Company Income Tax (CIT) in Nigeria: Complete Guide 2025

As a business owner in Nigeria, understanding Company Income Tax (CIT) isn't just about compliance—it's about maximizing your profitability and avoiding costly penalties. Whether you're running a small startup or managing a large corporation, this guide will help you navigate CIT calculations, understand tax rates, and optimize your tax position.

What is Company Income Tax (CIT)?

Company Income Tax (CIT) is a direct tax levied on the profits of companies incorporated in Nigeria or foreign companies operating in Nigeria. It's governed by the Companies Income Tax Act (CITA) and administered by the Federal Inland Revenue Service (FIRS).

Key Points:

• CIT applies to all companies, regardless of size
• Tax is calculated on taxable profit, not revenue
• Different rates apply based on company size
• Annual filing is mandatory

Company Size Categories and Tax Rates

Nigeria uses a tiered tax system based on annual gross turnover (revenue). Understanding which category your company falls into is crucial for accurate tax planning.

Small Companies

• Turnover Threshold: Less than ₦25 million annually
• Tax Rate: 20%
• Who Qualifies: Startups, small businesses, micro-enterprises

Example: A small retail business with ₦20 million annual revenue and ₦8 million in expenses:

• Taxable Profit: ₦20,000,000 - ₦8,000,000 = ₦12,000,000
• CIT Payable: ₦12,000,000 × 20% = ₦2,400,000

Medium Companies

• Turnover Threshold: ₦25 million to ₦100 million annually
• Tax Rate: 30%
• Who Qualifies: Growing businesses, established SMEs

Example: A medium manufacturing company with ₦60 million revenue and ₦25 million expenses:

• Taxable Profit: ₦60,000,000 - ₦25,000,000 = ₦35,000,000
• CIT Payable: ₦35,000,000 × 30% = ₦10,500,000

Large Companies

• Turnover Threshold: Above ₦100 million annually
• Tax Rate: 30%
• Who Qualifies: Large corporations, multinationals, established enterprises

Example: A large corporation with ₦500 million revenue and ₦200 million expenses:

• Taxable Profit: ₦500,000,000 - ₦200,000,000 = ₦300,000,000
• CIT Payable: ₦300,000,000 × 30% = ₦90,000,000

Calculating Taxable Profit

The foundation of CIT calculation is determining your taxable profit:

Taxable Profit = Annual Revenue - Allowable Expenses

Understanding Revenue

Revenue includes all income generated from business operations:

• Sales of goods or services
• Service fees
• Rental income (for businesses)
• Interest income from business operations
• Other business-related income

Understanding Allowable Expenses

Allowable expenses are costs that are "wholly, exclusively, and necessarily" incurred in generating your business income. These reduce your taxable profit.

Common Allowable Expenses

1. Cost of Goods Sold (COGS)

• Raw materials
• Direct labor costs
• Manufacturing overheads
• Inventory costs

2. Operating Expenses

• Salaries, wages, and employee benefits
• Rent and utilities (business premises)
• Professional fees (legal, accounting, consulting)
• Insurance premiums
• Office supplies and stationery
• Marketing and advertising expenses
• Travel and transportation (business-related)
• Communication costs (phone, internet)

3. Financial Costs

• Interest on business loans
• Bank charges and fees
• Foreign exchange losses (subject to conditions)

4. Depreciation and Amortization

• Depreciation on fixed assets (machinery, equipment, vehicles)
• Amortization of intangible assets
• Must follow FIRS-approved rates

5. Bad Debts

• Uncollectible receivables (with proper documentation)
• Provision for doubtful debts (subject to limits)

6. Training and Development

• Employee training programs
• Professional development courses
• Skills acquisition programs

7. Research and Development

• R&D expenses (with proper documentation)
• Innovation costs

Non-Allowable Expenses

These expenses cannot be deducted from your taxable profit:

• Personal expenses of directors/owners
• Fines and penalties
• Capital expenditures (depreciated instead)
• Dividends paid to shareholders
• Income tax and other taxes
• Expenses not supported by proper documentation
• Entertainment expenses (beyond reasonable limits)
• Political contributions
• Expenses related to tax-exempt income

Step-by-Step CIT Calculation

Let's walk through a comprehensive example:

Example: Medium-Sized Tech Company

Company Details:

• Annual Revenue: ₦75,000,000
• Cost of Goods Sold: ₦20,000,000
• Salaries and Wages: ₦15,000,000
• Rent and Utilities: ₦5,000,000
• Marketing Expenses: ₦3,000,000
• Professional Fees: ₦2,000,000
• Depreciation: ₦4,000,000
• Interest on Loans: ₦1,000,000
• Other Operating Expenses: ₦3,000,000

Step 1: Calculate Total Allowable Expenses

• COGS: ₦20,000,000
• Salaries: ₦15,000,000
• Rent/Utilities: ₦5,000,000
• Marketing: ₦3,000,000
• Professional Fees: ₦2,000,000
• Depreciation: ₦4,000,000
• Interest: ₦1,000,000
• Other Expenses: ₦3,000,000
• Total Expenses: ₦53,000,000

Step 2: Calculate Taxable Profit

• Revenue: ₦75,000,000
• Less: Total Expenses: ₦53,000,000
• Taxable Profit: ₦22,000,000

Step 3: Determine Tax Rate

• Turnover: ₦75,000,000 (falls in ₦25M - ₦100M range)
• Tax Rate: 30%

Step 4: Calculate CIT

• Taxable Profit: ₦22,000,000
• Tax Rate: 30%
• CIT Payable: ₦6,600,000

Filing Requirements and Deadlines

Annual Filing Obligations

All companies must file CIT returns annually, regardless of whether they made a profit or loss.

Key Deadlines:

• Filing Deadline: 6 months after the end of your financial year
• Example: If your financial year ends December 31, filing is due by June 30 of the following year
• Payment Deadline: Usually coincides with filing deadline

Required Documents

When filing your CIT return, ensure you have:

• Audited financial statements
• Tax computation schedules
• Supporting documents for all deductions
• Evidence of tax payments (if advance payments were made)
• Any other documents requested by FIRS

Penalties for Non-Compliance

Late Filing:

• Initial penalty: ₦25,000 for the first month
• Additional ₦5,000 for each subsequent month

Late Payment:

• Interest charged at prevailing CBN rate + 5%
• Additional penalties may apply

Underpayment:

• Penalty of 10% of tax underpaid
• Interest on outstanding amounts

Common Mistakes to Avoid

1. Mixing Personal and Business Expenses

Mistake: Claiming personal expenses as business deductions Solution: Maintain separate accounts and only claim legitimate business expenses

2. Inadequate Documentation

Mistake: Failing to keep receipts and invoices Solution: Implement a robust record-keeping system

3. Incorrect Company Classification

Mistake: Using wrong tax rate due to misclassification Solution: Verify your annual turnover and apply the correct rate

4. Ignoring Depreciation Rules

Mistake: Claiming full cost of assets as expenses Solution: Follow FIRS-approved depreciation rates

5. Missing Deductible Expenses

Mistake: Not claiming all legitimate deductions Solution: Review your expenses regularly and consult a tax professional

Tax Optimization Strategies

1. Maximize Allowable Deductions

• Keep detailed records of all business expenses
• Ensure expenses are properly documented
• Claim all legitimate deductions promptly

2. Strategic Timing

• Plan major expenses before year-end
• Consider timing of revenue recognition
• Optimize depreciation schedules

3. Capital Expenditure Planning

• Plan asset purchases strategically
• Take advantage of depreciation benefits
• Consider leasing vs. buying decisions

4. Professional Advice

• Consult with qualified tax professionals
• Stay updated on FIRS regulations
• Review your tax position annually

5. Record Keeping

• Maintain organized financial records
• Use accounting software
• Keep receipts and invoices for at least 6 years

Minimum Tax Considerations

Even if your company makes a loss, you may still be liable for minimum tax:

Minimum Tax Rate: 0.5% of gross turnover

When It Applies:

• Company reports a loss
• Taxable profit results in tax less than minimum tax
• Company is in its first 4 years of operation (with some exceptions)

Example: A company with ₦50 million turnover but ₦55 million expenses (loss of ₦5 million):

• Normal CIT: ₦0 (due to loss)
• Minimum Tax: ₦50,000,000 × 0.5% = ₦250,000
• Payable: ₦250,000

Key Takeaways

1. Know Your Category: Determine if you're small, medium, or large based on annual turnover
2. Document Everything: Keep receipts, invoices, and proper records
3. Claim All Deductions: Don't miss legitimate business expenses
4. File on Time: Avoid penalties by meeting deadlines
5. Seek Professional Help: Consult tax experts for complex situations
6. Plan Ahead: Strategic tax planning can save significant amounts

Conclusion

Company Income Tax doesn't have to be complicated. By understanding the rates, knowing what expenses are allowable, and maintaining proper records, you can ensure compliance while optimizing your tax position. Remember, effective tax management is an ongoing process that requires attention to detail and strategic planning.

Use our business tax calculator to estimate your CIT liability and explore different scenarios. For complex situations or specific advice, always consult with a qualified tax professional who understands Nigerian tax laws.

Next Steps:

• Calculate your CIT using our business tax calculator
• Review your expense categories for optimization opportunities
• Ensure your record-keeping system is robust
• Schedule a consultation with a tax professional if needed