Understanding Company Income Tax in Nigeria: What Businesses Need to Know

CIT is governed by the Nigeria Tax Act 2025, which took effect on 1 January 2026, and administered by the Nigeria Revenue Service (NRS). The law sets out how company profits and other taxable income are treated, alongside the deductions, exemptions and other rules that determine a company’s tax liability.

Here is what businesses need to understand.

1. What Is Company Income Tax?

Company Income Tax is a tax imposed on the taxable profits of companies under Nigeria’s tax laws. It applies to income, profits or gains accruing in or derived from Nigeria, subject to the rules governing the particular taxpayer and type of income.

CIT is not simply a percentage of everything a company receives. The company’s taxable profits must first be determined under the Act, taking account of allowable expenses, qualifying losses, capital allowances and other relevant adjustments.

This distinction matters because a company’s total revenue, accounting profit and final taxable profit may be different amounts.

1. What Income Is Subject to Company Income Tax?

The Nigeria Tax Act 2025 covers a broad range of income, profits and gains. Depending on the circumstances, these include:

• Business profits: Profits or gains from any trade, business, profession or vocation, regardless of how long the activity has been carried on.
• Royalties, rent and interest: Income arising from rights granted to use, exploit or occupy property, as well as interest earned.
• Dividends and annuities: Dividends, premiums, charges and annuity payments where the relevant provisions apply.
• Service fees and remuneration: Fees, dues, allowances and other payments received for services rendered.
• Discounts and rebates: Income arising from discounts or rebates that fall within the applicable tax rules.
• Money and financial instruments: Income from disposing of money or money instruments.
• Securities transactions: Profits or income from disposing of or lending securities.
• Awards and other receipts: Prizes, winnings, honoraria, grants, awards, laurels and similar receipts, subject to the relevant rules.
• Disposal of property or fixed assets: Gains or profits arising from the disposal of property or business assets.
• Digital and virtual assets: Profits or gains from transactions involving digital or virtual assets.
• Other income: Other income, profits or gains not specifically listed in the preceding categories, where chargeable under the Act.

These categories describe income that may fall within the tax framework. They do not mean every receipt is automatically taxed in full. The nature of the transaction, applicable exemptions, deductions and other provisions must be considered when determining the amount chargeable to tax.

1. How Are a Company’s Taxable Profits Calculated?

A company’s taxable profits are determined using the rules in the Nigeria Tax Act 2025 rather than simply copying the profit figure from its accounts.

The process generally involves:

1. Determining assessable profits: Calculate profits from the company’s relevant income sources using the applicable tax rules.
2. Deducting allowable expenses: Expenses that meet the statutory conditions may be deducted when calculating business profits.
3. Accounting for qualifying losses: Eligible losses may reduce profits, subject to the restrictions in the Act.
4. Deducting capital allowances: Qualifying expenditure on business assets may attract capital allowances under the applicable rates and conditions.
5. Applying other relevant provisions: Any applicable exemptions, restrictions or adjustments must be considered before arriving at total profits.

For example, a company may earn ₦30 million in revenue and incur ₦18 million in recorded expenses. Its accounting profit before tax would be ₦12 million. However, its taxable profit may be higher or lower depending on which expenses are allowable, whether capital allowances apply and whether qualifying losses or other adjustments are available.

This is why companies need accurate financial records and a tax computation that reflects the applicable legislation.

1. Which Business Expenses Can Be Deducted?

Section 20 of the Nigeria Tax Act 2025 provides for deductions for expenses wholly and exclusively incurred in producing income from a trade, business, profession or vocation, subject to the conditions in the Act.

Depending on the circumstances, qualifying expenses may include:

• Salaries, wages and employee remuneration
• Rent for business premises
• Interest on qualifying business borrowing
• Repairs to business premises, machinery and equipment
• Approved staff pension contributions
• Eligible research and development expenses
• Certain bad or doubtful debts
• Other qualifying business expenses permitted under the Act

However, section 21 identifies expenses that cannot be deducted when calculating business profits. These include private or domestic expenses, capital expenditure, depreciation and certain specified taxes, penalties and other disallowed items.

For example, a company cannot claim a founder’s personal shopping as a business expense merely because the payment came from its business account. Similarly, purchasing a long term business asset may require a capital allowance calculation rather than an immediate deduction of the entire purchase price.

Maintaining clear records of each transaction helps establish what the expense was for and whether it qualifies for tax purposes.

1. What Tax Rate Does Your Company Pay?

The rate applicable to a company depends on the relevant provisions of the Nigeria Tax Act 2025 and the company’s circumstances. Businesses should not assume that every company is subject to the same rate or that the rate can be applied directly to revenue.

The Act also contains provisions affecting eligible small companies and businesses operating under specific tax regimes or incentives. Eligibility depends on the statutory definitions and conditions, not simply on whether a business describes itself as a startup.

Before calculating the amount payable, confirm the company’s classification, applicable rate, taxable profits and any relevant exemptions or incentives under the current law.

Keep Your Company’s Financial Records Organised with LessaTax

Understanding Company Income Tax is easier when you have a clear record of what your business earns and spends. Scattered invoices, incomplete expense records and untracked transactions can make it harder to prepare an accurate tax computation or support deductions.

LessaTax helps freelancers, remote workers and business owners organise their financial records, track income and work related expenses, and keep important supporting information accessible. Building these habits throughout the year can make it easier to review your financial position and prepare for tax obligations.