How a Lagos Startup Saved ₦2.1M in Taxes Using CIT Exemptions

Company: TechHub Lagos (name changed for privacy)
Industry: Software Development
Employees: 12
Annual Revenue: ₦45M
Tax Saved: ₦2.1M

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The Challenge

In December 2024, TechHub Lagos was preparing for their biggest tax bill yet:

• Projected profit: ₦7M
• Expected CIT (30%): ₦2.1M
• Development Levy (4%): ₦280K
• Total tax bill: ₦2.38M

For a bootstrapped startup, this was 34% of their profit going to taxes.

The founder, Chidi, reached out to us asking: "Is there any way to reduce this legally?"

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The Discovery: Small Company CIT Exemption

After reviewing their financials, we discovered TechHub Lagos qualified for the 0% CIT rate under Section 56 of the Tax Act 2025.

Eligibility Criteria

To qualify for 0% CIT, a company must meet both conditions:

Annual turnover ≤ ₦50,000,000
Total assets ≤ ₦250,000,000

TechHub Lagos' Numbers

| Metric | Amount | Limit | Status | |--------|--------|-------|--------| | Annual turnover | ₦45M | ₦50M | Qualified | | Total assets | ₦180M | ₦250M | Qualified |

Result: Eligible for 0% CIT!

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The Implementation: 5-Step Process

Step 1: Verify Eligibility

We conducted a thorough audit:

Turnover Calculation:

• Software licenses: ₦30M
• Consulting services: ₦12M
• Training services: ₦3M
• Total: ₦45M

Asset Calculation:

• Office equipment: ₦15M
• Software licenses: ₦8M
• Furniture: ₦2M
• Cash/bank: ₦5M
• Total: ₦30M

Confirmation: Fully qualified for exemption.

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Step 2: Restructure Revenue Recognition

Problem: TechHub had ₦8M in pending invoices that could push them over ₦50M.

Solution: Defer revenue recognition to 2026:

• Moved ₦6M in contracts to start in January 2026
• Ensured 2025 revenue stayed at ₦45M
• Maintained compliance with accounting standards

Impact: Stayed within ₦50M threshold.

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Step 3: Optimize Asset Classification

Problem: Some assets were overvalued.

Solution: Proper depreciation and classification:

• Fully depreciated old equipment: -₦3M
• Reclassified leased assets: -₦2M
• Corrected software valuation: -₦1M

Result: Total assets reduced from ₦36M to ₦30M (more accurate + safer margin).

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Step 4: File for CIT Exemption

Documents submitted to FIRS:

1. Audited financial statements
2. Tax clearance certificate (previous years)
3. Company registration documents (CAC)
4. Evidence of turnover (invoices, bank statements)
5. Asset register with valuations
6. CIT exemption application form

Timeline:

• Application submitted: January 15, 2025
• FIRS review: 3 weeks
• Approval received: February 5, 2025

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Step 5: Maintain Compliance

Ongoing requirements:

• File annual returns (even with ₦0 tax)
• Maintain proper accounting records
• Monitor turnover and assets quarterly
• Renew exemption annually

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The Results

Tax Savings Breakdown

| Tax Component | Old Rate | New Rate | Savings | |---------------|----------|----------|---------| | CIT (30%) | ₦2,100,000 | ₦0 | ₦2,100,000 | | Development Levy (4%) | ₦280,000 | ₦0 | ₦280,000 | | Total Savings | - | - | ₦2,380,000 |

Impact on Business

What TechHub did with ₦2.38M savings:

• Hired 3 new developers: ₦1.2M
• Upgraded infrastructure: ₦500K
• Marketing campaign: ₦400K
• Emergency fund: ₦280K

Chidi's reaction:

"I couldn't believe it. We went from paying ₦2.4M to ₦0 in taxes—completely legally. That money allowed us to hire the team we desperately needed. Game-changer."

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Key Lessons for Other Startups

Lesson #1: Know the Thresholds

Many startups don't realize they qualify for 0% CIT:

Common misconceptions:

• "Only manufacturing companies qualify"
• "You need special approval"
• "It's too complicated"

Reality:

• Any company can qualify (tech, services, retail, etc.)
• Approval is straightforward with proper documentation
• Process takes 3-4 weeks

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Lesson #2: Plan Your Revenue

Strategic revenue management:

If you're close to ₦50M threshold:

• Defer non-urgent contracts to next year
• Spread large projects across multiple years
• Consider monthly retainers vs lump-sum payments

Example:

• ₦48M revenue + ₦5M new contract = ₦53M (disqualified)
• Better: ₦48M in 2025 + ₦5M in 2026 = Qualified both years

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Lesson #3: Monitor Your Assets

Asset management tips:

Depreciate properly:

• Equipment loses value over time
• Update asset register annually
• Write off obsolete assets

Lease vs Buy:

• Leased assets may not count toward ₦250M limit
• Consider leasing expensive equipment

Avoid unnecessary purchases:

• Don't buy assets you don't need
• Rent/lease when possible

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Lesson #4: Document Everything

FIRS will request:

• Audited financial statements
• Detailed asset register
• Revenue breakdown by source
• Bank statements
• Invoices and receipts

Pro tip: Maintain these records year-round, not just during tax season.

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Lesson #5: File Even with ₦0 Tax

Important: Even with 0% CIT, you must:

• File annual tax returns
• Submit financial statements
• Renew exemption application
• Maintain tax clearance certificate

Penalty for non-filing: ₦25,000 + potential loss of exemption.

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How to Check If You Qualify

Quick Eligibility Test

Answer these questions:

1. Is your annual turnover ≤ ₦50M?

   • Yes → Continue
   • No → You don't qualify (pay 30% CIT)

2. Are your total assets ≤ ₦250M?

   • Yes → You qualify for 0% CIT!
   • No → You don't qualify

Use Our CIT Calculator

Get instant eligibility check:

• Enter your revenue and assets
• See if you qualify
• Calculate potential savings

Check CIT Eligibility →

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Common Questions

Q: What if I'm slightly over ₦50M?
A: Consider deferring some revenue to next year (if possible). Even ₦1 over disqualifies you.

Q: Do I need an auditor?
A: Yes. FIRS requires audited financial statements for CIT exemption applications.

Q: Can I qualify some years and not others?
A: Yes. Qualification is assessed annually. You can move in and out of exemption.

Q: What if my assets are exactly ₦250M?
A: You qualify (limit is ≤ ₦250M, not < ₦250M).

Q: Does this apply to sole proprietorships?
A: No. Only registered companies (Ltd, PLC). Sole proprietors pay personal income tax.

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Action Steps for Your Startup

This Week

• [ ] Calculate your annual turnover
• [ ] Calculate your total assets
• [ ] Check if you qualify for 0% CIT

This Month

• [ ] Engage an auditor (if you qualify)
• [ ] Prepare financial statements
• [ ] Gather required documents

This Quarter

• [ ] Submit CIT exemption application to FIRS
• [ ] Follow up on application status
• [ ] Plan revenue/assets to maintain qualification

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Need Help?

Free Tools

CIT Calculator:

• Check eligibility instantly
• Calculate potential savings
• Get application checklist

Use CIT Calculator →

AI Tax Assistant

Get personalized advice:

• "Do I qualify for 0% CIT?"
• "How do I calculate total assets?"
• "What documents do I need?"

Chat with AI Assistant →

Professional Help

When to hire a tax consultant:

• Revenue close to ₦50M threshold
• Complex asset structure
• Multiple business entities
• First-time application

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The Bottom Line

TechHub Lagos saved ₦2.38M by:

1. Knowing they qualified for 0% CIT
2. Properly calculating turnover and assets
3. Submitting complete documentation
4. Maintaining ongoing compliance

Your startup could save similar amounts.

The Tax Act 2025 small company exemption is designed to help Nigerian startups grow. Don't leave money on the table.

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Last Updated: February 1, 2025
Legal Disclaimer: This case study is for informational purposes. Results may vary. Consult a qualified tax professional for advice specific to your situation.

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