Nigeria’s tax landscape transformed dramatically when President Tinubu signed the Nigeria Tax Act 2025. This comprehensive reform consolidates various tax laws and creates significant opportunities for business owners to reduce their tax burden while ensuring compliance.
In this article, we discuss recent changes and offer tips for managing the current tax obligations as a business owner or investor in Nigeria.
Nigeria operates a complex but logical multi-tiered tax system where federal, state, and local authorities each handle specific responsibilities.
This structure, governed by the Companies Income Tax Act, VAT Act, Personal Income Tax Act, and the new Nigeria Tax Act 2025, now emphasises collaborative frameworks between authorities, digital-first procedures, and simplified filing for qualifying small businesses.
1. Corporate Income Tax
Corporate Income Tax represents your primary federal tax obligation, but the Nigeria Tax Act 2025 delivers substantial relief through phased rate reductions. While 2025 maintains the current 30% rate, businesses will benefit from a gradual reduction to 27.5% and eventually 25%.
For a company with ₦50 million in annual profits, this translates to ₦2.5 million in annual savings by 2027.
Small companies receive even better treatment. Businesses with gross turnover below ₦25 million annually can potentially qualify for 0% CIT rates under specific criteria detailed in FIRS implementation guidelines.
Nigeria’s CIT system allows various legitimate deductions that can dramatically reduce your taxable profits. Capital allowances follow prescribed rates: industrial buildings qualify for 10% annual allowances, while plant and machinery typically receive 25-50% depending on asset type. Many businesses miss claiming full allowances, leaving money unnecessarily on the table.
Business expenses that are directly related to generating taxable income are typically deductible. This includes employee salaries, professional fees, utilities, and operational costs.
Self-assessment principles require filing accurate returns within six months of your accounting year-end. Most companies follow the calendar year, making June 30 the standard deadline.
Penalties for non-compliance can be devastating. Late filing attracts ₦25,000 for the first month plus ₦5,000 for each subsequent month. Late payments incur interest charges, while intentional understatement results in penalties of 20% or more of the additional tax assessed.
2. Value Added Tax
VAT remains at 7.5% under the new legislation, but input VAT recovery opportunities have expanded significantly.
Businesses can now claim input VAT on both services and capital asset purchases. This is a major improvement from previous laws that limited recovery to goods and materials. This change alone can improve cash flow for service-heavy businesses by thousands of naira monthly.
Businesses exceeding ₦25 million annual turnover must register within six months of crossing this threshold. However, voluntary registration for smaller businesses provides access to input VAT credits and enhanced commercial credibility.
Monthly returns are due by the 21st of the following month, with simultaneous remittances required. The FIRS Integrated Tax Administration System enables online filing and digital payments.
Proper record-keeping requires VAT-compliant invoices with mandatory details including VAT registration numbers, clear service descriptions, applicable rates, and total amounts.
The new act expands zero-rated categories to include essential goods like basic foods, medical products, educational materials, and electricity generation services. Zero-rated suppliers can claim input VAT refunds while charging no output VAT to customers, creating competitive advantages.
3. Pay As You Earn Tax (PAYE)
PAYE obligations require employers to deduct income tax from employee salaries and remit it to the appropriate authorities. That is the State Internal Revenue Service for private sector employees, and the FIRS for federal employees.
Progressive rates range from 7% on the first ₦300,000 annual income to 25% on income exceeding ₦3.2 million.
Personal reliefs include ₦200,000 plus 20% of gross income (maximum ₦200,000), providing a minimum ₦400,000 annual relief.
Additional reliefs cover dependent allowances, housing allowances, and pension contributions. Monthly remittances must reach authorities by the 10th of the following month, with 10% penalties plus interest for late payments.
4. Development Levy
The Nigeria Tax Act 2025 introduces a unified 4% Development Levy replacing the previous 3% Tertiary Education Tax and multiple smaller levies, including IT Development Agency, Science and Engineering Infrastructure, and Police Trust Fund levies.
This consolidation simplifies compliance while potentially reducing the overall burden for many businesses.
Withholding tax serves as an advance payment on various transactions, with rates varying by type: contract payments attract 5%, professional fees 5%, rent 10%, and dividends 10%. Monthly returns are due by the 21st, with businesses utilising deductions as advance CIT payments through proper documentation and reconciliation.
Action Steps
Successfully navigating Nigerian tax obligations requires combining proper registration, accurate record-keeping, timely compliance, and proactive regulatory change management. The Nigeria Tax Act 2025 presents significant opportunities through reduced CIT rates, expanded VAT recovery, and streamlined Development Levy obligations, balanced by enhanced compliance requirements.
Companies seeking assistance with tax opportunities and compliance should contact our seasoned tax and compliance experts today!
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