Company Income Tax (CIT) Guide for Nigerian Businesses

Company Income Tax (CIT) is the tax levied on the profits of companies operating in Nigeria. Whether you're starting a business, running an established company, or planning for growth, understanding CIT is essential for compliance and strategic planning.

This comprehensive guide covers everything you need to know about CIT under the Nigeria Tax Act 2025.

Table of Contents

1. What is Company Income Tax?
2. Who Pays CIT?
3. Tax Rates Under Tax Act 2025
4. Small Company Exemption (0% Rate)
5. Taxable Profits Calculation
6. Capital Allowances
7. Filing and Payment
8. Minimum Tax
9. Common Mistakes to Avoid
10. Tax Planning Strategies

What is Company Income Tax? {#what-is-cit}

Company Income Tax (CIT) is a direct tax charged on the profits of companies registered in Nigeria, including:

• Nigerian companies (incorporated in Nigeria)
• Foreign companies with operations in Nigeria
• Partnerships and enterprises that opt to be taxed as companies

Key Characteristics:

✓ Direct Tax: Levied on company profits
✓ Annual Assessment: Filed once per year
✓ Self-Assessment: Companies calculate their own tax
✓ Progressive Exemptions: Small companies may pay 0%

Who Pays CIT? {#who-pays}

Mandatory CIT Payment:

You MUST pay Company Income Tax if your business is:

1. Limited Liability Company (Ltd/PLC)

   • Private Limited Companies
   • Public Limited Companies
   • Companies Limited by Guarantee

2. Foreign Company Operating in Nigeria

   • With a permanent establishment in Nigeria
   • Deriving income from Nigerian sources

3. Partnerships Opting for Corporate Tax

   • Partnerships that elect to be taxed as companies

Exemptions:

The following entities are NOT subject to CIT:

✓ Sole proprietorships (pay personal income tax)
✓ Traditional partnerships (taxed as individuals)
✓ NGOs and registered charities (under certain conditions)
✓ Government agencies and statutory corporations
✓ Small companies meeting specific criteria (see below)

Tax Rates Under Tax Act 2025 {#tax-rates}

Standard Rate: 30%

Most companies pay 30% corporate income tax on taxable profits.

Example:

• Taxable Profit: ₦10,000,000
• CIT @ 30%: ₦3,000,000
• Plus: Tertiary Education Tax (4%): ₦400,000
• Total Tax: ₦3,400,000

Tertiary Education Tax (Development Levy): 4%

In addition to the 30% CIT, companies pay 4% education tax on assessable profits.

Important: This is 4% of profit, NOT 4% on top of the 30% tax.

Total Effective Rate: 34% (30% CIT + 4% Education Tax)

Small Company Rate: 0% {#small-company}

Qualifying Criteria:

Small companies enjoying 0% tax rate must meet ALL of the following conditions:

1. Turnover Limit: ≤ ₦50,000,000

Annual gross turnover (total revenue before expenses) must not exceed ₦50 million.

Calculation:

• Includes all revenue sources
• VAT-exclusive amount
• 12-month financial year

2. Fixed Assets Limit: ≤ ₦250,000,000

Total fixed assets (property, plant, equipment) must not exceed ₦250 million.

Fixed Assets Include:

• Land and buildings
• Machinery and equipment
• Furniture and fittings
• Motor vehicles
• Computers and technology

Excluded from Fixed Assets:

• Inventory/stock
• Cash and bank balances
• Accounts receivable
• Short-term investments

3. Not a Professional Services Firm

Companies engaged in professional services are NOT eligible for the small company exemption, even if they meet the turnover and asset thresholds.

Ineligible Professional Services:

• Legal services (law firms)
• Accounting and audit firms
• Consulting services
• Engineering and architectural firms
• Medical/healthcare professional services

Example: Small Company (0% Tax)

ABC Trading Ltd:

• Annual Turnover: ₦48,000,000 ✓
• Fixed Assets: ₦200,000,000 ✓
• Business: Retail trading ✓
• CIT Rate: 0%
• CIT Payable: ₦0

Example: Standard Company (30% Tax)

XYZ Consulting Ltd:

• Annual Turnover: ₦45,000,000
• Fixed Assets: ₦150,000,000
• Business: Management consulting ✗ (professional service)
• CIT Rate: 30% (does not qualify for exemption)
• CIT Payable: 30% of taxable profits

Taxable Profits Calculation {#taxable-profits}

Formula:

Taxable Profit = Accounting Profit + Add-backs - Deductions

Step-by-Step Calculation:

Step 1: Start with Accounting Profit

Your profit as shown in audited financial statements.

Example:

• Revenue: ₦50,000,000
• Less: Cost of Sales: (₦30,000,000)
• Less: Operating Expenses: (₦10,000,000)
• Accounting Profit: ₦10,000,000

Step 2: Add Back Disallowed Expenses

Certain expenses in your accounts are NOT deductible for tax purposes:

Common Add-backs:

1. Depreciation (use capital allowances instead)
2. Entertainment expenses (except staff welfare)
3. Donations (except approved donations, max 10%)
4. Penalties and fines
5. Capital expenses (treated separately)
6. Provisions (not yet paid)
7. Personal expenses of directors/shareholders

Example Add-backs:

• Depreciation: ₦2,000,000
• Entertainment: ₦500,000
• Unapproved donations: ₦300,000
• Total Add-backs: ₦2,800,000

Step 3: Deduct Tax Allowances

Now deduct allowable items:

Allowable Deductions:

1. Capital allowances (see below)
2. Approved donations (up to 10% of profits)
3. Loss carry-forward (from previous years)
4. Research & Development expenses (enhanced relief)

Example Deductions:

• Capital Allowances: ₦1,500,000
• Approved Donations: ₦500,000
• Total Deductions: ₦2,000,000

Final Calculation:

Accounting Profit:           ₦10,000,000
Add: Disallowed expenses:    ₦ 2,800,000
                             ―――――――――――
Adjusted Profit:             ₦12,800,000
Less: Tax allowances:        (₦ 2,000,000)
                             ―――――――――――
Taxable Profit:              ₦10,800,000

CIT @ 30%:                   ₦ 3,240,000
Education Tax @ 4%:          ₦   432,000
                             ―――――――――――
TOTAL TAX DUE:               ₦ 3,672,000

Capital Allowances {#capital-allowances}

Instead of depreciation, companies claim capital allowances on qualifying assets.

Rates for Common Assets:

| Asset Type | Initial Allowance | Annual Allowance | |------------|-------------------|------------------| | Buildings | 15% | 10% | | Plant & Machinery | 50% | 25% | | Furniture & Fittings | 25% | 20% | | Motor Vehicles | 50% | 25% | | IT Equipment | 50% | 30% |

How Capital Allowances Work:

Example: ₦5,000,000 Machine

Year 1:

• Initial Allowance (50%): ₦2,500,000
• Annual Allowance (25% of ₦2,500,000): ₦625,000
• Total Year 1: ₦3,125,000

Year 2:

• Remaining value: ₦1,875,000
• Annual Allowance (25%): ₦468,750

Year 3:

• Remaining value: ₦1,406,250
• Annual Allowance (25%): ₦351,563

...and so on until fully written off.

Filing and Payment {#filing}

Filing Deadline:

6 months after the end of your company's financial year.

Example:

• Financial year ends: December 31, 2025
• Filing deadline: June 30, 2026

How to File:

Option 1: Online via TaxPro-Max (Recommended)

1. Log in to TaxPro-Max
2. Select "CIT Returns"
3. Upload:
   • Audited financial statements
   • Tax computation
   • Supporting schedules
4. Submit return
5. Generate RRR (Remita Retrieval Reference)
6. Pay via bank/online

Option 2: Manual Filing

1. Prepare printed CIT returns
2. Attach audited accounts
3. Submit at FIRS office
4. Get assessment notice
5. Pay at designated bank

What to Include:

Required Documents:

• Audited financial statements
• Tax computation showing:
  • Accounting profit
  • Add-backs
  • Deductions
  • Taxable profit
  • Tax payable
• Capital allowances schedule
• Evidence of previous tax payments
• List of directors and shareholders

Minimum Tax {#minimum-tax}

Even if your company makes a loss, you may still owe minimum tax.

Minimum Tax Rate: 0.5% of Turnover

Calculation:

Minimum Tax = 0.5% × Gross Turnover

Example:

• Company makes a loss of (₦2,000,000)
• Gross turnover: ₦100,000,000
• Minimum Tax: ₦100,000,000 × 0.5% = ₦500,000
• Tax Due: ₦500,000 (despite the loss)

When Minimum Tax Applies:

Minimum tax is payable when:

1. Company has no taxable profit (loss or break-even)
2. Normal CIT calculation is less than 0.5% of turnover
3. Company has been loss-making for multiple years

Exemptions from Minimum Tax:

The following are exempt from minimum tax:

• Companies in their first 4 years of operation
• Companies with gross turnover below ₦25,000,000
• Agricultural companies (farming, fishing, forestry)
• Small companies qualifying for 0% rate

Common Mistakes to Avoid {#mistakes}

1. Not Claiming Capital Allowances

Many companies claim depreciation instead of capital allowances, losing significant tax savings.

Fix: Replace depreciation with proper capital allowance claims.

2. Missing the 0% Small Company Rate

Eligible companies sometimes don't realize they qualify for the exemption.

Fix: Check turnover, assets, and business type annually.

3. Late Filing

Filing after the 6-month deadline attracts penalties.

Penalty: ₦25,000 first month + ₦5,000 each subsequent month.

Fix: Set calendar reminders 2 months before deadline.

4. Not Carrying Forward Losses

Tax losses can be carried forward indefinitely to offset future profits.

Fix: Maintain proper records of losses and claim them when profitable.

5. Mixing Personal and Business Expenses

Personal expenses of directors/shareholders are not deductible.

Fix: Maintain clear separation between business and personal transactions.

Tax Planning Strategies {#strategies}

1. Maximize Capital Allowances

• Purchase qualifying assets before year-end
• Claim initial and annual allowances fully
• Keep detailed asset registers

2. Plan for Small Company Exemption

• Monitor turnover approaching ₦50M
• Avoid unnecessary asset purchases that push you over ₦250M
• Consider restructuring if nearing thresholds

3. Optimize Donation Strategy

• Make donations to approved organizations
• Claim up to 10% of profits
• Keep proper receipts and approvals

4. Loss Management

• Carry forward losses indefinitely
• Use losses strategically in profitable years
• Maintain proper documentation

5. Timing of Income and Expenses

• Defer income to next year if nearing threshold
• Accelerate expenses into current year
• Manage year-end carefully

Key Takeaways

✅ Standard CIT rate: 30% + 4% education tax = 34% total
✅ Small companies: 0% if turnover ≤ ₦50M, assets ≤ ₦250M, not professional services
✅ File within 6 months of financial year-end
✅ Claim capital allowances, not depreciation
✅ Minimum tax: 0.5% of turnover if no profit
✅ Carry forward losses indefinitely
✅ Keep proper records for at least 6 years

Tools & Resources

• CIT Calculator - Calculate your company's tax liability
• Tax Planning Guide - Optimize your tax position
• Capital Allowances Calculator (Premium)
• Ask AI Assistant - Get instant answers to CIT questions

Need Help?

• Use our AI Tax Assistant for personalized CIT guidance
• Consult a licensed tax professional for complex situations
• Visit FIRS for official guidelines: www.firs.gov.ng

Disclaimer: Tax laws and rates are subject to change. Always verify current requirements with FIRS or a qualified tax consultant before making business decisions. This guide is for educational purposes and does not constitute professional tax advice.

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• Small Business Tax Guide
• Tax Deductions for Companies