-reference payments with bank data
- Exchange information with international tax authorities to track offshore income
Filing and Payment Timelines
- For new companies: CIT becomes due 18 months after incorporation or 6 months after accounting year-end, whichever comes earlier.
- For existing companies: CIT returns are due 6 months after the end of each accounting year.
- Late filing attracts penalties and interest, now clearly codified in the 2025 Act.
During filing, every company must submit:
- Audited financial statements
- Tax computation schedules
- Evidence of payment
- Disclosure of related-party transactions (to curb transfer pricing abuses)
The new law builds digital oversight into corporate taxation. Companies must maintain verifiable accounting records accessible to the tax authorities. The Tax Identification Number (TIN) remains the universal reference for all filings, linked across the Single Tax Account system. The Act also empowers the FIRS (and the restructured Nigeria Revenue Service, once fully established) to:
- Conduct digital audits
- Cross-reference payments with bank data
- Exchange information with international tax authorities to track offshore income
