Running a business in Nigeria comes with many responsibilities, but one area many business owners still struggle with is understanding how company income tax works. It is one thing to build a good product or deliver a solid service, and another to make sure your business is on the right side of the law. Yet this tax is one of the most important obligations every registered company is expected to handle correctly.
As more Nigerian businesses go digital and more foreign companies begin offering services within the country, the rules around company income tax continue to evolve. Many business owners are not aware of what income is taxable, who exactly needs to pay, or how the new digital economy rules affect them. Others simply leave tax issues unattended until an audit or penalty forces them to pay attention.
Understanding company income tax can help you stay compliant, avoid penalties, and build a stronger financial structure for your business. Let us start with the basics and break everything down in a clear and practical way.
Who Pays Company Income Tax in Nigeria?
Not every business is taxed the same way, but every company operating in Nigeria falls into one of three main categories. Understanding where your business fits helps you know exactly how company income tax applies to you.
#1. Resident Companies
These are companies registered in Nigeria. They are taxed on all their profits, whether the income was made inside Nigeria or earned abroad. So if a Nigerian company sells products locally and also earns from clients in Ghana or the UK, all those profits are part of its taxable income. This is why proper bookkeeping matters, especially for businesses that trade across borders.
#2. Non-resident Companies
These are companies registered outside Nigeria but earning money from Nigerian customers. They are only taxed on income derived from Nigeria. For example, a foreign engineering firm building a project in Lagos must pay tax on the profits made from that contract. If they have an agent, office, or fixed base here, that income becomes taxable.
#3. Digital and foreign companies with Significant Economic Presence (SEP)
This affects global tech and service companies that do not have a physical office in Nigeria but make money from Nigerian users. Under the SEP rule, any foreign company offering digital ads, streaming services, cloud storage, online marketplaces, software downloads, or remote consulting to Nigerians may be required to pay company income tax once their presence and activity meet the defined threshold.
Examples
- A fashion brand registered in Abuja, selling both locally and internationally, is a resident company.
- A UK-based construction company handling a project in Port Harcourt is a non-resident company.
- A global streaming platform earning subscription fees from Nigerian users is a foreign company with SEP.
- A foreign software provider offering cloud solutions to Nigerian businesses is a SEP-triggered digital company.
Knowing the category your business falls into is the first step toward staying compliant.
What Counts as Taxable Income
To understand how company income tax works, you need to know what the law considers taxable income. Many Nigerian businesses think only their direct sales or service income is taxable, but the scope is wider. Here are the main types of income that fall under CIT.
- Business profits: This is the most common category. Any profit your company makes from selling products or offering services is taxable. For example, if you run a bakery in Abuja or a logistics company in Lagos, your profit margin becomes part of your taxable income.
- Rental income and lease premiums: If your company owns property and earns money from renting it out or collecting lease fees, that income is taxable. Think of a business that owns an office space and rents out one floor to another company. Those rental payments count as taxable income.
- Investment income: Income from dividends, interest on savings or loans, royalties from intellectual property, and similar financial returns all fall under taxable profit. For instance, a company that earns interest from fixed deposits or receives royalties from a patented product must include those earnings in its tax calculation.
- Income from digital platforms or cross-border services: This covers money made from online activities. A Nigerian company earning through YouTube ads, app purchases, online consulting, or subscription-based content is expected to report that income. Even if the money comes from users outside Nigeria, it can still be taxable depending on the company type.
- Gains from assets and securities: If your company sells assets such as equipment, vehicles, or shares and makes a profit from the sale, that gain counts as taxable income. For example, if a business sells an old delivery van for more than its book value, the extra money is taxable.
These categories help clarify that company income tax goes beyond regular sales. If your company earns money in any of these ways, it falls under taxable income and should be accounted for carefully.
Company Income Tax Rates for Small, Medium, and Large Companies
Company income tax in Nigeria follows a tiered structure based on turnover, making it easier for smaller businesses to grow without being overburdened by taxes. Understanding your company’s category is key to compliance.
Small companies: Companies with an annual turnover of ₦25 million or less are exempt from paying Company Income Tax under Section 23(1)(o) of the Companies Income Tax Act. While exempt, these companies are still required to file annual returns with the Federal Inland Revenue Service (FIRS).
Medium companies: Companies with turnover above ₦25 million but not exceeding ₦100 million pay a company income tax rate of 20%. This category captures many growing SMEs. Once your business surpasses the small-company threshold, company income tax obligations kick in, making accurate record-keeping essential.
Large companies: Businesses with turnover above ₦100 million are subject to the standard company income tax rate of 30%. At this level, careful tax planning and compliance are crucial to avoid penalties.
Special cases
- Non-resident companies: Taxed only on income sourced from Nigeria, not worldwide profits.
- Zero-profit companies: Companies reporting no profit may still be liable for minimum tax or other levies, depending on their structure.
These categories give businesses clarity on how much they may owe and when to prepare for tax filings.
Calculating Taxable Profit and Allowable Deductions
Once your company knows its category, the next step is calculating taxable profit, which forms the basis of company income tax.
Assessable profit versus total profit
- Total profit: The overall profit from your business activities before adjustments.
- Assessable profit: The amount after subtracting allowable deductions and applying capital allowances. This is the figure on which Company Income Tax is calculated.
Allowable deductions
Expenses must be “wholly, reasonably, exclusively, and necessarily incurred” for the business to qualify as deductions. Common allowable expenses include:
- Staff salaries and wages
- Rent for business premises
- Interest on business loans
- Research and development costs
- Pension contributions
- Repairs and maintenance
- Bad debts meeting recovery criteria
Capital allowances
Purchases of qualifying assets like machinery, vehicles, or equipment are eligible for capital allowances. These reduce taxable profit over time and encourage reinvestment in business operations.
Common non-deductible expenses
Some expenses cannot be claimed, and attempting to do so can attract penalties. Typical non-deductibles include:
- Fines and penalties
- Private or personal expenses
- Non-approved charitable donations
- Capital expenditures are treated as running costs
Understanding what qualifies and what doesn’t ensures accurate reporting, keeps you compliant, and helps reduce your company’s income tax liability legally.
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Filing Requirements and Deadlines
Filing your Company Income Tax returns correctly and on time is just as important as calculating your taxable profit. Missing deadlines or submitting incomplete documents can trigger penalties or audits.
Required documents
Every company must submit:
- Audited financial statements: showing profit, loss, and financial position.
- Tax computations: detailing how the taxable profit was calculated.
- CIT forms: the prescribed forms provided by the Federal Inland Revenue Service (FIRS).
Filing deadlines
- Companies must file returns within six months after the end of their financial year.
- For newly incorporated companies, the first filing is due 18 months after incorporation.
Mandatory filing for exempt companies
Even if your company falls under the small-company exemption (turnover ≤ ₦25 million), filing is still mandatory. Failing to file can create compliance issues and complicate future dealings with FIRS.
Early-payment bonuses
Companies that pay CIT early may qualify for small incentives. For example, medium-sized companies may receive a 2% bonus, while other companies can receive a 1% bonus for timely payments.
Consequences of late or incorrect filing
Filing late or submitting inaccurate returns can result in fines, penalties, and even increased scrutiny from FIRS. Accurate filing not only ensures compliance but also builds credibility for your business.
Payment Process and Compliance Steps
Once your returns are filed, the next step is paying your company income tax. Understanding the correct process helps avoid unnecessary fines.
Payment channels
Company income tax payments can be made through:
- FIRS official online portals
- Approved commercial banks
Using these channels ensures your payment is recorded and properly credited to your company account.
Self-assessment process
Nigeria operates a self-assessment system, meaning companies calculate their own tax liability based on audited accounts and submit payment along with returns. FIRS may review or query the computations, but the responsibility starts with the company.
Payment timeline
- Payment must be made within 30 days of assessment or by the deadline indicated in FIRS notices.
- It is important to follow the timeline strictly to avoid penalties.
Penalties for late payment or underpayment
Late payments attract fines and interest. Underpaying your CIT can also trigger additional scrutiny, fines, and sometimes audits. Timely and accurate payment helps maintain good standing with FIRS and reduces the risk of enforcement action.
Tax Audits, SEP Rules, and Compliance Risks
Even if you calculate and pay your Company Income Tax correctly, your business can still face scrutiny. Understanding what triggers audits and how the Significant Economic Presence (SEP) rules affect digital and foreign companies is essential for staying compliant.
Red flags that trigger audits
FIRS may initiate an audit if your business shows:
- Inconsistent filings: variations between tax returns and financial statements.
- Poor documentation: missing invoices, receipts, or supporting records.
- Unusual profit drops: sudden declines without clear explanation.
- Related-party transactions: deals with affiliates that may be structured to reduce taxable profit.
SEP rules and digital/foreign companies
Foreign companies that earn revenue from Nigerian users, even without a physical presence, may be liable for CIT if they meet the SEP threshold. This includes digital businesses like streaming platforms, online marketplaces, cloud service providers, and app stores. Nigerian companies collaborating with or competing against these foreign digital services should be aware of how SEP may affect reporting and tax obligations.
Practical steps to avoid compliance issues
- Maintain accurate books and records for all revenue streams.
- Keep supporting documents for deductions, capital allowances, and income.
- Conduct periodic internal reviews to identify discrepancies before FIRS does.
- Seek professional guidance when dealing with related-party transactions or cross-border income.
By being proactive, your company can avoid penalties, unnecessary audits, and disputes with FIRS.
Incentives, Reliefs, and Best Practices
Nigeria offers several incentives and reliefs to encourage investment and growth, which can help reduce your company income tax liability legally.
Key incentives and reliefs
- Pioneer status: tax holidays for approved sectors to stimulate investment.
- Rural investment allowance: deductions for businesses operating in underdeveloped areas.
- Export incentives: deductions and reliefs for companies earning from exports.
- Loss carry-forward: allows businesses to offset losses against future profits, reducing tax in profitable years.
Practical tax planning for startups and MSMEs
- Understand which incentives apply to your business from the start.
- Plan expenses and capital investments to maximize allowable deductions and allowances.
- Use tax planning to smooth out cash flow and avoid surprises at year-end.
Importance of proper bookkeeping
Keeping accurate, up-to-date records is crucial. It ensures that deductions are properly claimed, audits go smoothly, and your company stays compliant.
Working with a qualified Nigerian tax professional
Even with a solid understanding of company income tax, professional advice is invaluable. Tax consultants or accountants can help navigate complex rules, ensure correct filing, and identify incentives your business may qualify for.
Following these best practices not only minimizes your tax burden legally but also strengthens your business’s credibility with regulators, investors, and partners.
Conclusion
Understanding company income tax is more than just a legal requirement; it’s a crucial part of running a successful business in Nigeria. From knowing who is liable and what counts as taxable income to calculating profits correctly, filing on time, and taking advantage of available incentives, every step matters.
Compliance not only keeps your business on the right side of the law but also helps you plan effectively, reduce unnecessary costs, and build credibility with investors, partners, and regulators. For startups, MSMEs, and even large corporations, staying informed about tax rules, maintaining proper records, and seeking professional guidance can save time, money, and stress.
By approaching company income tax proactively and strategically, your business can thrive confidently in Nigeria’s economic environment while avoiding penalties and unnecessary disputes. Stay compliant!
