Companies Income Tax (CIT) is a crucial component of Nigeria's tax system, levied on the profits of registered companies operating within the country. Understanding CIT is essential for both resident Nigerians and foreign investors, as it ensures compliance with local laws and contributes to the nation's economic development. This guide provides a comprehensive overview of CIT in Nigeria, covering its definition, applicability, calculation, filing procedures, and special considerations for foreign-owned businesses.
What Is Companies Income Tax (CIT) in Nigeria?
Definition and Purpose
Companies Income Tax (CIT) is a tax imposed on the profits of companies operating in Nigeria. Its primary purpose is to generate revenue for the government, which is used to fund public services and infrastructure development.
Governing Law: Companies Income Tax Act (CITA)
The administration of CIT is governed by the Companies Income Tax Act (CITA), which outlines the legal framework for assessing and collecting corporate taxes in Nigeria.
Difference Between Company Income Tax and Personal Income Tax
While CIT applies to the profits of registered companies, Personal Income Tax (PIT) is levied on the income of individuals. The two taxes are distinct, with different rates and regulations.
Regulatory Authority: Federal Inland Revenue Service (FIRS)
The Federal Inland Revenue Service (FIRS) is the government agency responsible for administering and collecting CIT in Nigeria.
Which Companies Must File and Pay CIT in Nigeria?
Eligibility Criteria
All companies operating in Nigeria, whether resident or non-resident, are required to file and pay CIT. This includes:
- Resident Companies: Companies incorporated in Nigeria.
- Non-Resident Companies: Foreign companies with a significant presence or business operations in Nigeria.
Types of Entities
Entities subject to CIT include:
- Limited Liability Companies: Both private and public companies.
- Small and Medium Enterprises (SMEs): Depending on their turnover, SMEs may benefit from reduced tax rates or exemptions.
- Real Estate Investment Trusts (REITs): Subject to CIT based on their taxable income.
- Petroleum Companies: Taxed under specific provisions due to the nature of their operations.
Special Notes for Expats and Foreign Businesses
Foreign businesses and expatriates managing companies in Nigeria must comply with CIT regulations. Understanding the tax obligations and potential benefits under Nigerian law is crucial for effective business operations.
Corporate Residence Rules
Determining Company Residence
A company is considered resident in Nigeria if it is incorporated in the country or if its management and control are exercised within Nigeria.
Tax Implications for Local vs. Foreign Companies
Resident companies are taxed on their worldwide income, while non-resident companies are taxed only on income derived from Nigeria.
How Is Companies Income Tax Calculated?
Components of Taxable Income
Taxable income is determined by adjusting a company's accounting profit for tax purposes. This includes:
- Revenues: Total income generated from business activities.
- Allowable Deductions: Expenses incurred wholly, exclusively, necessarily, and reasonably in the production of income.
- Non-Allowable Deductions: Expenses not permitted for tax purposes.
Taxable vs. Exempt Income
Certain incomes are exempt from CIT, such as:
- Dividends received from other Nigerian companies.
- Income from government securities.
Step-by-Step CIT Calculation Example
- Determine Gross Profit: Calculate total revenue minus the cost of goods sold.
- Subtract Allowable Deductions: Deduct expenses that are tax-deductible.
- Add Non-Allowable Deductions: Add back expenses that are not tax-deductible.
- Calculate Taxable Income: Adjusted profit after adding back non-allowable deductions.
- Apply Tax Rate: Multiply taxable income by the applicable CIT rate to determine tax payable.
Company Income Tax Rates in Nigeria (2025)
Current Tax Rates
As of 2025, the CIT rates are:
- Small Companies (turnover less than ₦25 million): Exempt from CIT.
- Medium Companies (turnover between ₦25 million and ₦100 million): 20%.
- Large Companies (turnover above ₦100 million): 25%. (practiceguides.chambers.com)
Special Sector Rates
- Petroleum Companies: Subject to a hydrocarbon tax of 15% for operations in onshore and shallow waters under a Petroleum Prospecting Licence (PPL) and 30% under a Petroleum Mining Lease (PML). (practiceguides.chambers.com)
Minimum Tax Provisions
Companies with no taxable profit may be subject to a minimum tax, calculated as a percentage of turnover, to ensure all companies contribute to government revenue.
Deductions, Tax Reliefs, and Allowances
Allowable & Non-Allowable Deductions
- Allowable Deductions: Business expenses that are necessary and reasonable, such as salaries, rent, and utilities.
- Non-Allowable Deductions: Personal expenses, capital expenditures, and fines.
Tax Credits, Incentives, and Sector-Based Reliefs
- Investment Allowances: Deductions for capital expenditures on qualifying assets.
- Pioneer Status: Tax holidays for companies in certain industries to encourage investment.
Latest Changes or Updates in 2025
Recent tax reforms have introduced a gradual reduction of the CIT rate from 30% to 27.5% in 2025 and 25% in 2026. (practiceguides.chambers.com)
How to File and Pay Company Income Tax in Nigeria
Step-by-Step FIRS Filing Process
- Register with FIRS: Obtain a Tax Identification Number (TIN).
- Prepare Financial Statements: Ensure accurate records of income and expenses.
- Complete Tax Returns: Fill out the appropriate CIT return forms.
- Submit Returns: File returns electronically via the FIRS e-filing portal or manually at FIRS offices.
- Pay Tax Due: Make payments through designated banks or online platforms.
Required Documentation
- Audited financial statements.
- Completed tax return forms.
- Evidence of tax payments.
Filing Deadlines and Payment Schedules
- Filing Deadline: Within six months after the end of the company's accounting year.
- Payment Schedule: Tax is payable in full upon filing, with options for installment payments under certain conditions.
Introduction to FIRS Self-Service Portal
The FIRS provides an online portal for tax registration, filing, and payment, facilitating easier compliance for taxpayers.
Common Pitfalls, Penalties, and How to Avoid Them
Late Filing/Payment Penalties
Failure to file or pay on time attracts penalties, including fines and interest on unpaid taxes.
Audit and Investigation Risks
Non-compliance may trigger audits or investigations, leading to additional assessments and penalties.
Tips for Timely Compliance
- Maintain accurate financial records.
- Stay informed about tax deadlines.
- Utilize professional tax advisory services.
Exemptions and Special Incentives Under Nigerian CIT Law
Tax Holidays, Pioneer Status, Investment Allowances
- Pioneer Status: Up to five years of tax exemption for