Complete Guide to Nigerian Business Tax
Everything SMEs need to know about tax obligations, deductions, and compliance in Nigeria
Table of Contents
Why Understanding Tax Matters for Your SME
As a small or medium-sized enterprise (SME) owner in Nigeria, understanding your tax obligations isn't just about staying legal; it's about running a smarter, more profitable business.
Did You Know? Many Nigerian SMEs overpay taxes because they don't know which expenses are deductible. This guide will help you avoid that.
Types of Business Tax in Nigeria
1. Company Income Tax (CIT) - 30%
This is the main tax on your business profits. If your company made ₦1,000,000 in profit, you pay ₦300,000 in CIT.
Who pays this?
- • All registered companies (Ltd, PLC)
- • Foreign companies operating in Nigeria
- • Not applicable to sole proprietorships (they pay personal income tax)
2. Tertiary Education Tax (TET) - 2.5%
Also known as Education Tax, this is an additional tax on your company's assessable profit. If your company made ₦1,000,000 in profit, you pay ₦25,000 in Education Tax.
Important:
- • All registered companies must pay this
- • Calculated on the same profit used for CIT
- • Funds tertiary education in Nigeria
Note: Your total tax on profits = CIT (30%) + Education Tax (2.5%) = 32.5%
3. Value Added Tax (VAT) - 7.5%
VAT is charged on goods and services you sell. If you sell a product for ₦10,000, you collect ₦750 as VAT and remit it to NRS.
Important:
- • You collect VAT from customers
- • You remit it monthly to NRS
- • Some businesses are exempt (medical, educational services)
4. Withholding Tax (WHT) - 5-10%
When you make payments for services (consulting, rent, contracts), you withhold a percentage and remit to NRS.
Common WHT Rates:
- • Consulting fees: 10%
- • Rent: 10%
- • Professional fees: 5%
- • Contracts: 5%
5. Pay As You Earn (PAYE)
Tax deducted from employee salaries. As an employer, you deduct this from salaries and remit monthly to the State Internal Revenue Service.
PAYE Rates (Progressive):
- • First ₦300,000: 7%
- • Next ₦300,000: 11%
- • Next ₦500,000: 15%
- • Next ₦500,000: 19%
- • Above ₦1,600,000: 24%
What Gets Taxed (Taxable Income)
Your taxable income is all the money your business earns from various sources:
Taxable Revenue Sources
- Sales Revenue: All money from selling products
- Service Fees: Income from services rendered
- Rental Income: If you rent out property/equipment
- Interest Income: From bank accounts or loans
- Commission: Referral or agent fees
- Royalties: From intellectual property
- Trading Income: Buying and selling goods
Example: Chioma's Fashion Business
- • Sales of clothes: ₦5,000,000
- • Styling services: ₦1,200,000
- • Instagram consulting: ₦300,000
- Total Taxable Income: ₦6,500,000
What You Can Deduct (Business Expenses)
These expenses reduce your taxable income. The more legitimate business expenses you track, the less tax you pay!
Operational Expenses (100% Deductible)
- Rent: Office, shop, warehouse space
- Salaries & Wages: Employee payments
- Utilities: Electricity, water bills
- Internet & Phone: Business communication
- Airtime & Data: For business use
- Raw Materials: Inventory for production
- Office Supplies: Stationery, equipment
- Transportation: Delivery, business trips
- Marketing & Ads: Social media, flyers
- Bank Charges: Transfer fees, monthly charges
Professional Services (100% Deductible)
- Accounting & Bookkeeping: Professional fees
- Legal Fees: Lawyer consultations, contracts
- Consulting: Business advisors, coaches
- Software Subscriptions: Nexa, accounting tools, design software
Special Case: Internet, Airtime & Phone Bills
YES, these are 100% deductible if used for business!
Examples of deductible communication expenses:
- • MTN/Airtel/Glo data bundles for social media marketing
- • Internet café charges for business research
- • Business phone line monthly subscription
- • WhatsApp Business calls to customers
- • Email hosting and domain fees
Pro Tip: Keep separate business and personal phone lines to make deductions easier!
Never miss a tax deduction again
Nexa automatically tracks and categorises every business expense, from rent and airtime to data and transport. Come tax season, your records are ready.
Start Tracking Expenses →
Every expense tracked and categorised, ready for tax deductions
What You CANNOT Deduct
These expenses are not allowed as deductions. Claiming them can lead to penalties!
- Personal Expenses: Family groceries, personal clothing, home rent (unless you run business from home with proof)
- Capital Expenditure: Buying property, land, or major equipment (these are depreciated over time)
- Penalties & Fines: Traffic fines, late payment penalties, court fines
- Political Donations: Contributions to political parties or candidates
- Entertainment: Parties, club outings (unless directly related to client meetings with proof)
- Personal Loans: Loan principal payments (interest may be deductible)
Tax Calculations with Real Examples
Example 1: Adeola's Fashion Boutique
Revenue:
- • Clothes sales: ₦8,000,000
- • Alteration services: ₦500,000
- Total Revenue: ₦8,500,000
Deductible Expenses:
- • Shop rent: ₦600,000
- • Staff salaries: ₦1,200,000
- • Fabric & materials: ₦2,500,000
- • Electricity: ₦300,000
- • Internet & phone: ₦120,000
- • Marketing (Instagram ads): ₦200,000
- • Transportation: ₦180,000
- Total Expenses: ₦5,100,000
Tax Calculation:
- Taxable Profit = ₦8,500,000 - ₦5,100,000 = ₦3,400,000
- Company Income Tax (30%) = ₦1,020,000
- Education Tax (2.5%) = ₦85,000
- Total Tax = ₦1,105,000
Example 2: Tunde's Tech Services
Revenue:
- • Web development: ₦3,500,000
- • IT consulting: ₦1,200,000
- Total Revenue: ₦4,700,000
Deductible Expenses:
- • Co-working space: ₦360,000
- • Software subscriptions: ₦240,000
- • Internet & data: ₦180,000
- • Laptop repairs: ₦80,000
- • Freelancer payments: ₦600,000
- • Marketing: ₦150,000
- Total Expenses: ₦1,610,000
Tax Calculation:
- Taxable Profit = ₦4,700,000 - ₦1,610,000 = ₦3,090,000
- Company Income Tax (30%) = ₦927,000
- Education Tax (2.5%) = ₦77,250
- Total Tax = ₦1,004,250
Filing Deadlines & Requirements
Key Deadlines
- CIT Returns: 6 months after financial year-end
- Education Tax: Filed together with CIT returns
- VAT Returns: 21st of every month
- WHT Returns: 21st of every month
- PAYE Returns: 10th of every month
Penalties for Late Filing
- • First month: ₦25,000
- • Second month: ₦25,000 + ₦5,000
- • Third month: ₦30,000 + ₦10,000
- • Plus interest on unpaid tax
Tip: File on time to avoid penalties. Set reminders in Nexa!
Don't let deadlines catch you off guard
Nexa keeps your income and expense records organised year-round, so when filing season arrives, you're already prepared.
Start Organising Your Finances →
Track tax liability, record payments, and stay compliant with Nexa
How Nexa Simplifies Tax Management
Never Miss a Tax Payment Again
Nexa automatically tracks your business income and expenses, calculates your estimated tax liability, and compares it with your actual payments, all in one dashboard.
Auto-Calculate
Nexa calculates your tax liability based on real-time income and expenses
Track Payments
Record all tax payments and see if you're compliant
Year-over-Year
Compare tax payments across different years
Ask Nexa anything about your business finances
Common Mistakes to Avoid
Not keeping receipts
Solution: Take photos of every business receipt and store them in Nexa or cloud storage
Mixing personal and business expenses
Solution: Open a separate business bank account and use it exclusively for business
Not claiming all deductible expenses
Solution: Review the deductible expenses list quarterly and ensure you're tracking everything
Filing late
Solution: Set calendar reminders for 1 week before each deadline
Not consulting a tax professional
Solution: Hire an accountant for at least annual tax filing to ensure compliance
Frequently Asked Questions
Do I need to pay tax if my business makes less than ₦1 million per year?
Yes, all businesses must pay tax regardless of income level. However, small businesses (under ₦25 million annual turnover) can benefit from simplified tax schemes.
Can I deduct 100% of my internet and airtime if I use them for both business and personal?
You can only deduct the business portion. Best practice: Get a separate business line/data plan and deduct 100% of that.
What happens if I don't file tax returns?
You face penalties (starting at ₦25,000), potential business account freezing, and inability to bid for government contracts.
Can I backdate expenses to reduce my tax?
No, that's fraud. Only claim expenses from the actual tax year being filed.
How long should I keep business records?
NRS requires you to keep records for at least 6 years.
Can Nexa file my tax returns for me?
No, Nexa helps you track and calculate tax liability. You still need to file through NRS portal or use an accountant.
Additional Resources
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Last Updated: January 5, 2026
Tax laws may change. Always consult a professional for your specific situation.