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PRACTICAL GUIDE TO BUSINESS TAX COMPUTATION IN NIGERIA: STEP-BY-STEP PROCESS FOR COMPANIES

Nigeria’s corporate tax landscape has undergone its most significant transformation in decades. The Nigeria Tax Act (NTA) 2025, which took effect on 1 January 2026, has consolidated multiple fiscal laws into a single, streamlined framework. Understanding how to compute your company’s tax liability correctly is no longer just a compliance requirement—it is a strategic imperative for managing cash flow, optimizing investments, and avoiding costly penalties.

Get this wrong, and you will face significant fines, interest charges, and potential legal consequences. Get it right, and you unlock the ability to plan effectively, take advantage of available incentives, and maintain good standing with the Nigeria Revenue Service. This guide provides a practical, step-by-step approach to business tax computation in Nigeria under the NTA 2025. Let us get into it.

The Pain Points: Why Businesses Struggle with Tax Computation

The Complexity of the New Tax Regime

The transition from the old regime to the NTA 2025 has created significant confusion. The introduction of the 4% Development Levy, the 15% Minimum Effective Tax Rate (ETR) for large companies, and the revised small company exemption threshold have fundamentally changed how tax liabilities are calculated. Many businesses are unsure how these new provisions apply to their specific circumstances.

The Classification Conundrum

Determining whether your company is classified as “small” or “large” under the NTA is critical. This classification affects everything from whether you pay CIT to whether you are subject to the Development Levy. Misclassifying your company can lead to incorrect tax calculations and potential penalties. A business providing professional services, for instance, does not qualify as a small company regardless of turnover.

The Deduction Dilemma

Understanding which expenses are allowable and which are disallowable is essential for accurate tax computation. Expenses must be “wholly, reasonably, exclusively, and necessarily” incurred in the production of income. However, the NTA has introduced new restrictions, including a rule that disallows expenses on which VAT was not charged, even if those expenses were incurred for business purposes. This shifts compliance risk onto companies.

The Cost of Getting It Wrong

A company in Lagos failed to properly compute its CIT and underpaid by N5 million. It faced penalties, interest, and a tax audit that disrupted its operations. Another company in Abuja correctly applied the new rules, including the expanded input VAT recovery provisions, and improved its cash flow significantly. The lesson is clear: understanding and complying with the new rules is essential.

Step 1: Determine Your Company Classification

The first step in computing your tax liability is determining whether your company is classified as “small” or “large.” This classification affects your CIT rate, your liability for the Development Levy, and other tax obligations.

Small Company Definition

Under the NTA 2025, a small company is defined as one that earns an annual gross turnover of N100 million or less and has total fixed assets not exceeding N250 million.

Key Points:

The turnover threshold has been increased from N25 million to N100 million.

Businesses providing professional services do NOT qualify as small companies, regardless of turnover.

Small companies are exempt from Companies Income Tax (CIT), Capital Gains Tax (CGT), and the Development Levy.

Large Company Definition

Any company that does not meet the small company criteria is classified as a large company. This includes:

Companies with annual gross turnover above N100 million

Companies with total fixed assets above N250 million

All companies providing professional services, regardless of turnover or fixed assets

Large companies are subject to CIT at 30%, the Development Levy at 4%, and CGT at 30% on chargeable gains.

Special Cases: Multinational Enterprises and Companies with N20 Billion+ Turnover

Companies that are members of a multinational enterprise (MNE) group or have an aggregate turnover of N20 billion or more are subject to the 15% Minimum Effective Tax Rate (ETR). This means that even if the application of the standard CIT rate results in a lower effective rate, the company must pay additional tax to bring its ETR up to 15%.

Step 2: Identify Your Taxable Income

What Is Taxable?

Under the NTA, companies are taxed on their total profits, which include profits from trade or business, rent or premiums from property, dividends, interest, royalties, discounts, charges, annuities, and any other source of annual profits or gains not falling within the preceding categories. Companies incorporated in Nigeria are taxed on their worldwide income, while non-resident companies are taxed only on profits from their Nigerian operations.

The Starting Point: Audited Financial Statements

Tax computation begins with the profit before tax reported in the company’s audited financial statements. This figure is then adjusted for tax purposes.

Step 3: Adjust for Allowable and Disallowable Expenses

Allowable Deductions

Companies are allowed to deduct costs that were wholly, exclusively, necessarily, and reasonably incurred in the production of profits. These deductions include:

Interest on loans borrowed and used as capital for the business

Rent for land or buildings occupied to acquire profits

Salaries, wages, and other remuneration paid to employees

Bad debts incurred in the course of trade or business

Contributions to approved pension, provident, or other retirement benefits funds

Research and development expenditure (20% investment tax credit on qualifying expenditure for commercialisation)

Expenses That Are Not Deductible

The following expenses are NOT deductible:

Capital expenditure (e.g., purchase of fixed assets)

Depreciation of assets (replaced by capital allowances)

Taxes on income or profits (except for certain foreign taxes where double taxation relief is available)

Personal expenses

Penalties and fines

VAT on non-compliant transactions

Expenses on which VAT was not charged (where VAT should have been charged)

Related-party expenses inconsistent with Transfer Pricing Regulations

The VAT Disallowance Rule

Section 21(p) of the NTA disallows expenses on which value-added tax was not charged, even if those expenses were wholly and exclusively incurred for business purposes. This shifts the compliance risk of suppliers onto purchasing companies. Where a supplier fails to charge VAT, the purchasing company may lose the right to deduct the expense for CIT purposes.

Step 4: Calculate Assessable Profit

Assessable profit is calculated by starting with the accounting profit before tax and adding back disallowable expenses while deducting allowable expenses.

Formula:

Assessable Profit = Accounting Profit Before Tax + Disallowable Expenses − Allowable Expenses

For example, if a company has an accounting profit of N10,000,000, disallowable expenses of N2,000,000 (e.g., depreciation, penalties), and allowable expenses of N1,000,000 (e.g., bad debts), the assessable profit would be N11,000,000.

Step 5: Apply Capital Allowances

What Are Capital Allowances?

Capital allowances are given in place of depreciation for the use of business assets. Depreciation is added back to profit because of the different policies and rates used by companies, which can produce different profit figures. Capital allowances provide uniformity in the tax system.

Capital Allowance Rates

Under the NTA 2025, capital allowances are available at prescribed rates on qualifying expenditure. The initial allowance has been abolished under the NTA, and annual rates on plant and equipment have been reduced.

Asset Category	Annual Capital Allowance Rate
Plant and Equipment	20% (reduced from 25%)
Industrial Buildings	10%
Agricultural Assets	25%

Restriction on Capital Allowance Claims

Under the former CITA regime, there was a restriction on capital allowance claims, limiting claims to 66⅔% (2/3) of assessable profit in an assessment year, except for manufacturing and agro-allied companies. The NTA 2025 may have modified this restriction, and businesses should seek professional advice to determine their specific position.

Unutilized Capital Allowances

Unutilized capital allowances from any year of assessment can be carried forward indefinitely.

Step 6: Calculate Total Profit

Total profit is calculated by deducting capital allowances from assessable profit.

Formula:

Total Profit = Assessable Profit − Capital Allowances

Step 7: Apply the CIT Rate

CIT Rates Under NTA 2025

Company Size	Annual Turnover	CIT Rate
Small	≤ N100 million	0%
Large	> N100 million	30%

The N20 Billion Threshold

Companies with a turnover of N20 billion or more, and companies that are members of a multinational enterprise (MNE) group, may be subject to the 15% Minimum Effective Tax Rate.

Step 8: Apply the Development Levy

What Is the Development Levy?

The NTA introduces a 4% Development Levy on assessable profits, replacing the Tertiary Education Tax, NASENI Levy, IT Levy, and Police Trust Fund levy. This levy does NOT apply to small companies.

Calculation

Development Levy = Assessable Profit × 4%

Step 9: Calculate the Minimum Effective Tax Rate (ETR)

What Is ETR?

The ETR is the rate obtained by dividing the aggregate covered taxes paid by the company in a given year by its profit for that year. “Profit” for this purpose is calculated as net profit before tax, as reported in the audited financial statements, less 5% of the company’s depreciation and personnel costs for the year.

Who Does ETR Apply To?

The minimum ETR of 15% applies to:

Any company that is a constituent entity of a multinational enterprise (MNE) group

Any company with an aggregate turnover of N20 billion or more in the relevant year of assessment

Calculation of Top-Up Tax

Top-Up Tax = (15% − Actual ETR) × Profits

If the company’s actual ETR falls below 15%, the company must pay the shortfall as additional tax.

Step 10: File Your Returns

Filing Deadlines

CIT returns for a new company should be filed within 18 months after incorporation or six months after the accounting year end, whichever is earlier. Companies that have been in business beyond 18 months are required to file CIT returns six months after their year-end.

Penalties for Non-Compliance

Failure to file CIT returns attracts a penalty of N25,000 for the first month and N5,000 for each subsequent month of default. Late payment of CIT attracts a 10% penalty and interest at the commercial rate.

Documentation Required

Audited financial statements

Tax computation

Capital allowance schedule

Proof of tax payments

Taxpayer Identification Number (TIN)

Worked Example

Scenario:
A manufacturing company has the following financial data for the year:

Turnover: N150,000,000

Fixed Assets: N300,000,000

Profit Before Tax (PBT): N20,000,000

Disallowable Expenses: N3,000,000 (including depreciation and penalties)

Allowable Expenses: N2,000,000 (including bad debts)

Capital Allowances: N4,000,000

Depreciation: N2,500,000

Personnel Costs: N8,000,000

Step 1: Determine Company Classification
The company’s turnover is N150,000,000 (above N100 million) and fixed assets are N300,000,000 (above N250 million). The company is classified as a LARGE company. CIT rate = 30%. Subject to Development Levy.

Step 2: Calculate Assessable Profit
Assessable Profit = PBT + Disallowable Expenses − Allowable Expenses
Assessable Profit = N20,000,000 + N3,000,000 − N2,000,000 = N21,000,000

Step 3: Apply Capital Allowances
Total Profit = Assessable Profit − Capital Allowances
Total Profit = N21,000,000 − N4,000,000 = N17,000,000

Step 4: Calculate CIT
CIT = Total Profit × 30%
CIT = N17,000,000 × 30% = N5,100,000

Step 5: Calculate Development Levy
Development Levy = Assessable Profit × 4%
Development Levy = N21,000,000 × 4% = N840,000

Step 6: Calculate ETR
ETR = Covered Taxes ÷ (PBT − 5% of (Depreciation + Personnel Costs))
ETR = (N5,100,000 + N840,000) ÷ (N20,000,000 − 5% of (N2,500,000 + N8,000,000))
ETR = N5,940,000 ÷ (N20,000,000 − N525,000)
ETR = N5,940,000 ÷ N19,475,000 = 30.5%

The company’s ETR is above the 15% minimum threshold. No top-up tax is required.

Total Tax Liability:
CIT: N5,100,000
Development Levy: N840,000
Total: N5,940,000

How Qeeva Advisory Helps You Navigate Tax Computation

We understand that tax computation can be complex. Many businesses struggle with company classification, allowable deductions, and the new provisions of the NTA 2025. Our professionals specialise in tax advisory, financial reporting, and regulatory compliance.

Our Advisory Services Nigeria help you understand the new tax rules, compute your CIT correctly, and develop strategies to optimize your tax position while ensuring full compliance with the NTA 2025. We provide solutions to meet your corporate objectives in property, assets and infrastructure, ensuring that your business stays ahead of the changes .

Our Tax Strategies and Planning services help you structure your business to take advantage of available incentives, including the small company exemption, capital allowances, and the Economic Development Incentive. Tax planning is essential for minimizing tax liability through the best use of all available allowances, deductions, exclusions, and exemptions . Without tax planning, you may miss out on legitimate opportunities to reduce your tax burden .

Our Regulatory Compliance services ensure your business meets all filing requirements and stays in good standing with the Nigeria Revenue Service. We help you navigate the complex web of regulations and avoid costly penalties . Compliance is not just a legal requirement—it is a business strategy that fosters stability, trust, and growth .

And because accurate records are the foundation of tax compliance, our Bookkeeping Services ensure your financial records are accurate and complete, supporting your tax computations and filings. Our professional bookkeeping services cover the entire scope of bookkeeping, from day-to-day data entry to annual accounts preparation .

Our Service Methodology

We do not do generic. We do thorough, transparent, and actionable.

Step 1: Tax Compliance Assessment
We assess your current tax practices, financial records, and compliance systems. We identify gaps, risks, and opportunities for improvement. This step draws on our Advisory Services Nigeria expertise .

Step 2: Company Classification Review
We review your company’s turnover and fixed assets to determine whether you qualify as a small company or are classified as a large company. We assess whether you are subject to the Development Levy and the Minimum Effective Tax Rate.

Step 3: Tax Computation
We help you compute your CIT, Development Levy, and any top-up tax under the ETR rules. We identify all allowable deductions and ensure accurate application of capital allowances. Our Tax Strategies and Planning team ensures you maximize available incentives .

Step 4: Filing Support
We help you prepare and file your CIT returns accurately and on time. We ensure compliance with all filing deadlines and requirements. Our Regulatory Compliance services ensure you stay on the right side of the law .

Step 5: Ongoing Monitoring and Support
Tax compliance is not a one-time exercise. We help you monitor changes in the law, update your tax strategies, and stay current with regulatory developments. We provide ongoing support through our Advisory Services Nigeria and Regulatory Compliance services .

Frequently Asked Questions

Q: What is the difference between a small and large company under the NTA 2025?
A: A small company has annual gross turnover of N100 million or less and total fixed assets not exceeding N250 million. Large companies have turnover above N100 million or fixed assets above N250 million. Businesses providing professional services do not qualify as small companies.

Q: What is the CIT rate for companies under the NTA 2025?
A: Small companies are exempt from CIT (0%). Large companies pay CIT at 30%.

Q: What is the Development Levy?
A: The Development Levy is a 4% levy on assessable profits that replaces the Tertiary Education Tax, NASENI Levy, IT Levy, and Police Trust Fund levy. It does not apply to small companies.

Q: What is the Minimum Effective Tax Rate (ETR)?
A: The ETR is a 15% minimum tax rate that applies to companies with turnover of N20 billion or more and companies that are members of an MNE group.

Q: What expenses are not deductible for CIT purposes?
A: Non-deductible expenses include capital expenditure, depreciation, taxes on income, personal expenses, penalties, fines, VAT on non-compliant transactions, and expenses on which VAT was not charged.

Q: How can Qeeva Advisory help with tax computation?
A: We provide tax compliance assessment, company classification review, tax computation, filing support, and ongoing monitoring to help businesses navigate Nigeria’s new tax regime.

The Bottom Line

Nigeria’s corporate tax landscape has changed significantly under the NTA 2025. The introduction of the 4% Development Levy, the 15% Minimum Effective Tax Rate, and the revised small company exemption threshold have fundamentally changed how tax liabilities are calculated. Understanding these changes is essential for accurate tax computation, effective cash flow management, and avoiding costly penalties.

The key is to understand the step-by-step process. Determine your company classification. Identify your taxable income. Adjust for allowable and disallowable expenses. Apply capital allowances. Calculate the CIT, Development Levy, and any top-up tax. File your returns on time.

Your job is to be prepared. Understand the new rules. Compute your tax correctly. File your returns on time. Seek professional guidance.

With the right approach and the right partner, you can turn tax compliance from a burden into a strategic advantage.

The choice is yours.

Related Services

Our Advisory Services Nigeria are staffed by professionals specialising in tax advisory, financial reporting, and regulatory compliance. We provide solutions to meet your corporate objectives in property, assets and infrastructure .

Our Tax Strategies and Planning services help you structure your business to minimize your tax burden through legitimate planning .

Our Regulatory Compliance services ensure your business meets all filing requirements and stays in good standing with the Nigeria Revenue Service .

Our Bookkeeping Services ensure your financial records are accurate and complete, supporting your tax computations and filings .

Let’s Talk About Your Tax Computation Needs

Navigating Nigeria’s new tax regime can feel complex. At Qeeva Advisory, we understand the challenges businesses face in computing their CIT, Development Levy, and other tax obligations.

Whether you need help with company classification, tax computation, or filing your returns, we are here to support you.

📞 Call us: (+234) 802 320 0801, (+234) 807 576 5799
📧 Email: info@qeeva.com
📍 Visit us: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria

Contact us today to schedule a consultation. Let us help you navigate Nigeria’s new tax regime with confidence.

Your journey to tax compliance starts with a conversation. Let’s talk.