Understanding the types of taxes in Nigeria is crucial for anyone earning an income or running a business. It helps you stay compliant and avoid costly penalties.
With a tax-to-GDP ratio of just over 10 percent, Nigeria is expanding its tax base through reforms and digital platforms like FIRS TaxProMax.
This guide breaks down key federal and state taxes, who pays them, and how to stay compliant, whether you are self-employed, an employee, or running a company.
See also: Proven steps to start a successful business.
Key Takeaway
- Nigeria’s tax system includes federal, state, and local taxes that apply based on income type, business structure, and location.
- Key taxes include Company Income Tax, Personal Income Tax, VAT, Withholding Tax, and several industry-specific levies.
- Timely filing, accurate calculation, and proper documentation are essential to avoid penalties and remain compliant.
- Strategic tax planning, professional advice, and digital tools can help businesses optimise tax obligations and grow sustainably.
Types of Taxes in Nigeria
There are several types of taxes in Nigeria, spread across federal, state, and local government levels.
Each tax is administered by a specific authority and applies to individuals, businesses, or both depending on income, operations, and location.
Here is a summary of the key types of taxes in Nigeria:
| Tax Type | Level | Responsible Authority | Applies To |
|---|---|---|---|
| Company Income Tax (CIT) | Federal | FIRS | Registered companies |
| Personal Income Tax (PIT) | State | State IRS (e.g. LIRS) | Employees, self-employed, sole proprietors |
| Value Added Tax (VAT) | Federal | FIRS | Businesses supplying taxable goods/services |
| Withholding Tax (WHT) | Federal/State | FIRS / State IRS | Payers of rent, contracts, consultancy fees |
| Capital Gains Tax (CGT) | Federal | FIRS | Sellers of chargeable assets |
| Education Tax | Federal | FIRS | Companies with ₦25m+ turnover |
| Petroleum Profits Tax (PPT) | Federal | FIRS | Oil exploration/production companies |
| Business Premises Levy | State | State IRS | Businesses with physical locations |
| Tenement Rates | Local | Local Government Authorities | Property owners (commercial/residential) |
| Market/Trade Levies | Local | Local Government Authorities | Informal traders, artisans |
| Stamp Duties | Federal/State | FIRS / State IRS | Individuals and companies on legal documents |
| Excise Duties | Federal | Nigerian Customs Service | Manufacturers of excisable goods |
| Customs Duties | Federal | Nigerian Customs Service | Importers |
| NITDA Levy (NITDL) | Federal | FIRS | Tech/finance firms with ₦100m+ turnover |
| Signage and Advertisement Fees | State | State signage agencies (e.g. LASAA) | Businesses using outdoor signage |
This summary gives a snapshot of the broad and varied tax landscape in Nigeria. Each of these taxes is covered in detail in the sections that follow, helping you understand what applies to your income or business.
Understanding the Nigerian Tax System
Nigeria operates a multi-tiered tax structure that covers federal, state, and local government obligations.
Each level of government has authority to collect specific taxes, making it essential for individuals and businesses to understand where their obligations lie.
Federal Taxes in Nigeria
Federal taxes are collected and managed by the Federal Inland Revenue Service (FIRS). These include major revenue sources such as:
- Company Income Tax (CIT)
- Value Added Tax (VAT)
- Petroleum Profits Tax (PPT)
- Capital Gains Tax (CGT)
- Education Tax
- Withholding Tax (WHT)
The FIRS tax system has undergone major upgrades in recent years. Businesses now file and pay taxes using the TaxProMax portal, which streamlines compliance and reduces manual paperwork.
State Taxes in Nigeria
Each state in Nigeria operates its own Internal Revenue Service, such as the Lagos State Internal Revenue Service (LIRS). These agencies are responsible for collecting:
- Personal Income Tax (PIT) from residents and sole proprietors
- Business Premises Levy
- Signage and advertisement levies
- Market and trade permit fees
State taxes generally apply to individuals and businesses based on their physical or operational presence within that state.
Local Government Levies
Local councils are empowered to collect specific levies, especially from informal businesses. These often include:
- Shop and kiosk rates
- Street trading fees
- Tenement rates
- Waste disposal levies
Although relatively small in amount, these taxes can add up, especially for micro and small businesses operating in multiple locations.
How Nigeria’s Tax Structure Works at a Glance
| Government Level | Responsible Body | Common Taxes/Levies |
|---|---|---|
| Federal | FIRS | CIT, VAT, PPT, CGT, WHT, Education Tax |
| State | SIRS (e.g. LIRS) | PIT, Business Premises Levy, Signage Fees |
| Local | LGAs | Tenement Rates, Shop/Kiosk Fees, Market Levies |
This structure means that a registered business may interact with all three tiers of government, depending on the size, location, and nature of its operations.
Federal Taxes in Nigeria
Federal taxes in Nigeria are administered by the Federal Inland Revenue Service (FIRS) and apply to individuals, businesses, and corporations depending on income type and structure.
Understanding federal tax obligations is critical for compliance, especially for entrepreneurs operating nationally or with significant annual turnover.
Below are the major federal taxes in Nigeria.
Company Income Tax (CIT)
CIT is charged on the profit of registered companies operating in Nigeria, except for those engaged in petroleum operations.
It is one of the most significant business taxes in Nigeria and contributes a large portion to federal revenue.
Applicable Rates:
| Company Type | Annual Turnover | CIT Rate |
|---|---|---|
| Micro enterprises | ₦25 million or less | 0% |
| Small companies | ₦25m – ₦100 million | 20% |
| Medium and large companies | Over ₦100 million | 30% |
Filing and Payment:
CIT is filed annually through the FIRS TaxProMax portal. Payment is due six months after the end of the company’s financial year. Late filing attracts penalties and interest.
Deductions Allowed:
Businesses can deduct allowable expenses such as staff salaries, rent, marketing, and utilities before calculating taxable profits.
Important Tip:
A business plan can help project taxable income and justify deductions. Entrepreneurs.ng offers a ready-to-use comprehensive business plan template that simplifies financial forecasting.
Value Added Tax (VAT)
VAT in Nigeria is a consumption tax imposed on goods and services. Businesses collect VAT from customers and remit it to FIRS.
Key Facts:
- Standard VAT rate is 7.5%
- VAT is applied at every stage of the supply chain
- Certain items like medical services, education, and basic food items are VAT-exempt
Filing and Remittance:
- Monthly VAT returns must be filed on or before the 21st day of the following month
- Filing is done via the TaxProMax portal
VAT-Exempt and Zero-Rated Goods Table:
| Category | Example Items | VAT Rate |
|---|---|---|
| VAT-Exempt | Education, medical services | 0% |
| Zero-Rated | Exported goods | 0% |
| Standard Rated | Electronics, clothing, consulting | 7.5% |
If your business invoices customers, you must register for VAT, include VAT on invoices, and remit accordingly.
See Also: What Is VAT? A Comprehensive Guide for Business Owners and Entrepreneurs
Withholding Tax (WHT)
WHT Nigeria is an advance payment of income tax deducted at source from specific transactions. It ensures partial tax collection before final assessment.
Typical WHT Rates:
| Transaction Type | WHT Rate |
|---|---|
| Rents (individual or corporate) | 10% |
| Contracts and supplies | 5% |
| Consultancy/professional services | 5% – 10% |
| Dividends and interest | 10% |
How WHT Works:
- The payer deducts WHT before paying the vendor
- Deducted WHT is remitted to FIRS
- The vendor receives a credit note to offset final tax liability
Filing WHT monthly is mandatory. Businesses that fail to remit WHT risk penalties and may not be able to claim the expense during CIT filing.
Education Tax
Every Nigerian company (except small businesses with less than ₦25 million turnover) is required to pay Education Tax, aimed at supporting tertiary education through the Tertiary Education Trust Fund (TETFund).
- Tax Rate: 2.5% of assessable profit
- Filing: Alongside CIT return
- Applies to all companies incorporated in Nigeria, regardless of business sector
Capital Gains Tax (CGT)
CGT is levied on the disposal of chargeable assets like property, stocks, and investments, excluding personal items and business inventories.
- Tax Rate: 10% on net gains
- Exemptions: Compensation for loss of employment up to ₦10 million, government bonds, and gains on shares up to ₦100 million annually
- Filing: Included in annual tax returns via FIRS
This tax is especially important for businesses and individuals engaging in asset sales or investment exits.
Petroleum Profits Tax (PPT)
This tax applies specifically to oil exploration and production companies operating in Nigeria. Although it affects a niche sector, it is one of the largest revenue sources for the government.
- Tax Rate: Ranges from 50% to 85%, depending on the contract type and business structure
- Filing: Quarterly, with final returns submitted annually
Due to the complexity of PPT, specialised legal and tax expertise is typically required.
See Also: How to Reduce Your Tax Bill Legally – Complete Tax-Saving Guide
State Taxes in Nigeria
State taxes in Nigeria are administered by State Internal Revenue Services, such as the Lagos State Internal Revenue Service (LIRS).
These taxes apply primarily to individuals, sole proprietors, and small businesses operating within a particular state.
Understanding your state tax obligations is essential for staying compliant and avoiding enforcement actions from state tax authorities.
Personal Income Tax Nigeria
Personal Income Tax (PIT) is the most prominent state tax and applies to individuals earning income through employment, business, or profession.
In Nigeria, PIT is governed by the Personal Income Tax Act (PITA) and administered by state tax authorities based on residency.
Taxable Persons:
- Salaried employees
- Self-employed individuals
- Business owners operating as sole proprietors or partnerships
Tax Rates (Graduated):
| Annual Income (₦) | PIT Rate |
|---|---|
| First ₦300,000 | 7% |
| Next ₦300,000 | 11% |
| Next ₦500,000 | 15% |
| Next ₦500,000 | 19% |
| Next ₦1,600,000 | 21% |
| Above ₦3,200,000 | 24% |
PIT is deducted under the Pay-As-You-Earn (PAYE) system for employees and paid directly via direct assessment for self-employed individuals. Filing and remittance are handled through the relevant state IRS platform.
Business Premises Levy
This is a fee imposed by state governments on physical business locations. It applies to both registered companies and informal businesses operating within the state.
Rates Vary by Location:
| Business Location | Annual Levy (₦) |
|---|---|
| Urban areas | ₦10,000 and above |
| Semi-urban/rural | ₦5,000 – ₦10,000 |
Payment is typically made to the state’s Ministry of Commerce or directly to the IRS. Businesses must display proof of payment to avoid enforcement visits.
Signage and Advertisement Fees
Businesses using outdoor advertising such as signboards, banners, and billboards are subject to signage levies regulated by state signage agencies (e.g., LASAA in Lagos).
Fees are determined based on:
- Type and size of signage
- Location (commercial vs residential)
- Duration of display
Non-payment can lead to removal of signage or fines. This levy is important for visibility, and if you’re investing in local promotion, Entrepreneurs.ng offers advertising packages that connect your business directly to Nigeria’s entrepreneurial audience.
Market Levies and Trade Permits
Market traders, artisans, and mobile vendors are required to pay daily, weekly, or monthly levies to operate legally within state-run markets.
These levies are collected by revenue officers and often cover:
- Stall rental
- Sanitation services
- Security and maintenance
Although not classified as formal taxes, these levies are enforceable and recognised by local laws.
Tenement Rates
Tenement rate is a property tax charged on buildings used for residential or commercial purposes. It is assessed by local councils but often enforced through state governments in urban centres.
The amount depends on:
- Property location
- Use of premises (residential or commercial)
- Property valuation
Property owners are responsible for payment, but tenants in rented commercial spaces should confirm if their landlord has included the rate in lease agreements.
See Also: Gross Income vs Taxable Income- Key Differences Explained For Entrepreneurs and Individuals
Other Business Taxes and Levies in Nigeria
Beyond federal and state taxes in Nigeria, businesses may be subject to additional taxes and statutory levies that are industry-specific or based on business activities.
These are often misunderstood but are legally enforceable and relevant for compliance and financial planning.
These other business taxes in Nigeria typically apply to medium and large enterprises, though some may also affect SMEs depending on turnover and operations.
National Information Technology Development Levy (NITDL)
The NITDL is a mandatory contribution to the National Information Technology Development Agency (NITDA). It applies to companies with an annual turnover of ₦100 million and above.
Applicable Entities Include:
- Banks and other financial institutions
- GSM service providers
- Insurance companies
- Pension managers
- ICT companies
Rate and Calculation:
- 1 percent of Profit Before Tax (PBT)
- Paid annually along with Company Income Tax
| Taxpayer Type | Threshold | NITDL Rate |
|---|---|---|
| Companies with ₦100m+ PBT | National coverage | 1% of Profit Before Tax |
This levy supports ICT development in Nigeria and is enforced under the NITDA Act. It is filed via the FIRS platform as part of annual tax returns.
Stamp Duties
Stamp duty is charged on written or electronic documents relating to financial transactions, including contracts, lease agreements, share transfers, and loan agreements.
Examples of Chargeable Instruments:
- Loan agreements
- Tenancy and lease agreements
- Receipts above ₦10,000
- Share capital allotments
Rates Overview:
| Document Type | Stamp Duty Rate |
|---|---|
| Tenancy/lease (1–7 years) | 0.78% |
| Tenancy/lease (over 7 years) | 3% |
| Receipts | ₦50 flat rate |
| Share transfers | 0.75% of consideration |
Stamp duties are payable to either FIRS (for corporate bodies) or the relevant state IRS (for individuals). With the rise of digital agreements, businesses are expected to process e-stamping through FIRS’ online platform.
Customs Duties and Excise Duties
Businesses that import or manufacture goods are subject to customs and excise duties administered by the Nigeria Customs Service (NCS).
Customs Duties
This is a tax on imported goods, based on the product’s classification, value, and destination. Duty rates vary according to the ECOWAS Common External Tariff (CET) system.
Key Points:
- Average customs duty is between 5% and 35%
- VAT and other charges (e.g., ETLS levy, port charges) are applied in addition to customs duties
Excise Duties
Excise duty is imposed on specific goods manufactured in Nigeria. In 2022, Nigeria introduced excise on sugary drinks and has proposed extending excise to telecommunications services.
Examples of Excisable Goods and Rates:
| Product | Excise Duty Rate |
|---|---|
| Alcoholic beverages | ₦10 per litre and up |
| Carbonated drinks | ₦10 per litre |
| Tobacco | ₦4.20 per stick + 30% ad valorem |
| Telecom services (proposed) | 5% |
Excise duty is paid monthly by manufacturers and large-scale service providers. Businesses in the beverage, telecom, and tobacco industries must register with the NCS for compliance.
If your business is in manufacturing or planning expansion into importation, we recommend professional advisory to navigate customs and excise rules.
See Also: How to Report Foreign Income and Avoid Tax Issues – A Complete Guide for Taxpayers
Tax Reforms and Trends in Nigeria
Tax reforms in Nigeria have become a priority for the federal government as it seeks to improve revenue collection, reduce dependency on oil income, and align with international tax standards.
These changes affect both federal and state taxes in Nigeria and have significant implications for businesses and individuals.
Understanding recent and upcoming tax reforms can help you plan better, stay compliant, and manage your finances more efficiently.
Nigeria’s Tax Reform Drive
Nigeria’s current tax reform agenda is driven by several factors:
- A low tax-to-GDP ratio of just over 10 percent
- An expanding informal economy
- Pressure to improve ease of doing business
- Global commitments to digital tax standards and anti-avoidance measures
In response, the government, through the Presidential Fiscal Policy and Tax Reforms Committee, has introduced multiple bills and administrative changes targeting simplification, harmonisation, and increased digital adoption.
Proposed VAT Increase
One of the most discussed reforms is the proposed increase in the Value Added Tax (VAT) rate from 7.5 percent to 10 percent or 12.5 percent. This move is expected to boost non-oil revenue.
| VAT Rate Comparisons | Nigeria (Current) | Proposed | Ghana | South Africa |
|---|---|---|---|---|
| Standard VAT Rate (%) | 7.5% | 10–12.5% | 15% | 15% |
The new VAT rate, if approved, will bring Nigeria closer to regional benchmarks and improve funding for social services and infrastructure. Businesses will need to adjust pricing, invoices, and reporting systems accordingly.
Consolidation of Revenue Authorities
Nigeria is also working on merging key revenue collection agencies into a single body called the Nigeria Revenue Service (NRS).
This body will combine the functions of FIRS, Nigerian Customs Service (NCS), and the Nigerian Maritime Administration and Safety Agency (NIMASA).
Benefits of Consolidation:
- Easier compliance for taxpayers
- Reduction in duplication and bureaucracy
- Better coordination of audits and assessments
- Enhanced data sharing and digital reporting
This is expected to reduce the burden on businesses that currently deal with multiple agencies for different tax and regulatory obligations.
New Digital Filing and Monitoring Tools
The FIRS TaxProMax platform is central to Nigeria’s tax digitisation efforts. It allows taxpayers to:
- Register for taxes
- File returns (CIT, VAT, WHT, etc.)
- Generate tax clearance certificates
- Monitor assessments and track payments
Other reforms include the use of artificial intelligence and data analytics to detect non-compliance and improve enforcement.
Small businesses and startups are encouraged to embrace digital tax tools early to avoid penalties and simplify record-keeping.
Global Tax Alignment
Nigeria is part of the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
This means it is expected to implement international standards that address tax avoidance by multinational corporations and digital companies.
Key Global Commitments:
- Country-by-country reporting for multinationals
- Rules on digital service taxation
- Information exchange with global tax authorities
These developments will primarily affect large businesses and foreign entities operating in Nigeria. However, their ripple effects may touch local suppliers and partners.
Industry-Specific Trends
Some industries are seeing targeted reforms and new levies. These include:
| Sector | Tax Reform Highlights |
|---|---|
| Telecommunications | Proposed 5% excise duty on calls, data, and SMS |
| Digital Economy | Registration and VAT compliance for foreign service providers |
| Beverage Industry | Excise duty on non-alcoholic carbonated drinks |
| Oil & Gas | Shift towards royalty-based regimes and tighter reporting |
Staying ahead of these industry-specific tax changes is essential for financial planning.
How to Calculate and File Your Taxes in Nigeria
Knowing how to calculate and file your taxes in Nigeria is essential for staying compliant and avoiding fines.
Whether you are paying federal taxes in Nigeria like VAT, CIT, or WHT, or state taxes such as personal income tax, accurate calculations and timely filing are your legal responsibilities.
The steps may vary slightly depending on the tax type and whether you’re an individual or business entity, but the general process is consistent.
Step-by-Step Process to Calculate Taxes in Nigeria
Company Income Tax (CIT)
CIT is calculated based on a company’s total profit before tax, minus allowable deductions.
Formula:
CIT = Taxable Profit × Applicable CIT Rate
| Annual Turnover (₦) | CIT Rate |
|---|---|
| ₦25 million or less | 0% |
| ₦25m – ₦100 million | 20% |
| Over ₦100 million | 30% |
Businesses must account for all revenues and subtract deductible expenses such as salaries, rent, and utilities to arrive at taxable profit.
Personal Income Tax (PIT)
For individuals, especially sole proprietors, PIT is computed on net income after tax reliefs and deductions. Employees’ PIT is automatically deducted through PAYE, while self-employed individuals file via direct assessment.
| Income Band (₦) | Rate |
|---|---|
| First ₦300,000 | 7% |
| Next ₦300,000 | 11% |
| Next ₦500,000 | 15% |
| Next ₦500,000 | 19% |
| Next ₦1,600,000 | 21% |
| Above ₦3,200,000 | 24% |
Reliefs include a consolidated relief allowance of 20% of gross income plus ₦200,000.
Value Added Tax (VAT)
VAT in Nigeria is a flat 7.5% on the value of taxable goods and services.
Formula:
VAT = Total Invoice Value × 7.5%
Businesses are required to issue VAT-compliant invoices, collect VAT from customers, and remit monthly.
Withholding Tax (WHT)
WHT is deducted at source and filed by the payer.
| Transaction Type | WHT Rate |
|---|---|
| Contracts and services | 5% – 10% |
| Rent | 10% |
| Commissions | 10% |
The withheld amount must be remitted monthly to FIRS or the appropriate state tax authority, and the recipient receives a credit note for future tax deduction.
How to File Taxes in Nigeria
Federal Taxes (via FIRS)
All federal taxes, including CIT, VAT, WHT, and Education Tax must be filed using the FIRS TaxProMax platform.
Filing Steps:
- Visit www.taxpromax.firs.gov.ng
- Register your business or sign in
- Select the tax type and period
- Upload financial records or enter manually
- Calculate liability and generate RRR code
- Make payment via approved banks or online platforms
- Download and keep e-receipt and tax clearance certificate
State Taxes (e.g. via LIRS)
Each state has its own portal. For example, Lagos-based taxpayers can use https://etax.lirs.net for PIT, Business Premises Levy, and other state obligations.
Steps:
- Create a taxpayer profile
- Complete annual or monthly return forms
- Compute tax based on applicable rates
- Pay using designated bank options or online
- Obtain tax clearance certificate or proof of payment
Filing deadlines vary by tax type. Late filing attracts penalties and interest charges.
Summary: Tax Filing Timelines
| Tax Type | Filing Frequency | Deadline |
|---|---|---|
| Company Income Tax (CIT) | Annually | 6 months after fiscal year-end |
| Personal Income Tax (PIT) | Monthly (PAYE) / Annual | Monthly or March 31 |
| VAT | Monthly | 21st of the next month |
| WHT | Monthly | 21st of the next month |
| Education Tax | Annually (with CIT) | Same as CIT |
Common Tax Mistakes to Avoid
Filing taxes in Nigeria requires more than just submitting numbers to the Federal Inland Revenue Service (FIRS) or State Internal Revenue Services like LIRS.
Mistakes in tax calculation, filing, or remittance can lead to penalties, interest charges, and even reputational damage. Whether you are dealing with business taxes in Nigeria or personal income tax, accuracy and consistency are essential.
Below are common tax mistakes to avoid when handling federal and state taxes in Nigeria.
Filing Taxes Late
Late filing of Value Added Tax (VAT), Withholding Tax (WHT), Company Income Tax (CIT), or Personal Income Tax (PIT) can attract daily penalties and interest on the outstanding amount.
Penalty Example:
| Tax Type | Late Filing Penalty |
|---|---|
| VAT and WHT | ₦50,000 for the first month, ₦25,000 for each subsequent month |
| CIT | ₦25,000 for the first month, ₦5,000 monthly thereafter |
| PIT (PAYE) | 10% of unpaid amount + interest |
To avoid this, always track your deadlines and set reminders. Entrepreneurs.ng’s newsletter keeps business owners informed on tax deadlines and policy updates.
Misclassifying Income or Expenses
Incorrect classification of business income or deductible expenses can distort taxable profit and trigger an audit. For example, capital expenditure should not be treated as a deductible operating expense.
Common classification errors include:
- Recording staff loans as expenses
- Claiming personal expenses (travel, entertainment) as business deductions
- Misidentifying exempt income as taxable income
Proper bookkeeping and financial planning, using a structured business plan like the one offered in our shop, helps you stay audit-ready.
Ignoring Withholding Tax Obligations
Many small businesses in Nigeria fail to deduct and remit Withholding Tax (WHT) when paying vendors, consultants, or landlords. This non-compliance can lead to double taxation, as the company cannot claim WHT credits.
WHT Deduction Scenarios:
| Payment Type | WHT Deducted At (%) | Remittance Required? |
|---|---|---|
| Consultancy Fee | 5% | Yes |
| Rent Paid | 10% | Yes |
| Supplies Contract | 5% | Yes |
Businesses must issue WHT credit notes to their vendors as proof of tax remitted.
Not Registering for VAT
A common mistake among startups and informal businesses is failing to register for VAT once they meet the ₦25 million turnover threshold. Even if you fall below this, voluntarily registering builds credibility and prepares you for growth.
Failure to register for VAT in Nigeria while invoicing customers with VAT-inclusive pricing is considered tax evasion and punishable by law.
Overlooking Local Levies
Local government levies such as business premises levy, signage fees, and market levies are often ignored until enforcement officers show up. These fees are part of state taxes in Nigeria and apply to both formal and informal businesses.
Ignoring them can result in:
- Business disruptions
- Confiscation of goods
- Fines and legal charges
Not Updating Records and Documentation
Failure to maintain accurate financial records and tax clearance certificates can delay business deals, loan applications, and grant submissions. Tax authorities may also disallow claims if records are unavailable during an audit.
Checklist of Documents to Keep:
| Document Type | Retention Period |
|---|---|
| Tax Clearance Certificates | Minimum 5 years |
| WHT Credit Notes | Minimum 5 years |
| Invoices and Receipts | Minimum 5 years |
| Payroll and PAYE Records | Minimum 5 years |
Proper documentation builds financial transparency and trust, which is critical when attracting investors or applying for funding.
Tax Planning Strategies for Businesses
Tax planning in Nigeria is a vital part of running a financially sustainable business. It goes beyond filing returns and paying taxes.
Effective tax planning helps you reduce liability, avoid penalties, and keep more of your profits legally. Whether you are paying company income tax, personal income tax, VAT, or other federal and state taxes in Nigeria, a smart strategy makes a difference.
Here are practical tax planning strategies for entrepreneurs and business owners.
Choose the Right Business Structure
Your tax obligations are largely influenced by your business structure. Sole proprietors and partnerships are taxed through personal income tax at the state level, while limited liability companies are taxed under company income tax by FIRS.
Comparison of Tax Treatment by Structure:
| Business Structure | Tax Authority | Tax Type |
|---|---|---|
| Sole Proprietor | State IRS (e.g. LIRS) | Personal Income Tax (PIT) |
| Partnership | State IRS | PIT (shared among partners) |
| Limited Liability Company | FIRS | Company Income Tax (CIT) |
Choosing a registered company structure allows access to certain deductions, credits, and business finance opportunities. Entrepreneurs.ng offers fast and affordable business registration services to help you get started correctly.
Leverage Allowable Deductions
Businesses in Nigeria can reduce their taxable income by claiming allowable deductions on legitimate business expenses. These deductions must be wholly, exclusively, and necessarily incurred in the production of income.
Common Allowable Deductions:
| Expense Category | Deductible? |
|---|---|
| Staff salaries | Yes |
| Rent and utilities | Yes |
| Marketing and advertising | Yes |
| Staff training | Yes |
| Personal withdrawals | No |
| Donations (non-approved orgs) | No |
It is important to keep receipts, invoices, and documentation for every deductible expense to defend your claims if audited.
Invest in Tax-Exempt Instruments
Some financial instruments are exempt from taxation and can be part of your tax planning strategy.
Examples Include:
- Federal Government Bonds
- Treasury Bills
- Agricultural loans
- Export profits (under qualifying conditions)
These instruments help you preserve capital, earn interest, and legally reduce your tax exposure.
Optimise VAT Input and Output
To manage VAT obligations effectively, businesses must understand how to offset input VAT (on goods/services purchased) against output VAT (on sales).
VAT Offset Calculation:
VAT Payable = Output VAT – Input VAT
| Item Type | VAT Category |
|---|---|
| Office supplies | Input VAT |
| Sales invoice to client | Output VAT |
Always request VAT-inclusive receipts from vendors to claim input VAT and ensure your customers receive VAT-compliant invoices.
Maintain Accurate Financial Records
Consistent recordkeeping simplifies tax filing and reduces errors. It also protects your business in the event of a tax audit.
You should:
- Track income and expenses using accounting software
- Retain payroll and tax remittance records
- Reconcile bank statements monthly
- Update financial reports quarterly
Work with Tax Professionals
Hiring a tax expert or using advisory platforms helps you:
- Identify applicable tax credits
- File correctly and on time
- Avoid common mistakes and legal issues
- Plan ahead for tax audits and financial growth
Good tax planning saves you more than it costs.
Conclusion
Understanding the types of taxes in Nigeria is essential for every entrepreneur, professional, and business owner. From federal obligations like company income tax and VAT to state and local levies, tax compliance is a non-negotiable part of doing business.
With ongoing reforms, digital filing systems, and evolving tax policies, staying informed is no longer optional. It is how smart businesses stay ahead, avoid penalties, and build long-term credibility.
We want to see you succeed, and that’s why we provide valuable business resources to help you every step of the way.
- Join over 23,000 entrepreneurs by signing up for our newsletter and receiving valuable business insights.
- Register your business today with Entrepreneurs.ng’s Business Registration Services.
- Tell Your Brand Story on Entrepreneurs.ng, let’s showcase your brand to our global audience.
- Need help with your marketing strategy? Get a Comprehensive Marketing and Sales Plan here.
- Sign up for our Entrepreneurs Success Blueprint Programme to learn how to start and scale your business in just 30 days.
- Book our one-on-one consulting and speak to an expert about structuring and growing your business.
- Visit our shop for business plan templates and other valuable resources to guide you.
- Get our Employee-Employer Super Bundle NDA templates to legally protect your business and workforce.
- Advertise your business to over a million entrepreneurs through our different advertising packages.
Frequently Asked Questions (FAQs)
What are the main types of taxes in Nigeria?
Nigeria’s tax system includes federal, state, and local taxes. Major federal taxes include Company Income Tax (CIT), Value Added Tax (VAT), Withholding Tax (WHT), Petroleum Profits Tax (PPT), Capital Gains Tax (CGT), and Education Tax.
At the state level, common taxes include Personal Income Tax (PIT), Business Premises Levy, signage and advertisement fees, and tenement rates.
Who pays personal income tax in Nigeria?
Personal income tax in Nigeria is paid by individuals earning income through salaries, business activities, or professional services.
Employees pay through the PAYE system, while self-employed persons pay via direct assessment to their State Internal Revenue Service (e.g., LIRS in Lagos).
What is the current VAT rate in Nigeria?
As of now, the standard VAT rate in Nigeria is 7.5 percent. However, there are ongoing proposals to increase the rate to 10 or 12.5 percent to align with regional benchmarks.
VAT applies to most goods and services, with exemptions for essentials like education, medical services, and basic food items.
What is the company income tax rate in Nigeria?
Company Income Tax (CIT) in Nigeria is applied based on turnover:
- 0% for businesses earning ₦25 million or less annually
- 20% for businesses with ₦25 million to ₦100 million turnover
- 30% for companies earning over ₦100 million annually
CIT is filed with FIRS using the TaxProMax platform.
How often should I file VAT in Nigeria?
VAT returns are filed monthly with the Federal Inland Revenue Service. Businesses must file on or before the 21st day of the month following the transaction period, even if no VAT was collected during the month.
What is withholding tax and when is it deducted?
Withholding Tax (WHT) in Nigeria is a prepayment of tax deducted at source from payments made to individuals or companies for services like rent, consultancy, contracts, and commissions.
The payer deducts WHT and remits it to FIRS or the relevant state IRS. Rates range from 5 to 10 percent depending on the transaction type.
Are small businesses required to pay taxes in Nigeria?
Yes. Small businesses in Nigeria are expected to pay taxes based on their structure and income.
Sole proprietors and partnerships pay personal income tax to state IRS, while incorporated companies may pay CIT, VAT, WHT, and other levies.
However, companies with turnover under ₦25 million are exempt from CIT and Education Tax.
What taxes do freelancers and digital entrepreneurs pay in Nigeria?
Freelancers, digital marketers, and online consultants are required to pay personal income tax to their state IRS through direct assessment. They may also be subject to VAT and WHT if their services meet the relevant thresholds.
How do I register for taxes in Nigeria?
Businesses register for taxes with the Federal Inland Revenue Service (FIRS) using their Corporate Affairs Commission (CAC) certificate and Tax Identification Number (TIN). State tax registration (e.g., with LIRS) is also required for PIT, especially under PAYE.
What happens if I do not pay my taxes in Nigeria?
Failure to pay or file taxes in Nigeria can result in:
- Penalties and daily fines
- Interest on overdue amounts
- Denial of tax clearance certificates
- Business account restrictions or legal action
It is important to meet all filing deadlines and retain proof of payment.
Are there any tax incentives for businesses in Nigeria?
Yes. The Nigerian government offers tax holidays, exemptions, and incentives under various schemes such as the Pioneer Status Incentive, Export Expansion Grant, and incentives for agricultural businesses. SMEs also enjoy lower CIT rates or exemptions based on turnover.
What documents do I need to file taxes?
Required documents typically include:
- Audited financial statements
- Evidence of expenses and revenue
- Payroll records for PAYE
- Invoices for VAT remittance
- Withholding Tax credit notes
- Bank statements
Keeping accurate records is essential for compliance and audit readiness.
Can I get professional help with my taxes?
Absolutely. Working with a tax advisor can simplify your compliance process, reduce errors, and help you explore legal tax planning strategies.
One Response
Thanks a lot