Table Of Content
- Main Taxes that apply to Businesses
- Who has to Pay and Who is Exempt
- Value Added Tax (VAT): Rates and Exemption
- How Nigeria avoids Double Taxation
- How Company profits are calculated
- Special Rules for Foreign and Certain Industries
- Conclusion
Introduction
The Nigeria Tax Act (NTA) 2025 and the Nigeria Tax Administration Act (NTAA) 2025 are the two main laws that now govern how businesses in Nigeria are taxed. These lawswere created to make the system clearer, fairer, and easier to follow. They define:
- What types of taxes apply to businesses,
- Who is exempt from paying certain taxes,
- How real business profits should be
calculated, and - How Nigeria avoids taxing the same
income twice (both in Nigeria and abroad)
In summary, they aim to make taxation transparent, predictable, and supportive of business growth while keeping companies accountable.
Main Taxes That Apply to Businesses
Here’s a breakdown of the major taxes businesses now have to deal with under the NTA and NTAA:
- Company Income Tax (CIT): This is the main tax on business profits;
- Rate: 30% of total profits.
- Who pays: All medium and large
companies operating in Nigeria. - Who doesn’t: Small companies that meet
exemption rules (explained later).
- Development Levy: This is a new 4% levy on company profits.
- It’s used to fund national development
and infrastructure projects. - Small companies and non-resident
(foreign) companies are exempt.
- Hydrocarbon and Petroleum Taxes: Oil and gas companies don’t pay regular Company Income Tax. Instead, they pay:
- Hydrocarbon Tax and
- Petroleum Profits Tax, which applies to
exploration and production businesses.
These special taxes reflect how profitable the oil sector is and how different it is from other industries
- Value Added Tax (VAT): VAT is charged at 7.5% on goods and services sold or consumed in Nigeria, including digital services. Businesses collect VAT from customers and send it to the Federal Inland Revenue Service (FIRS).
- Stamp Duties and Other Levies: Stamp duties apply to formal documents such as leases, share transfers, or contracts. Certain sectors like gaming, insurance, and mining also have additional levies or surcharges.
Who Has to Pay and Who Is Exempt
- Resident Companies: Any company registered or managed in Nigeria pays tax on its worldwide income, meaning profits earned anywhere count as taxable.
- Non-Resident (Foreign) Companies:Foreign companies are only taxed on income they earn from Nigeria. If company has a significant economic presence here, for example, earning income from Nigerian users through a website or app, it must pay Nigerian taxes on that income. So, even a global fintech or streaming platform that makes money from Nigerian customers may now owe taxes in Nigeria.
- Small Companies: A company qualifies as small if it:
- Earns ₦50 million or less per year, and
- Owns fixed assets worth ₦250 million or
less.
These companies pay 0% Company Income Tax and no Development Levy.
But There’s a Catch: Professional Firms Don’t Qualify. Professional or consulting firms such as law, accounting, engineering, medical, or management firms do not qualify as small companies even if their income is
below ₦50 million.
Why? Because these businesses rely on human expertise, not equipment or heavy investment. The exemption is designed to help small manufacturers, traders, and producers, not service-based firms.
Example:
- BrightFoods Agro Ltd earns ₦40m yearly → qualifies as a small company → pays 0% tax.
- Apex Legal & Partners Ltd earns ₦25m yearly → does not qualify → must pay 30% tax.
So professional firms should plan taxes carefully, no exemption applies to them.
Value Added Tax (VAT): Rates and Exemptions
VAT applies to most goods and services sold in Nigeria or consumed by Nigerians (even if provided by a foreign company). Current VAT rate: 7.5%. However, the law separates VAT into two categories:
- VAT-Exempt Goods and Services: These items are not taxed at all. They include:
- Exports (like crude oil and gas)
- Donor-funded project supplies
- Baby and sanitary products
- Military and security supplies
- Passenger road transport
- Tractors and farm equipment
- Educational services and school activities
- Land, buildings, and securities
- Disability aids like hearing devices or
braille materials
- Zero-Rated Goods and Services: These are technically taxable but charged at 0%, allowing the seller to reclaim input VAT.
Example:
A restaurant selling food (a zero-rated item) doesn’t charge VAT on meals but can claim VAT back on its ingredients. However, a law firm offering advisory services must charge 7.5% VAT because professional services are taxable.
How Nigeria Avoids Double Taxation
If a company operates both in Nigeria and abroad, there’s a risk that the same income could be taxed twice, once in each country. The new law prevents that in three main
ways:
- Tax Credit Relief (Section 120): If you’ve already paid tax on the same income abroad, you can claim a credit in Nigeria.
- Double Taxation Agreements (Section 121): Nigeria has official agreements with several countries to ensure income is only taxed once.
- Verification and Information Exchange (NTAA Section 48): Nigeria and foreign tax authorities can share data and verify foreign tax payments.
In some cases, withholding tax deducted in Nigeria counts as a final tax (settling the liability). In others, it’s just a credit against your total tax bill, depending on FIRS regulations.
How Company Profits Are Calculated
Before a company can be taxed, its real profit must be determined, not just its revenue. Under Section 20 of the NTA, only expenses that are “wholly and exclusively incurred” in earning income can be
deducted. That includes:
- Rent and utilities
- Salaries and wages
- Repairs and maintenance
- Pension contributions
- Research and development costs
- Verified bad debts
So, businesses pay tax on actual profits, not on total turnover.
Special Rules for Foreign and Certain Industries
- Foreign (Non-Resident) Companies
For foreign businesses earning income from Nigeria, tax is based on the portion of global profits attributable to Nigerian operations, not the whole income. If detailed accounts aren’t available, FIRS can use a fair percentage of turnover.
Example: A foreign streaming service with Nigerian users may be taxed on a part of its global revenue linked to
Nigeria.
- Special Industries
Some sectors use alternative formulas to calculate tax because of how their business works.
These include:
- Shipping and air transport
- Insurance
- Telecommunications
- Digital economy companies
- Investment funds
For example, insurance companies are taxed based on premiums, claims, and reserves, not regular business expenses.
Conclusion
The Nigeria Tax Act (NTA) 2025 and Nigeria Tax Administration Act (NTAA) 2025 represent a big shift in how businesses are taxed.
They simplify rules, reward genuine small businesses, and ensure larger and professional firms pay their fair share. They also make it easier for foreign investors to understand their obligations while preventing double taxation. For business owners, the key takeaway is simple:
- Know which taxes apply to your company.
- Keep clean records of expenses and VAT.
- Understand your exemptions.
- Stay compliant to avoid penalties.
In the long run, these reforms aim to make Nigeria’s tax system simpler, fairer, and better aligned with global standards, helping both businesses and the economy grow.
