The Nigeria Tax Act, 2025 marks a turning point for how the government views startups. For the first time, Nigerian tax law explicitly recognizes that innovative, high-growth companies need different treatment than traditional businesses. The government wants to support your growth, but only if you play by the rules.
How Nigeria Now Sees Startups
Nigeria’s startup ecosystem has exploded over the past decade, but the tax system has been slow to catch up. Traditional tax rules were designed for established businesses with predictable revenues and standard operations. Startups, with their irregular income, stock-based compensation, and rapid scaling, often fell through the cracks.
The 2025 Tax Act changes this fundamentally. It acknowledges that startups are essential to Nigeria’s economic future and deserve special treatment, but only if they operate within a formal, transparent framework. The government’s message is clear: we’ll support your innovation, but we expect you to contribute to the system as you grow.
This shift represents both an opportunity and a responsibility. Startups that understand and leverage these new rules will have significant advantages, while those that ignore them risk costly penalties and missed opportunities.
The Startup Label
If there’s one thing every Nigerian founder should prioritize, it’s obtaining the official startup label under the Nigeria Startup Act, 2022. This label your key to unlocking substantial tax benefits that can make or break your early-stage finances. The startup label isn’t a set-it-and-forget-it arrangement. You must continuously meet the eligibility criteria, file periodic reports, maintain minimum employment levels and demonstrate ongoing innovation.
What the Law Actually Says
While the new Act provides broad incentives, it also establishes clear numerical thresholds and rates that every founder must understand. The beauty of these figures is that they show, in real terms, how much support you can expect, and what you’ll owe once the grace period ends.
1. Corporate Income Tax
Startups with the official label and qualifying under the Nigeria Startup Act, 2022 enjoy up to a 3-year corporate income tax holiday, which is extendable by another 2 years if performance benchmarks are met. In this period, your start-up will not pay any tax. After this period, however, your applicable rate depends on company size:
| Company Category | Annual Turnover | Corporate Income Tax Rate |
|---|---|---|
| Micro Company | Less than ₦25 million | 0% |
| Small Company | ₦25 million – ₦100 million | 20% |
| Medium & Large Companies | Above ₦100 million | 30% |
This means a small startup earning ₦40 million annually would pay ₦8 million in corporate tax after its exemption period, while a micro startup remains fully exempt.
2. Withholding Tax (WHT)
Ordinarily, businesses in Nigeria are required to withhold 5% to 10% on payments for professional, contract, or management services. Startups with the official label, however, can enjoy WHT exemptions for qualifying transactions during their tax holiday. This would allow them free up critical cash flow during early growth stages.
3. Research & Development (R&D) Deductions
The law allows a 120% deduction on qualifying R&D expenses, provided the research is carried out in Nigeria and directly connected to your core business. For example, a fintech startup spending ₦5 million on developing a new payment system could deduct ₦6 million (₦5m × 120%) from its taxable income. In addition to these, the government provides import duty and VAT exemptions on equipment, software, and tools brought into Nigeria for innovation and R&D. This provision eliminates the 5–10% import duty that would ordinarily apply, significantly lowering the entry cost of technology infrastructure.
4. Capital Gains Tax (CGT) Relief
Capital gains on investments are now fully exempt from the standard 10% capital gains tax if the investor holds shares for at least two years before selling. This rule is designed to attract long-term, patient capital into the ecosystem and reward those who support genuine growth rather than short-term speculation. In practice, it makes startup equity far more appealing to institutional and foreign investors who often worry about double taxation or thin exits.
5. Value Added Tax (VAT) Obligations
VAT remains at 7.5%, but startups earning less than ₦25 million per year are exempt from VAT registration and filing. Once your annual turnover exceeds that threshold, you must begin charging, collecting, and remitting VAT monthly. Importantly, VAT does not apply to equity investments, only to goods and services sold.
6. Payroll and Employee Taxes
Once you start hiring, the following rates immediately apply, regardless of your startup’s profit status:
- PAYE (Personal Income Tax): Graduated rates from 7% to 24% depending on income level.
- Pension Contributions: 10% by the employer and 8% by the employee.
- National Housing Fund (NHF): 2.5% of the employee’s basic salary.
- National Health Insurance Scheme (NHIS): Typically 10% of gross salary by employer and 5% by employee, though actual rates may vary by plan.
The startup label carries a 5% payroll tax credit for companies that hire and train young Nigerians under certified skill development programs. For founders trying to build lean teams in the early years, this small but symbolic incentive makes the difference between hiring one developer and hiring two. It rewards companies that take national development seriously, particularly in a country where youth employment remains a policy priority.
7. Economic Development Tax Incentive Certificates (EDTIC)
Startups operating in priority sectors such as renewable energy, agritech, healthtech, or edtech can apply for additional tax credits of 10%–15% of qualifying expenses, depending on their verified impact metrics. This entitles them toEconomic Development Tax Incentive Certificates (EDTIC). The application process requires demonstrating how your startup’s activities align with national development priorities. While this involves additional paperwork, the tax benefits can be substantial for qualifying companies.
8. Loss Carry-Forward of 8 Years
Equally significant for start-ups with the official start-up label is the loss carry-forward rule. While regular companies can carry tax losses forward for four years, startups with the label can extend this to eight years. This means that even if you remain unprofitable through your growth phase, your early losses can still be offset against future profits long after your company stabilizes.
How Taxpal Can Help Your Start-up
Navigating Nigeria’s new tax landscape while building a startup is challenging, but you don’t have to do it alone. Our partners, Taxpal provides comprehensive tax support designed specifically for startups and growing businesses.
Their services include startup label application assistance, ongoing compliance monitoring, payroll tax management, R&D deduction optimization, funding round tax planning and VAT registration and compliance support. Whether you’re a pre-revenue startup or preparing for your next funding round, they can help you understand your obligations, maximize your benefits and avoid costly mistakes. Visit their website to explore their consultation options and portal access, and let them help you turn tax compliance into a competitive advantage for your startup.
