Introduction to Business Taxes and Levies in Nigeria
Navigating business taxes and levies in Nigeria can be challenging—especially for newcomers and expatriates. Whether you own a growing startup in Lagos or are an expat running a multinational branch, understanding the Nigerian tax system is crucial for legal compliance and business success. This guide highlights the importance of Nigerian business tax compliance, outlines different business taxes and levies, and offers practical tips for avoiding tax pitfalls in 2025.
Why is tax compliance important?
- Avoids penalties, business interruptions, and legal trouble.
- Builds a favorable reputation with clients and authorities.
- Promotes national development through government revenue.
Unique challenges for businesses and expats:
- Frequent tax rule changes.
- Distinction between federal, state, and local taxes.
- Risks of double taxation and misfiling.
Let’s break down everything you need for a compliant and stress-free business experience in Nigeria, whether you’re a local entrepreneur or an expatriate.
Key Legislation and Regulatory Agencies
Understanding the legal framework behind approved taxes and levies in Nigeria helps you stay on the right side of tax authorities:
- Taxes and Levies (Approved List for Collection) Decree: Defines which taxes are collectible and by which government tiers. Prevents illegal collections, especially at the local government level.
- Federal Inland Revenue Service (FIRS) Act: Establishes FIRS Nigeria as the key agency for federal tax administration.
- State Boards of Internal Revenue (SBIRs): Oversee state-level taxes (e.g., Personal Income Tax).
- Local Government Revenue Committees: Handle local levies and permits.
Summary Table: Major Tax Agencies
| Agency/Authority | Main Responsibility |
|---|---|
| FIRS | Federal taxes (CIT, VAT, WHT, etc.) |
| State Boards (SBIRs) | State taxes (PIT, business premises, etc.) |
| Local Gov. Committees | Local levies and market/shop fees |
More on FIRS roles and regulations (FIRS Official Site)
Primary Types of Business Taxes in Nigeria
Nigerian businesses encounter several primary taxes, most notably at the federal and state levels.
Company Income Tax (CIT)
What is it? Paid by companies on their profits.
Rate: 30% for large companies, 20% for SMEs (annual turnover below ₦100 million); startups with less than ₦25 million turnover are exempt.
Calculation: Profits = Total Revenue - Allowable Business Expenses.
Due Dates: Payment is due within six months after the company’s accounting year ends.
Filing: Must file annual returns with the FIRS alongside audited financial statements.
Compliance Checklist Example:
- Register with the FIRS.
- Obtain a Tax Identification Number (TIN).
- File and pay CIT within the deadline.
Learn more about Company Income Tax from PwC Nigeria
Value Added Tax (VAT)
What is it? Tax on goods and services at 7.5% (updated 2020).
Who collects? FIRS.
Who pays? All businesses with turnover ≥ ₦25 million and all VATable transactions.
Process:
1. Register for VAT with FIRS.
2. Collect VAT on sales.
3. Submit monthly returns and remit VAT by the 21st of the next month.
VAT Example:
If a business sells products worth ₦1,000,000, VAT due = ₦75,000.
Read the VAT guide on Legal500
Personal Income Tax (PIT) for Business Owners and Expats
Who pays?:
- Employees (through Pay-As-You-Earn, or PAYE, system).
- Business owners or expats resident in Nigeria for 183+ days/year.
Rates: Graduated scale from 7% to 24%.
PAYE system: Employers deduct and remit on behalf of employees each month.
Self-employed: File annual returns and pay directly.
Note for Expats: PIT applies to global income if resident in Nigeria.
Withholding Tax (WHT)
What is it? Advance tax on specific transactions (e.g., contracts, rent, interest, royalties).
Rates: Generally 5-10%, depending on transaction and recipient.
Process:
- Withhold tax when making payment.
- Remit to FIRS/SBIR within 21 days.
Example:
If you pay a contractor ₦500,000, withhold 5% (₦25,000) and remit the ₦25,000 to the tax authority.
Other Levies and Taxes Businesses Should Know
Beyond the primary taxes, businesses need to be aware of several additional levies. These may be at the federal, state, or local government levels.
Stamp Duties
When do they apply?
- Agreements, legal documents (e.g., contracts, share transfers, leases).
Payment:
- Paid by buyer or party executing the document.
- Proof needed by “stamping” the document.
Capital Gains Tax (CGT)
What does it cover?
- Gains from the sale of chargeable assets (e.g., property, shares).
Rate: 10% of net gains; some exemptions (e.g., gains from government securities, main residential property).
Read more about CGT on Advans Nigeria
Tertiary Education Tax
Who pays? Nigerian resident companies (except small businesses under ₦25mn turnover).
Rate: 2.5% of assessable profit.
Funds use: For educational infrastructure (e.g., TETFund projects in universities).
Petroleum Profit Tax (PPT)
Applies to: Companies in upstream oil and gas operations.
Rates: 50% to 85%, based on contract type.
Note: Not relevant for non-oil businesses.
Local Levies
Common examples:
- Business premises levy.
- Market/shop fees.
- Advertisement permits.
Tip: Always request receipts; check against the approved taxes and levies Nigeria list to avoid fraudulent collections and double taxation.
Tax Compliance for Nigerians and Expats
Registration Steps for New Businesses and Expats
- Register business with the Corporate Affairs Commission (CAC).
- Register for tax (FIRS for federal, SBIR for state taxes).
- Obtain your Tax Identification Number (TIN).
- Register for VAT (if applicable).
Filing Deadlines and Penalties
Major deadlines:
- CIT & Education Tax: Six months after business year ends.
- VAT: By 21st of next month.
- PAYE/PIT: Monthly (by 10th of each month).
- WHT: Within 21 days.
Penalties for late compliance:
| Non-Compliance | Penalty (2025) |
|---|---|
| Late VAT remittance | ₦50,000 1st month, ₦25,000 each add. mo. |
| Late CIT return | ₦25,000 1st mo., ₦5,000 add. months |
| Failure to deduct/remit WHT | 10% plus interest |
Common Challenges for Expats and Solutions
- Residency rules: Taxation depends on 183+ days per year in Nigeria.
- Double taxation: Nigeria has tax treaties with some countries—always check if your home country is included.
- Solutions: Work with a professional, keep impeccable records, request tax clearance certificates annually.
Tax Incentives and Reliefs
Common Incentives
- SMEs: Tax holiday for pioneer companies (up to 5 years).
- Exporters: Relief for income from goods exported from Nigeria.
- Agriculture/Manufacturing: Reduced CIT.
Tax Credits and Deductions
- R&D expenditure relief.
- Capital allowance on qualifying assets (machinery, equipment).
See more on Nigerian tax incentives (FIRS Nigeria)
Frequently Asked Questions (FAQs) About Business Taxes in Nigeria
Q1: What is the difference between VAT and CIT in Nigeria?
A: VAT is a tax on consumption (7.5%) while CIT is based on a company’s annual profits (20-30%).
Q2: Do expatriates in Nigeria pay personal income tax?
A: Yes, if you're resident in Nigeria for more than 183 days a year, you’re taxed on worldwide income.
Q3: How can I avoid double taxation as an expat?
A: Check if your home country has a double taxation agreement with Nigeria. See the official list here.
Q4: What are the most common local government levies?
A: Business premises permit, signage/advert permits, and market/shop fees.
Q5: What is the penalty for late filing of Company Income Tax?
A: ₦25,000 for the first month, ₦5,000 per additional month.
Key Resources and Where to Get Help
- Federal Inland Revenue Service (FIRS)
- State Internal Revenue Service (example: Lagos IRS)
- PwC Nigeria Tax Resources
- Legal500 Guide to Tax in Nigeria
- Advans Nigeria Tax Education
- Credible local tax consultants for complex matters.
For business formation, see our guides on business registration and employee payroll and personal taxation.
Conclusion
Staying on top of other business taxes & levies in Nigeria is essential for entrepreneurs, business owners, and expatriates alike. Remember, compliance is not just a legal duty—it’s smart business. Pay attention to federal, state, and local laws, meet your filing deadlines, and engage a reputable tax advisor for a smooth experience in 2025 and beyond.
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Checklist for Nigerian Business Tax Compliance (2025):
- [ ] Register your business and obtain your TIN.
- [ ] Verify which taxes/levies apply to you.
- [ ] Meet all monthly and annual deadlines.
- [ ] Keep accurate records.
- [ ] Request receipts for all payments.
- [ ] Review incentives and reliefs for your industry.
Stay compliant, grow confidently, and make taxes work for your business!
This guide is for educational purposes. Tax rules evolve; always check the latest laws or seek professional advice.