Nigerian Business Taxes: All You Need to Know

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Growing a business in Nigeria comes with exciting opportunities. As such, understanding the tax system is key to making the most of these opportunities. While there are multiple tax authorities and evolving regulations to navigate, gaining clarity on how business taxes work can give you a serious edge. 

So if you're looking to attract investors, expand operations, or simply stay compliant, mastering Nigeria’s tax system is a smart strategic move for your business.

In this blog, you’ll learn:

• The key business taxes in Nigeria, who pays them, and how they’re calculated
  
  
• Common tax incentives and exemptions that can reduce your tax burden
  
  
• How Flex Finance helps businesses stay compliant for tax filings

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The Nigerian Tax System

Nigeria operates a three-tier tax system. This means tax responsibilities are shared among the federal, state, and local governments. This structure is grounded in the constitution and aims to distribute revenue collection fairly across different levels of governance.

• Federal Taxes: Administered by the Federal Inland Revenue Service (FIRS), these include Companies Income Tax (CIT), Value Added Tax (VAT), Petroleum Profits Tax, Capital Gains Tax on corporate entities, and Tertiary Education Tax.
  
  
• State Taxes: Each of Nigeria's 36 states has its own State Board of Internal Revenue (SBIR) responsible for collecting taxes like Personal Income Tax (PIT) through the PAYE system, road taxes, and business premises levies.
  
  
• Local Government Taxes: These include market levies, shop permits, tenement rates, and sanitation fees, usually targeted at small businesses and traders operating within local communities.

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Federal Inland Revenue Service (FIRS)

The FIRS is Nigeria’s primary federal tax authority, responsible for assessing, collecting, and accounting for taxes and other revenues accruing to the federal government. Its key responsibilities include:

• Issuing Tax Identification Numbers (TINs)
  
  
• Collecting federal-level taxes (e.g., VAT, CIT, Petroleum Profits Tax)
  
  
• Conducting tax audits and investigations
  
  
• Driving digitization which simplifies filing and remittance
  
  
• Enforcing compliance through penalties and sanctions

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State Boards of Internal Revenue

Each state has a State Board of Internal Revenue (SBIR), led by an Executive Chairman. These boards handle state-level taxes and ensure businesses and individuals comply with local tax laws.

Key responsibilities of SBIRs include:

• Collecting Personal Income Tax via the PAYE system
  
  
• Administering business premises permits and development levies
  
  
• Conducting outreach and audits within the state
  
  
• Issuing tax clearance certificates required for government contracts or visa applications

For example, Lagos State Internal Revenue Service (LIRS) is one of the most sophisticated and proactive SBIRs in Nigeria, known for leveraging technology and public awareness campaigns to improve compliance.

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Types of Business Taxes in Nigeria

1. Companies Income Tax (CIT)

Companies Income Tax (CIT) is a tax levied on the profits of registered companies operating in Nigeria, except those engaged in petroleum operations (which are taxed under the Petroleum Profits Tax Act). It is governed by the Companies Income Tax Act (CITA) and is administered by the Federal Inland Revenue Service (FIRS).

CIT applies to both resident and non-resident companies deriving income from Nigeria. Resident companies are taxed on their worldwide income, while non-resident companies are only taxed on income derived from Nigeria.

Entities required to pay CIT include:

• Private limited companies (Ltd)
  
  
• Public limited companies (Plc)
  
  
• Branches or subsidiaries of foreign corporations
  
  
• Joint ventures and partnerships registered as corporate entities
  
  

CIT Rate Breakdown

As revised in the Finance Act 2020, Nigeria uses a tiered CIT rate structure to ease the burden on smaller businesses:

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Minimum Tax:
Where a company reports no taxable profit, a minimum tax may apply (0.5% of turnover), except for small companies, companies in agriculture, or those operating for less than four years.

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2. Value Added Tax (VAT)

Value Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of production or distribution. In Nigeria, VAT is governed by the Value Added Tax Act (VATA) and administered by the Federal Inland Revenue Service (FIRS).

• Current VAT Rate: 7.5% (raised from 5% in 2020 via the Finance Act)
  
  
• VAT is applicable to most goods and services supplied within Nigeria, including imports.

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VAT-Exempt Goods and Services include:

• Basic food items (e.g., rice, beans, bread)
  
  
• Educational materials and school fees
  
  
• Medical services and pharmaceutical products
  
  
• Transportation of passengers by road
  
  
• Rent from residential properties
  
  
• Agricultural equipment and products

Businesses dealing exclusively in exempt goods or services are not required to charge or remit VAT, but if they deal in both, they must apportion input VAT accordingly.

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How VAT Is Collected and Remitted

Businesses registered for VAT must charge 7.5% on every taxable sale or service and remit this to FIRS. The process typically involves:

• Output VAT: Charged on sales to customers
  
  
• Input VAT: Paid on purchases and expenses related to the business

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Net VAT Payable = Output VAT – Input VAT
If Input VAT is higher than Output VAT, the excess may be carried forward to offset future liabilities.

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VAT Registration:

• All businesses with an annual turnover exceeding ₦25 million must register for VAT.
  
  
• Smaller businesses can voluntarily register but are not mandated by law.

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VAT Collection Agents:
Some large public and private organizations (banks, oil companies, government agencies) are designated as VAT withholding agents, they deduct VAT at source and remit it directly to FIRS on behalf of vendors.

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Filing VAT Returns

Registered businesses must file VAT returns monthly, whether or not they made taxable sales.

• Deadline: 21st day of the following month (e.g., VAT for June must be filed by July 21st)
  
  
• Platform: Returns are submitted electronically via the TaxPro Max portal
  
  
• Penalties:
  
  
  
  • ₦50,000 for the first month of default
    
    
  • ₦25,000 for each subsequent month
    
    
  • Additional interest on unpaid VAT
    
    

Required Documents:

• Sales invoices
  
  
• Purchase receipts
  
  
• VAT payment receipts
  
  
• VAT computation schedule

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3. Personal Income Tax (PIT)

Personal Income Tax (PIT) in Nigeria is levied on the income of individuals, including business owners, sole proprietors, freelancers, and partners in unincorporated businesses. PIT is regulated by the Personal Income Tax Act (PITA) and administered by the State Boards of Internal Revenue (SBIRs).

Business owners are liable for PIT if:

• They operate as sole proprietors or in partnerships (i.e., not through registered companies)
  
  
• They earn income from self-employment, rent, dividends, royalties, or other sources
  
  
• They are Nigerian residents or earn income from Nigeria, even if they live abroad

Rate Structure (Progressive):
PIT in Nigeria follows a progressive tax model, ranging from 7% to 24%, depending on the income band. There is a tax-free threshold (₦300,000 per year), and various reliefs and allowances (such as Consolidated Relief Allowance at 20% of gross income + ₦200,000) are applicable.

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Business owners are expected to file annual self-assessment tax returns to their state’s tax authority (e.g., LIRS in Lagos) and remit tax due based on their net income after allowable deductions.

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PAYE System for Employers

If a business hires staff, it is required by law to deduct Pay-As-You-Earn (PAYE) tax from employees’ salaries and remit it monthly to the relevant SBIR.

Key PAYE Responsibilities for Employers:

• Register as an employer with the state tax authority
  
  
• Deduct the correct amount of PIT monthly from employees’ salaries
  
  
• Remit deductions to the state board by the 10th day of the following month
  
  
• Submit annual employer tax returns (Form H1)
  
  
• Provide employees with tax deduction cards and tax clearance certificates

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4. Withholding Tax (WHT)

Withholding Tax (WHT) is an advance payment of income tax deducted at source from specified payments, particularly for services rendered. The goal is to ensure early and partial tax collection, improve compliance, and reduce tax evasion.

WHT is governed by the Companies Income Tax Act (CITA) and Personal Income Tax Act (PITA), depending on whether the recipient is a company or an individual. It applies to both resident and non-resident entities earning income from Nigeria.

Common Transactions Subject to WHT:

• Professional services (legal, consulting, auditing)
  
  
• Rent (excluding residential rent under some jurisdictions)
  
  
• Interest and dividends
  
  
• Royalties
  
  
• Contract and subcontract payments
  
  
• Supply of goods and services
  
  
• Directors’ fees

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WHT Rates

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Note: WHT deducted is credited against the final tax liability of the recipient. If tax liability exceeds WHT paid, the balance must be settled; if it’s lower, the taxpayer may apply for a refund or carry it forward.

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How and When to Deduct WHT

• WHT must be deducted at the point of payment or invoice settlement, whichever comes first.
  
  
• The entity making the payment (the payer) is responsible for withholding and remitting the tax.
  
  
• WHT applies whether payment is made in cash, bank transfer, or kind.
  
  
• Deduction must be clearly stated on the payment advice or invoice.

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Due Date for Remittance:

• On or before the 21st day of the following month after the deduction.

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Filing and Documentation Requirements

To stay compliant, businesses must:

• Maintain proper records of all WHT deductions and remittances
  
  
• Issue WHT credit notes to the recipient after payment is made to FIRS or SBIR
  
  
• File monthly returns with FIRS (for corporate recipients) or the relevant SBIR (for individuals)
  
  
• Include supporting documents such as:
  
  
  • Copy of the invoice or contract
    
    
  • WHT schedule showing details of the transaction
    
    
  • Evidence of remittance (e.g., e-ticket or bank receipt)

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Penalties for Non-Compliance:

• Late filing: ₦25,000 for the first month, ₦5,000 for each subsequent month (corporates)
  
  
• Interest and additional tax liabilities
  
  
• Disqualification from government contracts or vendor lists

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5. Capital Gains Tax (CGT)

Capital Gains Tax (CGT) is charged on the profit (gain) made when a chargeable asset is sold, exchanged, or otherwise disposed of, provided the asset has appreciated in value. In Nigeria, CGT is governed by the Capital Gains Tax Act (CGTA) and applies to both individuals and corporate entities.

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Chargeable assets include:

• Land and buildings
  
  
• Stocks and shares
  
  
• Plant and machinery (if not part of normal trading operations)
  
  
• Business goodwill
  
  
• Patents and intellectual property
  
  
• Rights and licenses (e.g., oil prospecting licenses)

CGT applies whether the asset is sold for cash, transferred as a gift, or exchanged for another asset, provided there is a realizable gain.

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CGT Rates and Exemptions

• Standard CGT Rate: 10% of the net gain
  
  
• Calculation of Gain:
  Capital Gain = Disposal Proceeds − (Acquisition Cost + Allowable Expenses)

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Exemptions and Reliefs:

• Gains below ₦100,000 in a year (individuals only)
  
  
• Gains on disposal of a private residence (if the owner lived there for at least three years)
  
  
• Gains from stock or securities transactions listed on the Nigerian Exchange (exempt under the Finance Act 2021)
  
  
• Compensation for loss of office (exempt up to ₦10 million as per Finance Act 2020)
  
  
• Transfers between spouses or from an individual to a charitable organization

Companies that are liable to pay CGT must do so within 6 months of the end of the accounting period in which the gain arose. For individuals, CGT is payable by 30 June following the tax year (calendar year).

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6. Tertiary Education Tax (TET)

Tertiary Education Tax (TET) is a tax imposed on resident companies in Nigeria to fund the development of public tertiary education. It is governed by the Tertiary Education Trust Fund (Establishment, Etc.) Act, 2011, and administered by the Federal Inland Revenue Service (FIRS) on behalf of the Tertiary Education Trust Fund (TETFund).

Key Points:

• TET is applicable only to Nigerian companies, not individuals, partnerships, or non-resident companies.
  
  
• It is charged at 2% of assessable profit, which is the same base used for Companies Income Tax (CIT), i.e., profit before tax.
  
  
• All sectors are subject to TET, including oil and gas, manufacturing, finance, and telecoms.

Companies are required to calculate, file, and remit TET alongside their annual CIT returns.

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How It Supports Education

The funds generated from TET are managed by TETFund, which channels the revenue into revitalizing Nigeria’s public tertiary institutions.

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Uses of TET:

• Construction and rehabilitation of lecture halls, hostels, libraries, and laboratories
  
  
• Academic staff training and development (local and overseas scholarships)
  
  
• Research funding and innovation grants
  
  
• Procurement of teaching and learning materials
  
  
• Sponsorship of academic conferences and publications

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Institutions Supported:

• Federal and state universities
  
  
• Polytechnics
  
  
• Colleges of education

The funds do not go to private institutions and are strictly for public educational infrastructure and academic quality improvement.

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7. National Information Technology Development Levy (NITDL)

The National Information Technology Development Levy (NITDL) is a statutory tax imposed on select industries to fund Nigeria’s digital infrastructure and technology development. It is governed by the National Information Technology Development Agency (NITDA) Act, and enforced by the Federal Inland Revenue Service (FIRS).

Who Pays:
Only specific sectors are subject to NITDL:

• GSM service providers
  
  
• Telecommunication companies
  
  
• Internet service providers (ISPs)
  
  
• Pension fund administrators
  
  
• Banks and other financial institutions
  
  
• Insurance companies

These entities are required to contribute 1% of their profit before tax annually.

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Purpose of the Levy

The NITDL was introduced to strengthen Nigeria’s IT ecosystem. The funds are used by NITDA to:

• Develop IT infrastructure across government MDAs and educational institutions
  
  
• Promote cybersecurity initiatives and data protection programs
  
  
• Support tech incubation hubs and startups
  
  
• Drive digital literacy campaigns and skills development
  
  
• Fund national digital economy policies and broadband expansion

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8. Local Government Levies and Other State Taxes

Local governments and state tax authorities impose various non-federal taxes and levies to fund infrastructure, public services, and regulatory oversight within their jurisdictions. These are especially relevant for small and medium-sized businesses (SMEs) and those with physical operations like retail outlets, restaurants, hotels, and service centers.

Common Local and State Levies Include:

1. Market Levies:
   
   
   • Charged on vendors and traders operating in local markets.
     
     
   • Usually a flat daily or weekly fee collected by local council agents.
     
     
   • Applies to both formal and informal businesses.
     
     
2. Tenement Rates:
   
   
   • A property-based levy assessed on buildings used for business or residential purposes.
     
     
   • Based on the assessed annual rental value of the property.
     
     
   • Typically paid annually to the local government or state valuation office.
     
     
3. Signage and Advertisement Fees:
   
   
   • Regulated by state signage agencies (e.g., LASAA in Lagos).
     
     
   • Businesses must pay for outdoor signs, billboards, banners, and branded vehicles.
     
     
   • The cost depends on the size, location, and duration of the advertisement.
     
     
4. Environmental and Waste Management Fees:
   
   
   • Fees for waste disposal, sanitation, and environmental services.
     
     
   • Often mandatory for physical businesses and billed monthly or quarterly.
     
     
5. Business Premises Levies:
   
   
   • Imposed by some state governments on companies operating within their jurisdiction.
     
     
   • The fee may vary based on the size and location of the premises.
     
     
6. Liquor License and Entertainment Tax:
   
   
   • Required for bars, clubs, and entertainment venues.
     
     
   • Collected by local or state authorities depending on the state law.

Tax administration at the state and local levels varies significantly across Nigeria due to differing legislation, regulatory agencies, and enforcement strategies. As a result, a business operating in multiple states must tailor its compliance strategies to suit regional tax laws, engage with local consultants, and ensure site-specific tax registration.

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Common Tax Incentives and Exemptions

The Nigerian government offers several tax incentives and exemptions to stimulate economic growth, attract investment, and support targeted industries. These incentives are administered through agencies like the Federal Inland Revenue Service (FIRS), Nigerian Investment Promotion Commission (NIPC), and Ministry of Industry, Trade, and Investment.

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Pioneer Status Incentive (PSI)

The Pioneer Status Incentive (PSI) is one of Nigeria’s most prominent tax relief programs, granted under the Industrial Development (Income Tax Relief) Act.

What It Offers:

• Up to 3 years of corporate income tax exemption, extendable by 1–2 years.
  
  
• Available to companies operating in industries deemed “pioneer” or crucial to national development.

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Eligible Sectors:

• Information & Communication Technology (ICT)
  
  
• Renewable energy
  
  
• Agro-processing and food manufacturing
  
  
• Mining
  
  
• Pharmaceuticals
  
  
• Creative and digital media
  
  
• Electric vehicle manufacturing

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How to Apply:

• Application through the Nigerian Investment Promotion Commission (NIPC)
  
  
• Submission of financials, feasibility studies, and compliance documents
  
  
• Approval required from the Federal Executive Council

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Export Expansion Grant (EEG)

The Export Expansion Grant (EEG) is a post-shipment incentive designed to encourage non-oil exports and boost foreign exchange earnings.

Key Features:

• Administered by the Nigerian Export Promotion Council (NEPC)
  
  
• Provides rebates of 5–15% of export value, depending on the product and value-added level
  
  
• Granted as Negotiable Duty Credit Certificates (NDCCs), usable to offset import duties

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Eligibility:

• Nigerian exporters of processed or semi-processed goods (e.g., cocoa butter, textiles, palm oil)
  
  
• Must be registered with NEPC and meet documentation requirements (e.g., export proceeds repatriation, e-Form NXP, etc.)

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Tax Holidays for SMEs and Startups

To foster entrepreneurship, the government offers sector-specific and location-based tax holidays for qualifying small businesses.

SME Incentives Include:

• Companies with annual turnover below ₦25 million are exempt from Companies Income Tax (CIT)
  
  
• Businesses earning between ₦25–100 million enjoy a reduced CIT rate of 20%
  
  
• Startups in specific sectors (e.g., fintech, agritech, logistics) may be eligible for multi-year tax holidays through government-backed innovation hubs or programs like the National Start-Up Act

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Additional Perks for Startups:

• Tax-deductible R&D expenses
  
  
• Zero import duties on certain capital goods or raw materials
  
  
• Exemptions from withholding tax for early-stage investors under specific startup programs

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Agricultural and Manufacturing Incentives

The Nigerian government prioritizes self-sufficiency and industrialization through the following reliefs:

Agricultural Incentives:

• Income tax exemption for agricultural companies for up to 5 years
  
  
• Exemption from VAT on farm machinery and agro-inputs
  
  
• Access to concessional loans and grants via agencies like BOA and CBN intervention funds

Manufacturing Incentives:

• Capital allowances up to 95% on plant and machinery
  
  
• Investment tax relief of up to 15% for companies in designated rural areas
  
  
• Tariff waivers on raw material imports not available locally
  
  
• Participation in Export Processing Zones (EPZs) and Industrial Parks, which offer tax holidays and duty-free import/export regimes

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Strategic Example:
A food processing company that:

• Registers with Nigerian Export Promotion Council (NEPC) for the Export Expansion Grant (EEG),
  
  
• Applies for Pioneer Status Incentive (PSI) via the Nigerian Investment Promotion Commission (NIPC),
  
  
• Operates in a rural agro-processing zone, and
  
  
• Keeps turnover below ₦100 million,

…could potentially pay little to no income tax for the first 3–5 years, while also benefiting from rebates on exports and capital imports.

These incentives are essential tools for cost optimization and long-term competitiveness, especially for high-growth startups, export-focused manufacturers, and tech-enabled enterprises in Nigeria. 

So, now that you understand the various kinds of taxes which may impact your business in Nigeria, you should take steps to build compliance into your daily operations. This is where Flex Finance makes all the difference.

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Stay Audit-Ready Always with Flex Finance

Navigating tax audits can be stressful, but staying prepared doesn’t have to be. With Flex Finance, your business maintains real-time accuracy and compliance in all financial records, making audits smoother and less disruptive. From automated expense tracking to bulk payments, Flex Finance keeps your books transparent and audit-ready 24/7.

Forget last-minute scrambles and document hunts, our platform generates detailed expense reports and helps you spot discrepancies in your business spend before they become problems. Flex Finance empowers you to stay ahead of tax requirements effortlessly.

Join thousands of Nigerian businesses who trust Flex Finance to simplify tax compliance and ensure peace of mind during every audit. Stay audit-ready always, because with Flex Finance, compliance is part of your everyday workflow.

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Getting Started with Flex Finance

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Operating your business with an expense account gives you full visibility and control over your business spending. It also helps maintain your budget. 

Flex Finance offers the best expense management solution for your business in Nigeria. It is designed to simplify all aspects of your business spending. Once you sign up on Flex:

1. Create your main business account (if not already done).
   
   
2. Add dedicated expense accounts for each location, department, or budget category.
   
   
3. Set budgets and permissions to limit overspending and maintain accountability.
   
   
4. Review transactions in real time with Flex’s intuitive dashboard, exporting reports is hassle-free.
   
   
5. Sync with your accounting software for end-to-end financial management and reconciliation.

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Conclusion

Flex Finance makes staying audit-ready simple and stress-free. Automating your financial management and ensuring compliance with tax regulations helps you avoid costly mistakes and penalties. With Flex Finance, your business is always prepared for any tax audit, giving you confidence and peace of mind to focus on growth.

Prepared to be audit-ready always?
Sign Up on Flex Finance Now

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