Company Tax Rate In Nigeria: A Simple Guide For Businesses And Entrepreneurs
Understanding company tax in Nigeria can feel confusing, especially for new business owners, startups, and small companies. Terms like company income tax, minimum tax, dividends, and exempt income often sound technical and intimidating.
This guide breaks everything down. Whether you run a small business, manage a limited liability company, or are planning to register a company in Nigeria, this article will help you understand how company tax works, how much you should pay, and when you should start paying it.
What Is Company Income Tax In Nigeria?
Company Income Tax (CIT) is the tax companies pay on their profits in Nigeria. It is governed by the Companies Income Tax Act (CITA) and administered by the Federal Inland Revenue Service (FIRS).
This tax applies to:
- Limited Liability Companies (Ltd)
- Public Limited Companies (Plc)
- Foreign companies operating in Nigeria
Sole proprietors and partnerships do not pay company income tax. Instead, they pay Personal Income Tax.
What Is The Tax Rate For Companies In Nigeria?
Nigeria uses a tiered tax system, meaning the tax rate depends on the company’s annual turnover.
Current Company Tax Rates in Nigeria
| Company Category | Annual Turnover | Company Income Tax Rate |
|---|---|---|
| Small Company | ₦25 million or less | 0% |
| Medium Company | ₦25 million – ₦100 million | 20% |
| Large Company | Above ₦100 million | 30% |
This structure was designed to support small businesses and encourage growth.
What Is The Minimum Company Tax Rate In Nigeria?
Even when a company makes little or no profit, the law may still require it to pay minimum tax.
Minimum Tax Rate
Minimum tax is generally 0.5% of gross turnover, minus franked investment income.
Minimum tax applies when:
- A company reports no profit
- The profit is too small
- The calculated tax is lower than minimum tax
Companies Exempt From Minimum Tax
- Companies in their first four years of operation
- Small companies (₦25m turnover or less)
- Agricultural and educational companies (under certain conditions)
When Does A New Company Start Paying Tax In Nigeria?
A newly registered company in Nigeria:
- Must register with FIRS immediately
- Must file tax returns within 18 months of incorporation or 6 months after its accounting year end, whichever comes first
Important Relief For New Companies
New companies enjoy a minimum tax exemption for their first four years, provided they are not part of an existing group restructuring.
Difference Between Income Tax And Company Tax
This is a common source of confusion.
Company Income Tax
- Paid by registered companies
- Based on company profits
- Paid to FIRS
Personal Income Tax
- Paid by individuals, sole traders, and partners
- Based on personal earnings
- Paid to State Internal Revenue Services
A company and its owner are treated as separate legal entities.
Do Small Businesses Pay Tax In Nigeria?
Yes, but it depends on the structure.
- Sole proprietors → Personal Income Tax
- Registered companies (Ltd) → Company Income Tax
- Small companies (≤ ₦25m turnover) → 0% CIT
Even if tax payable is zero, annual filing is mandatory.
Do Companies Pay Tax On Profit Or Revenue?
Companies pay tax on profit, not revenue.
Profit = Revenue – Allowable Expenses
Allowable expenses include:
- Salaries and wages
- Rent
- Utilities
- Business-related travel
- Depreciation (capital allowance)
How To Calculate Company Income Tax In Nigeria
Step-by-Step Example
Assumptions
- Annual Revenue: ₦50,000,000
- Allowable Expenses: ₦35,000,000
Profit ₦50,000,000 – ₦35,000,000 = ₦15,000,000
Applicable Tax Rate Medium company → 20%
Company Income Tax 20% of ₦15,000,000 = ₦3,000,000
How To Calculate Corporation Tax Formula
Corporation Tax Formula
Tax Payable = Adjusted Profit × Applicable Tax Rate
Where:
- Adjusted profit = profit after allowable deductions
- Tax rate depends on company size
Minimum Tax Computation For Companies In Nigeria
Minimum Tax Formula
Minimum Tax = 0.5% × Gross Turnover – Franked Investment Income
If the minimum tax is higher than normal tax, the company pays minimum tax instead.
List Of Income Exempted From Tax In Nigeria
Some income types are legally exempt from company income tax:
- Franked investment income (dividends already taxed)
- Interest on Nigerian government securities
- Export profits (non-oil)
- Profits from agricultural production
- Income of approved charitable organizations
- Profits of educational institutions (non-profit)
Do Companies Pay Tax On Dividends Received?
Usually, no.
Dividends received from Nigerian companies are classified as franked investment income, meaning:
- Tax has already been deducted at source
- It is not taxed again under company income tax
How Much Tax Do Directors Pay On Dividends?
Directors and shareholders pay Withholding Tax (WHT) on dividends.
Dividend Tax Rate
- 10% withholding tax
This tax is deducted before dividends are paid and is often considered final tax for individuals.
Do Companies Pay Tax On Dividends They Pay?
No.
- Dividends paid by a company are not an expense
- The company already paid company income tax on profits
- The shareholder pays withholding tax
How Much Tax Will I Pay As A Limited Company?
It depends on:
- Annual turnover
- Profit level
- Applicable tax band
Quick Summary
- ≤ ₦25m turnover → 0%
- ₦25m–₦100m → 20%
- Above ₦100m → 30%
Is Corporation Tax Based On Net Or Gross Profit?
Corporation tax is based on net (adjusted) profit, not gross profit.
Are Dividends Taxed At 40% In Nigeria?
No.
Dividends are taxed at 10% withholding tax, not 40%.
Do You Pay Both Corporation Tax And Income Tax?
- Companies → Company Income Tax
- Directors/Employees → Personal Income Tax on salaries
- Shareholders → Withholding tax on dividends
Yes, both can apply, but on different incomes and entities.
Frequent Asked Questions – FAQ
Do Small Businesses Pay Tax In Nigeria?
Yes, but small companies with turnover ≤ ₦25m pay 0% CIT, while sole traders pay personal income tax.
Do Companies Pay Tax On Dividends Received?
No, dividends received are usually tax-exempt as franked investment income.
Do Companies Pay Tax On Profit Or Revenue?
Companies pay tax on profit, not total revenue.
Is Corporation Tax Based On Ndt Or Gross Profit?
It is based on net (adjusted) profit.
Are Dividends Taxed At 40%?
No. Dividend tax is 10%.
Do You Pay Both Corporation Tax And Income Tax?
Yes, but they apply to different parties and income types.
