Running a business in Nigeria and not sure how your tax bill is calculated? You’re not alone. The 2025 tax reform changed the landscape but once you see the pieces, it’s actually straightforward.
Below is a clear, practical guide for small business owners, sole proprietors and limited liability companies.
Know your entity and turnover. Small company rules can buy you a lot of savings. If your business is making small profits, consider upgrading from a business name to an Ltd.
Talk to an accountant or tax consultant about capital allowances and loss carry-forwards—those can save you serious cash also. Always work with tax consultants; don't try to do it alone especially if you're unsure.
Try our Tax Calculator Now →
Below is a clear, practical guide for small business owners, sole proprietors and limited liability companies.
Before we start, let's note a few things from the tax reform:
- Companies still pay corporate income tax (CIT); large companies pay 30% tax (subject to assessment rules).
- A 4% development levy now applies on assessable profits for companies.
- Small companies can be exempt from CIT and some levies (below ₦100M turnover).
- VAT remains a separate tax (the standard rate is reported at 7.5%).
- Sole proprietors/business names/freelancers are taxed under personal income tax rules (you pay tax on profit).
Now let's see how to calculate your business tax.
How to compute tax for a sole proprietor (business name)
Step 1
Calculate annual revenue (total sales + other receipts).
Step 2
Subtract allowable business expenses (cost of goods sold, staff wages, rent for business premises, logistics, utilities, and valid operating costs).
Keep receipts for these expenses; the tax offices may want proof.
Result = Profit (taxable income).
Step 3
Apply personal income tax bands (the 2025 reforms updated bands for individuals). That means your profit is treated like personal income and taxed using progressive rates.
Example
Assumption for this calculation: No pension, rent relief, or other personal deductions applied (taxed on full profit). As a business owner you are entitled to some deductions; always confirm with your tax consultant
Revenue: ₦10,000,000
Expenses: ₦4,000,000
Profit: ₦6,000,000 → apply the personal income tax bands to compute annual tax, then divide by 12 for a monthly view.
So now you have a profit or taxable income of: ₦6,000,000
Now for the NTA 2025 tax bands:
First band: ₦800,000 @ 0%
Tax = ₦800,000 × 0% = ₦0
Now taxable = ₦6,000,000 − ₦800,000 = ₦5,200,000
Next band: ₦2,200,000 @ 15%
Tax = ₦2,200,000 × 15% = ₦330,000
Remaining = ₦5,200,000 − ₦2,200,000 = ₦3,000,000
Next band: (up to 9,000,000) @ 18%
But here we have only ₦3,000,000 left, so:
Tax = ₦3,000,000 × 18% = ₦540,000
For larger numbers, the next bands are ₦13,000,000 → 21%, ₦25,000,000 → 23% and any amount above ₦50,000,000 → 25%.
Total annual tax = ₦870,000
Monthly equivalent = ₦870,000 ÷ 12 = ₦72,500
Summary: On ₦10M revenue with ₦4M expenses (₦6M profit) a sole proprietor would owe ₦870,000 a year in personal income tax under the 2025 tax law.
How to compute tax for a Limited Liability Company (Ltd)
Annual turnover / revenue → subtract allowable business expenses → get profit before tax.
Subtract capital allowances (depreciation-style tax allowances on qualifying fixed assets, this reduces assessable profit).
Assessable profit = profit after capital allowances.
If you qualify as a “small company”, you may be exempt from CIT and the 4% Development Levy. If not:
CIT = 30% of assessable profit, and
Development Levy = 4% of assessable profit (new levy introduced by the 2025 Act).
Example (Ltd):
Revenue: ₦120,000,000
Expenses: ₦80,000,000
Profit: ₦40,000,000
Capital allowances: ₦2,000,000 → Assessable profit = ₦38,000,000
CIT (30%) = ₦11,400,000
Development Levy (4%) = ₦1,520,000
Total corporate taxes ≈ ₦12,920,000
Small company exemption
There’s an exemption rule: businesses with under ₦100M as turnover are known as small companies and are tax exempt. The threshold was increased to protect SMEs. So in the example we gave, a business like that won't pay tax.
Capital allowances & losses
Capital allowances let you deduct some of your asset cost from taxable profit over time. It’s a technical area (asset classes, rates, first-year allowances). The 2025 Act retained capital-allowance rules with tweaks.
Trading losses may be carried forward against future profits under certain rules—don’t throw away loss records.
Compliance & documentation — what the tax office will want
- Sales invoices and receipts (paper or digital)
- Bank statements matching business receipts
- Payroll records if you have staff (PAYE remittances)
- Asset schedule for capital allowances
- Expense receipts (rent, utilities, logistics, vendor invoices)
If you can’t prove it, you can’t just deduct it. Keep clear records.
Final words
Get clean books. If your receipts are messy, start fixing that now.
Know your entity and turnover. Small company rules can buy you a lot of savings. If your business is making small profits, consider upgrading from a business name to an Ltd.
Talk to an accountant or tax consultant about capital allowances and loss carry-forwards—those can save you serious cash also. Always work with tax consultants; don't try to do it alone especially if you're unsure.
Use our tax calculator to quickly check your tax estimates.
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