Taxes and Small Businesses in Nigeria: A Simple Guide

Taxes and Small Businesses in Nigeria: A Simple Guide

Figures are for tax year 2026.

What is happening?

Nigeria has a new tax law. It is called the Nigeria Tax Act 2025. It started on 1 January 2026. This law changed how small businesses pay tax.

Before this law, small business owners had a hard time. A shop owner might pay tax to the local government, the state, and the federal government — all in one month. That is a lot of tax collectors asking for money for almost the same thing.

The new law tries to fix this. It brings many old tax rules together into one simple system. The office that collects federal tax used to be called FIRS. Now it is called the Nigeria Revenue Service (NRS). It is the same job, done under a new name and new rules.

What is a "small company"?

The new law gives small companies a special name and special rules.

• Small company definition — A company is called "small" if: It makes ₦50 million or less in a year, and its equipment, land, and buildings are worth ₦250 million or less. But businesses like law firms, accounting firms, and hospitals are not called "small," even if they make less money, because these businesses give special skills, so the law treats them differently. (Nigeria Tax Act (NTA) 2025 — Section 56)

The good news for small businesses

• Company Income Tax for small businesses — 0% percent (confirm before filing) (see nrs.gov.ng)

If a business is truly "small" under this law, something good happens: it pays 0% Company Income Tax (confirm before filing — see nrs.gov.ng). That means no tax at all on the company's profit.

This is a big change. Before, some businesses paid tax even when they were not making much money. Now, the law looks at real profit, not just how big the business looks.

• Development Levy — 4% of profit percent (confirm before filing; only medium and big companies pay it — small businesses do not pay it) (see nrs.gov.ng)

Good news for individual people too

• Personal income tax exemption — ₦800,000 or less in a year — no personal income tax (helps market women, artisans, and small workers who earn a little money)

But there is a catch

• Record-keeping requirement — To get these good benefits, a small business must keep proper records. This means: Writing down every sale; Writing down every cost; Keeping proof, like receipts and bank statements. In the past, many small businesses kept records in a notebook, or just remembered things in their head. Now, the government wants digital records — records kept on a computer or phone, not just paper or memory. If a business cannot show good records, it might lose its "small business" benefits, even if it should qualify. (Nigeria Tax Administration Act (NTAA) 2025)

New rules for online business too

• Online income taxable threshold — If someone makes money online — like selling things on Instagram, teaching a class online, or making videos — and they earn more than ₦25 million a year, that money can now be taxed too. Before, this kind of income was often not checked at all.

Problems that might happen

Even though the new law has good goals, some problems could happen:

• Confusion about who counts as "small." A small accounting firm making ₦20 million will not get the same benefits as a small shop making the same amount, because of the professional-services rule. People need to understand this clearly.
• Hard for very small businesses to keep digital records. The businesses that need help the most — very small, cash-based businesses — may find it hardest to keep the kind of records the law now asks for.
• State and local taxes are a separate problem. This new law mostly deals with federal taxes. Many small business owners still complain about taxes and fees from local governments and markets. This law does not fully solve that.

The method, step by step

If you want to actually claim small-company relief and file correctly, do the steps in this order. Skipping ahead or doing them out of sequence is the most common reason people lose the benefit they were entitled to.

1. Register your business with the Corporate Affairs Commission (CAC) first, before anything else. Everything after this step needs your CAC registration and RC number. If you try to get a Tax ID before you are registered with CAC, the process will not go through.
2. Get your Tax Identification Number (TIN) next. Do this even if you believe your business will owe ₦0. A TIN is mandatory now, and it must exist before you can file anything on the NRS portal (Rev360). If you wait until filing season to get one, you risk missing your filing deadline.
3. Work out your turnover and your fixed assets separately, and check both. You must be under ₦50 million turnover and under ₦250 million in fixed assets. If you check only one of these and skip the other, you may wrongly assume you qualify — and both conditions must be true at the same time, not just one.
4. Check the professional-services rule before you assume you qualify. If your business is a law firm, accounting practice, hospital, or similar, you do not get small-company status no matter how low your turnover is. Doing this check late — after you have already told a client or filed as "small" — is harder to undo than checking it first.
5. Keep digital records all through the year, not just at filing time. Records built after the fact, from memory or from bank statements alone, are weaker than records kept as sales and costs happen. If you leave record-keeping until filing season, you may not be able to reconstruct enough proof to support your ₦0 return.
6. File your annual return even if your tax is ₦0. The exemption is not automatic — you must still complete and submit the return through the NRS portal to claim it. Businesses that assume "zero tax means no filing" are the ones that end up with compliance problems, not tax problems.
7. Recheck your classification every year, not once. If your turnover grows past ₦50 million or your assets pass ₦250 million, you move out of small-company status. Filing this year the same way you filed last year, without rechecking, is how businesses miss the point at which they became liable for tax.

What should small business owners do now?

1. Check if your business is really "small" under the new rules — look at your income, your equipment value, and what kind of business you run.
2. Start keeping digital records now. Use a phone app, a computer, or simple software to track money coming in and going out.
3. Keep business money and personal money separate. Do not mix them. This makes it easier to prove what your business really earns.
4. Get a Tax ID and watch for updates from the Nigeria Revenue Service (NRS), because new rules are still being explained.
5. Ask for help if you earn money online. This is a new area, and it is easy to get wrong, so it deserves extra care:
   • Know what counts. Money from selling on Instagram or WhatsApp, running an online store, teaching a paid online class, coaching, freelancing for clients abroad, or making paid content (YouTube, TikTok, and similar) can all count as taxable income once your total earnings cross the ₦25 million yearly mark.
   • Add up all your online income together, not one platform at a time. If you sell on two apps and also do freelance work on the side, the law looks at your total earnings from all of it, not each stream on its own.
   • Foreign payments still count. Money paid to you from outside Nigeria — through PayPal, Payoneer, Wise, or a foreign client's bank transfer — is still income earned by you, and it should be recorded and declared like any other income.
   • Keep proof for every online sale or payment. Screenshots of transfers, invoices you send clients, platform payout statements, and your bank alerts are all useful records. Do not rely on memory or on the app's history alone, since platforms can change or delete old records.
   • Get a Tax ID (TIN) even if you are not sure you have crossed the threshold. It is easier to register early and file correctly than to explain unregistered income later if your online business grows quickly.
   • Talk to a tax professional before, not after, a big year. If your online income is growing, sit with an accountant or tax adviser to plan ahead — how to register, what records to keep, and whether you might also qualify for small-business relief on the rest of your business income.

The big idea

This new law is not simply "more tax" or "less tax." It is more like a sorting system. Businesses that can show they are truly small — and can prove it with good records — get real help. Businesses that cannot show this may miss out, even if they deserve the benefit.

For now, the smartest thing any small business owner can do is start keeping clean, simple records — and ask a tax professional when they are not sure.

Where this information comes from

• Nigeria Tax Act (NTA) 2025 — Section 56, which explains the small company rules and the 0% tax rate.
• Nigeria Tax Administration Act (NTAA) 2025 — explains record-keeping rules and checks by the tax office.
• Nigeria Revenue Service (NRS) — the government office in charge of collecting federal taxes now (nrs.gov.ng).
• Joint Revenue Board (Establishment) Act 2025 — helps different levels of government work together on tax.

Note: Tax rules can be updated, so it is always good to check the NRS website or ask a tax professional for the latest information before making big decisions. The 0% and 4% figures above are marked "confirm before filing" because NRS's site currently blocks automated verification of its specific pages — please check nrs.gov.ng or the Rev360 portal directly before relying on them.

Contributed by Omolola Fasasi, MB058950.