One of the most discussed provisions of the Nigeria Tax Act, 2025 (NTA) is the small company exemption. A company that meets the definition pays 0% Company Income Tax (CIT), and is also exempt from Capital Gains Tax and the Development Levy. This article sets out the test, what it exempts, and what still applies even where a business qualifies.
How it works
Section 56 of the NTA defines a small company and sets its tax treatment. Published summaries of the Act describe the test as requiring both of the following to be true:
- Gross turnover of ₦100 million or less per year (some commentary cites ₦50 million in the Act's text itself, with the Tax Administration Act and public statements referring to ₦100 million — confirm your figure with current guidance), and
- Total fixed assets not exceeding ₦250 million.
A company that meets both conditions is taxed at 0% on its income. Companies that fail either test are taxed at the standard rate reported in most summaries as 30%, plus, where applicable, the 4% Development Levy.
Certain categories of business, such as those providing specified professional services, may be excluded from small company status regardless of turnover, according to some published commentary. This should be confirmed against the Act for your specific business activity.
What the exemption covers
For a qualifying small company:
- 0% Company Income Tax
- 0% Capital Gains Tax on qualifying gains
- Exemption from the 4% Development Levy, which otherwise applies to non-small companies' assessable profits
What the exemption does not cover
Qualifying as a small company does not remove every obligation. Based on published guidance, small companies are still expected to:
- Hold a valid Tax Identification Number / Tax ID
- Keep proper financial records
- File annual returns, even where the resulting tax liability is nil
- Deduct and remit PAYE for staff
- Charge, account for, and remit VAT where registered or required to register
- Apply withholding tax rules where they are the payer or payee
Why this matters to taxpayers
Many businesses assume that a 0% tax rate means no filing is required. Treating the exemption as full relief from compliance is a common and avoidable error. The exemption reduces the tax charge on income; it does not remove the underlying filing and record-keeping obligations.
Tax implications
- Classification errors are consequential. A business that assumes small company status without checking both the turnover and the fixed assets tests may under-declare a liability it actually owes.
- Growth changes status. A business that crosses either threshold during the year should review its position and may move into the standard CIT and Development Levy regime.
- Documentation supports the claim. Financial statements should clearly show turnover and fixed assets, so the exemption can be substantiated if queried.
- VAT and PAYE are unaffected by CIT exemption; these remain separate obligations.
Step by step: how to check and maintain your exemption
- Calculate annual gross turnover from your management accounts.
- Calculate total fixed assets at cost or as defined under the Act.
- Compare both figures against the thresholds. Both conditions must be satisfied.
- Check for excluded categories of business that may not qualify regardless of size.
- Register for a Tax ID if you do not already have one.
- Prepare and keep financial statements that support your turnover and asset figures.
- File annual returns on time, even where the CIT due is nil.
- Continue PAYE, VAT and withholding tax compliance as applicable.
- Reassess your status each year, since turnover and assets can change.
Why engage a professional consulting firm
- Correct classification. An accountant can confirm whether your business meets both parts of the small company test, including where the legislative text and administrative guidance differ.
- Accurate financial statements. Properly prepared accounts make it possible to demonstrate eligibility if the NRS raises a query.
- Ongoing monitoring. A firm can track turnover and asset levels through the year and flag when a business is approaching a threshold.
- Separate obligations. A professional can make sure that CIT exemption is not mistaken for exemption from PAYE, VAT or annual filing.
Why every business should comply
Filing annual returns, even at nil liability, keeps a company's record with the NRS current and supports the issuance of a tax clearance certificate. Tax clearance certificates are commonly required for government contracts, some bank facilities, and certain regulatory applications. Non-filing can affect these processes even where no tax is owed.
Tips on opportunities within the framework
- Structure asset purchases with the threshold in mind, where doing so is consistent with genuine business need, since fixed assets above ₦250 million disqualify a business from small company status regardless of turnover.
- Review turnover recognition to ensure it reflects your actual gross income for the test.
- Keep the small company exemption distinct from other incentives, such as those for startups or specific sectors, since these may have separate qualifying conditions.
- Monitor growth plans, so that a move out of small company status is planned for rather than discovered at filing time.
Relevant law
- Nigeria Tax Act, 2025, Section 56 (definition and treatment of small companies)
- Nigeria Tax Administration Act, 2025 (filing and administrative requirements)
Frequently asked questions
Does a 0% CIT rate mean my company does not need to file returns? No. Small companies are still expected to hold a Tax ID, keep records and file annual returns, even where no tax is due.
What happens if my turnover grows above the threshold during the year? Published guidance suggests a company that no longer meets both conditions moves into the standard CIT and Development Levy regime. Confirm the applicable treatment with a professional.
Is VAT affected by small company status? No. VAT registration and remittance obligations are separate from CIT classification.
Are all businesses under ₦100 million turnover automatically small companies? Not necessarily. Both the turnover and fixed assets conditions must be met, and some categories of business may be excluded regardless of size.
What is exempt if I qualify? Company Income Tax, Capital Gains Tax, and the 4% Development Levy, based on published summaries of Section 56.
Where you need further assistance: You may contact US & CO. (Chartered Accountant), a professional tax consulting firm in Lagos, Nigeria. 📞 WhatsApp: 08056219998 📧 Email: info@usc.com.ng 🌐 Website: https://www.usc.com.ng
Footnote: This article is for general information only. It is not complete investment, tax or legal advice. Thresholds and rates should be confirmed against the Nigeria Tax Act, 2025 and current NRS guidance. Readers should consult a qualified professional before making any investment or tax decision.
