The Nigerian tax system rests on constitutional provisions, which provide the basis for the allocation of taxation powers among the tiers of government and also serve as the bedrock on which the tax obligation of each citizen rests. The philosophy of the tax system is encapsulated in the National Tax Policy, with laws enacted at the federal, state and local government levels to highlight specific types of taxes and levies as well as administrative processes.

Tax Ecosystem

In recent years, there have been significant changes in the tax landscape. Since 2019 the federal government of Nigeria has enacted three finance acts, which amended 19 pieces of legislation and 167 provisions of tax and fiscal laws. Some of the changes include a gradual shift from direct to indirect tax. For example, the value-added tax (VAT) rate has witnessed an increase of 50%, from 5% to 7.5%, among other changes affecting Customs and excise duties, stamp duties and others.

The tax rules affecting micro-businesses and small and medium-sized enterprises (SMEs) have also seen major changes. Micro-businesses with annual revenue of N25m ($59,600) or less have been exempted from income tax and relieved of their obligations for VAT compliance. SMEs with annual revenue exceeding N25m ($59,600) but below N100m ($238,000) now pay a reduced income tax rate of 20%.

The reform also extended to the taxation of non-resident companies (NRCs), particularly global digital players. This is part of the drive by the Nigerian government to leverage the increasing proliferation, sophistication and technological transformation of multinational enterprises by harnessing the tax benefits of being a source country. Another notable change is the introduction of thin capitalisation rules, which put a cap on the use of this approach for tax planning.

Generally, the aims of these amendments are to ensure that the tax system is in line with economic realities, encourage foreign and local direct investment, and ultimately increase the revenue generated from taxation.

The constitution allocates tax imposition and collection powers to the federal, state and local tiers of government. This forms the basis for the tax types and corresponding administrative agencies. Accordingly, taxation is administered by the three tiers of government – the federal government through the Federal Inland Revenue Service (FIRS), the state governments through the State Boards of Internal Revenue (SBIR) and the local government through local government revenue committees. The tax authorities at each level of government make up the Joint Tax Board.

Due to the overlapping nature of multiple tax agencies, all relevant taxes and levies are encapsulated in the Approved Taxes & Levies Act for clarity. In this amendment there are more than 50 taxes and levies payable by corporate entities and individuals to one or more of the tax agencies at each of level of government.

Corporate Tax

Corporate taxes are those paid by limited liability companies depending on the nature of their business operations. These taxes are administered by FIRS and include the companies’ income tax (CIT), petroleum profits tax (PPT), hydrocarbon tax (HCT), tertiary education tax (TET), IT levy, Police Trust Fund (PTF) levy, and the National Agency for Science and Engineering Infrastructure (NASENI) levy.

CIT: CIT applies to companies that have profits accruing in, derived from, brought into or received in Nigeria. The enabling legislation for the CIT is the Companies Income Tax Act (CITA) of 2004, Chapter C21.

CIT is levied at 30% for large companies with gross turnover of N100m ($238,000) or more, 20% for medium-sized companies with gross turnover greater than N25m ($59,600) but less than N100m ($238,000), and 0% for small companies with gross turnover of N25m ($59,600) or less on taxable profits. It is assessed on a preceding-year basis – that is, profits made during the preceding financial year.

Profit & Returns

Certain profits are exempted from CIT, and these include profits from export proceeds if used for the purchase of raw materials, plant, equipment and spare parts; and profits of any company engaged in ecclesiastical, charitable or educational activities of a public character in so far as such profits are not derived from a trade or business carried out by such an organisation or dividend distributed by a unit trust, etc.

In arriving at the taxable profits of any company, the following will be taken into consideration:

• Deduction of expenses incurred wholly, exclusively, reasonably and necessarily for generating profit;

• Addition of expenses not allowed for tax purposes such as depreciation or general provisions;

• Exemption of non-taxable profits such as franked investment income, unrealised exchange gain, etc;

• Deduction of tax losses – any losses incurred may be carried forwards indefinitely;

• Deduction of capital allowance (tax depreciation), capital allowance is granted on specific assets and at rates specified in the second schedule to the CITA; and

• Deduction of allowable donations, with certain conditions required to be met before donations may be allowed. The first annual CIT returns are required to be filed within six months of year-end or 18 months after incorporation – whichever is earlier. Subsequent returns are due within six months of the financial year-end. The CIT returns comprise the company’s tax computations, self-assessment forms, audited financial statements, and the evidence of payment of the CIT liability.

Payment is required to be made on or before the filing due date. Failure to file returns by the due date incurs a penalty of N25,000 ($59.60) in the first month and N5000 ($11.90) for each subsequent month of default. Further, failure to pay CIT when due results in a penalty of 10% of the amount in default per annum plus interest at CBN’s minimum re-discount rate. This is typically calculated using the monetary policy rate of 18% plus interest of 5% – the current spread as determined by the minister.

NRCs are taxed where they create a local taxable presence. A taxable presence is created where the NRC creates, does or has any of the following:

• A fixed base in Nigeria, and the profit of the NRC is attributable to that fixed base. This could mean a place where an NRC carries out business, notwithstanding that the place may not be owned by the NRC;

• Habitually operates a trade or business through a person in Nigeria authorised to carry out business on its behalf or on behalf of a related party, or habitually maintains a stock of goods in the country from which deliveries are regularly made on its behalf by a person;

• Carries out activities with a related party that is, in the opinion of the tax authorities, artificial or fictitious;

• Is involved in a single contract for surveys, deliveries, installations or construction, such as a turnkey project;

• A digital significant economic presence (SEP), which is created where NRCs are involved in the transmission, emission or receipt of signals, sounds, messages, images or data of any kind by cable, radio, electromagnetic systems, or any other electronic or wireless apparatus in respect of any activity, including electronic commerce, electronic data storage, online adverts, application store, high-frequency trading, online payments and so on, to the extent that profit can be attributable to such activity, and certain criteria as detailed in the SEP order are met; and

• A service SEP, which is created where NRCs are involved in the provision of technical – including advertising services, training or the provision of professional personnel – professional, management or consultancy services where it receives payment from a local resident or a fixed base or agent of an NRC. An NRC that creates a taxable presence will be required to comply with relevant tax obligations as though it were a Nigerian company, except where it only creates or has a service SEP, in which case the withholding tax applied to its income will be the final tax.


The PPT is imposed on the income of companies involved in petroleum operations. The chargeable profit subject to the PPT is the sum of the value of chargeable oil sold, chargeable oil disposed of and all other revenue incidental to the firm’s petroleum operations. The CIT applies to income that is not incidental to petroleum operations and to gas proceeds as well. The tax rate under the PPT Act (PPTA) is as follows:

• 50% for petroleum activities with the Nigerian National Petroleum Corporation under deep offshore inland basin production-sharing contracts (PSCs); and

• 65.75% for non-PSCs is applicable for the period in which a company has not fully amortised its pre-production capitalised expenditure – usually the first five years of operation. Afterwards, a rate of 85% is applicable. Companies engaged in petroleum operations are required to file both estimated and actual PPT returns. The estimated tax returns must be filed within two months of the commencement of a new accounting period, while the actual returns should be filed within five months of the end of the financial year, usually no later than May 31.

Payment is required to be made on or before the filing due date. Failure to file the returns on time will result in a penalty of N10,000 ($23.83) for the first day of failure plus N2000 ($4.77) for each subsequent day of non-payment. Late payment attracts a penalty at 5% of tax payable.


The HCT is applicable to upstream petroleum companies under the new regime introduced by the Petroleum Industry Act (PIA) of 2021, which repealed the PPTA. However, such companies may choose to voluntarily convert to the PIA regime within 18 months of its effective date or remain under the PPT regime until the expiration of their current licences/leases.

The PIA establishes a dual-income tax framework for upstream petroleum companies. The HCT and the CIT apply to crude oil earnings, field condensate profits, and natural gas liquids that are earned from associated gas for onshore or shallow water hectarages. For deep offshore, only the CIT is applicable.

The following tax rates apply under the PIA’s dual tax regime:

• 30% HCT for licensed areas where field development is under way, a definitive investment decision has been taken to develop the field or regular commercial production is taking place;

• 15% HCT for licensed areas when the holder is willing to present an appraisal programme or declare commercial discovery and submit a field development plan or declare significant crude oil/ gas discovery and apply for the retention area;

• 30% CIT on crude oil earnings and profits from field condensates and natural gas liquids produced from connected associated gas; and

• 30% CIT for activities in the deep offshore area. Companies engaged in upstream petroleum operations related to crude oil are required to file both estimated and actual PPT returns. The estimated tax returns must be filed within two months of the start of a new accounting period, while the actual returns must be filed within five months of the end of the financial year, usually no later than May 31.

Payment must be made on or before the filing due date. Failure to file the returns on time will result in a penalty of N10m ($23,800) for the first day of non-payment plus N2m ($4800) for each thereafter. Late payment incurs a penalty of 10% of tax payable and interest at the prevailing London interbank offered rate or any successor rate.


The TET rate is 2.5% of the adjusted/assessable profits for CIT or PPT purposes before the deduction of capital allowances. The TET is paid alongside the CIT and the PPT.

IT Levy

The IT levy is imposed by the amended National Information Technology Development Agency Act, Chapter N156 on telecommunications, cyber-companies and internet providers, insurance companies, banks and other financial institutions that have a turnover of N100m ($238,300) or more. The IT levy rate is 1% of the pre-tax profit and is to be paid within six months of the end of an organisation’s financial year. The IT levy is deductible as a cost.

PTF Levy

The PTF levy is payable by companies carrying out business in Nigeria at the rate of 0.005% of net profit. The PTF levy is payable to FIRS upon the filing of CIT returns by a company.


The NASENI levy is payable by commercial companies and companies in the banking, mobile telecommunications, ICT, aviation, maritime, and oil and gas sectors with revenue of N100m ($238,300) or more. It is levied at a rate of 0.25% of profit before tax.

Personal Income Tax (PIT)

PIT is levied on the income of individuals and businesses that are not limited liability companies – such as partnerships, sole proprietors – earning taxable income from Nigeria.

Foreign residents who are earning income that is sourced in Nigeria are deemed to be taxable unless:

• The individual is present in Nigeria for a duration of less than 183 days in any 12-month period, including a period of temporary absence and vacation;

• The emoluments are not borne by a Nigerian employer or a fixed base of the foreign employer in Nigeria; or

• The individual is responsible for taxation in their home country, which has a double tax treaty with Nigeria. Every employer of labour has a fiduciary duty to deduct tax from the income of their employees at a graduated tax rate of 7% to 24% after the claim of relevant allowances. The tax deducted is to be remitted to the relevant SBIR within 10 days following the month in which the tax was deducted. This arrangement is known as the Pay-as-You-Earn (PAYE) scheme.

Failure to deduct and remit the PAYE tax due from employees attracts a penalty of 10% of the outstanding amount per annum, and interest at the prevailing commercial rate of the amount not deducted or remitted.

When the computed tax amount is less than 1% of an individual’s gross income, a minimum tax of 1% of the gross income is to be paid. However, where an individual earns less than the national minimum wage – N360,000 ($858) per year – such income is exempt from the PIT and the individual is not liable to pay the minimum tax.

Capital Gains Tax (CGT)

CGT is levied at a rate of 10% on chargeable gains accruing from the disposal of chargeable assets that are deemed to be situated in Nigeria. These include options, shares, debt, incorporeal property, any currency other than local currency, and any form of property created by the person disposing of it or otherwise coming to be owned without being acquired. The CGT is filed or reported on a self-assessment basis, similar to returns for the CIT.


is imposed at a rate of 7.5% on the supply of taxable goods and services except those exempted by the VAT Act, Chapter V1, as amended. A person that makes a taxable supply of N25m ($59,600) or more in a calendar year is required to charge VAT on their invoices for the supplies. Non-resident suppliers of goods and services in the country are also expected to register for tax, issue VAT invoices and file VAT returns.

• Filing: This is required to be done by the 21st of the month following the month of transaction.

• Payment: The VAT charged on an invoice will be paid to the supplier by the consumer of the good or service and remitted to FIRS. However, under the reverse-charge mechanism, government bodies and agencies, companies operating in the oil and gas sector, and others appointed by FIRS may deduct VAT at source or collect VAT and remit same to the FIRS.

• Sanctions: Failure to file VAT returns attracts a penalty of N50,000 ($119) for the first month of failure and N25,000 ($60) for each subsequent month that failure continues. Late payment attracts a 10% penalty plus interest at the prevailing commercial rate, calculated using the monetary policy rate of 18% plus a spread of 5%.

Stamp Duties

Stamp duties are paid on instruments chargeable to duties as provided in the Stamp Duty Act, Chapter S8, as amended. It is administered by FIRS if the document to be stamped relates to matters executed between a company and an individual, group or body of individuals, and by the relevant SBIR for instruments executed between individuals.

Customs and excise duties are levied on goods imported to the country ranging from 0% to 35% on the import value at the port of entry. This is imposed by the Customs and Excise Tariff, Etc. (Consolidation) Act, Chapter C49, as amended. Import adjustment taxes are applicable as prescribed by annual fiscal policy measures. However, excise duties are charged on excisable goods imported or locally manufactured such as tobacco, alcoholic and non-alcoholic beverages, and carbonated or sweetened beverages.

Withholding Tax (WHT)

Withholding tax is an advance payment of income tax by the company or individual from whose income the WHT is deducted. It can be applied as a tax credit against the taxpayer’s income tax liability for the relevant tax year.

The WHT rate is between 2.25% and 10% depending on the transaction. The table on the following page indicates the rate for qualifying transactions.

Failure to file tax by the specified due date attracts a penalty of 10% of the amount not deducted or remitted, plus the prevailing interest rate.

Recent Developments

The tax landscape is evolving at a rapid pace, and there is a commitment to seek opportunities that generate revenue following a shortage of allocations from the Federation Account. The increasing need for efficient and effective administration by the tax authorities has also led to several improvements in the collection process. Deployment of technology: To align itself with current realities and to enable FIRS to have greater access to data for the purposes of more effective and efficient collection of taxes, FIRS has rolled out several technological tools including:

• TaxPro-Max Portal: To aid with tax administration, FIRS launched the portal to facilitate the seamless administration of corporate taxes. The portal, among other things, enables the smooth filing and payment of taxes in local currency, as well as the automation of WHT credits.

• Sentinal National Payment Gateway and Electronic Solution: This is a transaction-processing system that aims to assist with the real-time and direct collection of taxes from online gaming transactions. Operators offering digital gaming services were required to connect to the solution no later than December 31, 2022.

• Automated Tax Administration Solution: Several variants of this solution have been deployed by FIRS to access information directly from relevant point-of-sale or invoicing platforms of all taxable persons – individuals, enterprises, companies and entities. Refocus on indirect taxes: The government has shifted its focus to indirect taxes in order to increase tax revenue. For instance, the Stamp Duty Act, which has been moribund for several years, is getting more prominence. The electronic money transfer levy has been introduced and the scope of excise duties expanded to cover non-alcoholic, carbonated or sweetened beverages. Appointment of VAT-collection agents: FIRS has appointed non-resident providers of digital services and large corporate entities as agents for VAT-collection purposes. By utilising this approach, FIRS aims to become more efficient in tax collection.

Tax Incentive Frameworks

The government continues to roll out several incentives for local and foreign direct investment, as well as the expansion of existing businesses. Some of these incentives include the following: Pioneer Status Incentive (PSI): A PSI confers an up to five-year tax holiday to eligible companies involved in the establishment of a promoted industry in Nigeria; the initial period spans three years and is renewable for a maximum of two additional years. To qualify for the PSI, a company must, among other things, have a minimum capital expenditure of N100m ($238,300). Dividends received from a pioneer company are tax-free and such a company is allowed to carry forwards net tax losses. Import duty exemption: An import duty exemption is the complete removal of otherwise applicable import duties or taxes, from goods imported into a country – usually plant, machinery and equipment in qualifying industries such as manufacturing or power – upon meeting specified terms, conditions and criteria. Eligible companies importing qualifying equipment are to apply for an Import Duty Exemption Certificate (IDEC) from the Ministry of Finance, Budget and National Planning through the IDEC Portal. Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme: A road infrastructure tax credit scheme was introduced in 2019 and is available to private companies that construct or refurbish eligible roads with their funds. In return, such companies can recover the amounts incurred in the construction/refurbishment as tax credits to be claimed against income tax payable. Other incentives: The following are some of the other incentives that have been made available to taxpayers over the years:

• Capital allowance: Capital allowances (tax depreciation) are granted at specific rates on qualifying capital expenditure (QCE) by a company, and are in use at the end of the year of assessment.

• Investment allowance: In addition to the annual allowance for the value of the QCE, an investment allowance is granted to taxpayers in the first year of purchasing plant and equipment at a rate of 10%.

• Companies engaged in export trade are entitled to various incentives, such as exemption of their export profits from income tax, provided the conditions for exemption are met.


The tax system has witnessed significant improvements through the enactment of annual finance acts. While many stakeholders have continued to advocate for a total overhaul of the regulatory framework, the annual reviews of existing laws have made strong attempts at aligning legislation with current economic realities, removing ambiguities and impediments to attracting investment, and ultimately increasing the revenue generated through taxation.

Frequent changes to rules have made it necessary for individuals and businesses to keep abreast of regulations affecting their reporting requirements, payments and other tax obligations. Penalties for various infractions and non-compliance are progressively increasing, and this should encourage taxpayers to remain alert to developments. Those who intend to invest in Nigeria, as well as other stakeholders, should implement a proper risk assessment to understand the tax implications of their investment.