Nigeria is one of Africa’s biggest economies, and its corporate taxation system determines how businesses contribute to government revenue based on their earnings, activities, and size. Resident companies are generally taxed on worldwide income, whereas foreign businesses are taxed on income connected to Nigeria. Large companies face a 30% corporate income tax (CIT) rate, while qualifying small businesses with annual turnover not exceeding NGN 100 million and fixed assets within NGN 250 million are eligible for a 0% rate.
Tax Obligations for Foreign Businesses
Foreign companies operating in Nigeria may incur tax liabilities when their activities establish a taxable presence. Digital businesses can also become taxable if their Nigerian revenue reaches NGN 25 million annually or they demonstrate sustained commercial engagement with local customers. Revenue from online sales, digital content, data services, and intermediary platforms may count towards this threshold. Applicable international tax agreements can influence how these obligations are administered.
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Special Rules for Petroleum and Property Businesses
Petroleum companies follow industry-specific taxation rules, with rates varying according to operational arrangements and the nature of production. Petroleum profit tax can reach 85% for certain non-production-sharing operations, while qualifying gas activities attract a 30% rate. Eligible upstream operators may also face corporate income tax and hydrocarbon tax under applicable legislation.
Approved real estate investment companies can receive tax exemptions on qualifying rental income. Their dividend income may also qualify for exemption if at least 75% is distributed within 12 months.
Minimum Tax Requirements and Additional Charges
Certain large Nigerian companies must maintain a minimum effective tax rate of 15%. This requirement applies to Nigerian companies with turnover of at least NGN 50 billion and qualifying multinational groups with consolidated annual revenue of at least EUR 750 million. Additional tax may become payable when the calculated effective rate falls below the prescribed minimum. Nigerian parent companies may also face top-up tax relating to foreign subsidiaries taxed below 15%.
A 4% development levy applies to the assessable profits of companies within its scope, excluding small companies and non-resident companies. It consolidates several earlier statutory levies into one charge, although profits assessed under hydrocarbon tax rules are excluded.
Dividend Taxation and Profit Assessments
Closely controlled companies may have undistributed profits treated as distributed, potentially attracting withholding tax at 10%. Additional distribution tax rules may apply when dividends exceed taxable profits, subject to specified exclusions and adjustments.
Where a foreign company’s Nigerian profits cannot be reliably established, tax authorities may calculate deemed profits using its profit margin and Nigerian-source revenue. A minimum tax amount may apply under the relevant rules. Businesses with insufficient financial records may instead face presumptive assessments.
Government Responsibility for Income Taxes
Corporate income tax is administered at the federal level. State authorities collect personal income taxes from individuals and certain unincorporated businesses, while local governments generally impose authorised rates and levies rather than income taxes.
Important Questions and Answers About Corporate Taxes in Nigeria
What is the corporate income tax rate in Nigeria?
Large companies generally pay corporate income tax at 30% of taxable profits. Qualifying small companies may enjoy a 0% rate under the applicable rules.
Which businesses qualify for the 0% corporate tax rate?
Companies with annual gross turnover of NGN 100 million or less and fixed assets not exceeding NGN 250 million may qualify for the 0% rate.
Are foreign companies required to pay taxes in Nigeria?
Yes. Foreign companies may be taxed on income derived from Nigeria when their activities establish a taxable presence under Nigerian tax laws.
How are digital businesses taxed in Nigeria?
Foreign digital businesses may become taxable if they meet specified economic presence conditions, including generating at least NGN 25 million in annual Nigerian revenue or maintaining qualifying digital interactions with Nigerian customers.
What is petroleum profit tax?
Petroleum profit tax is a special tax applicable to certain upstream petroleum operations instead of ordinary corporate income tax, subject to the relevant petroleum tax rules.
What taxes may apply to upstream oil and gas companies?
Depending on their licences and applicable arrangements, upstream operators may be liable for corporate income tax and hydrocarbon tax or remain subject to the petroleum profit tax framework.
Can real estate investment companies receive tax exemptions?
Yes. Approved real estate investment companies may qualify for exemptions on rental income and dividend income, provided the relevant statutory conditions are satisfied.
What is Nigeria’s minimum effective tax rate?
Certain large Nigerian companies and qualifying multinational groups are subject to a minimum effective tax rate of 15%. Additional tax may apply when their effective rate falls below this threshold.
What is the development levy?
The development levy is a 4% charge on assessable profits for companies within its scope. Small companies and non-resident companies are excluded, as are profits calculated under hydrocarbon tax rules.
How are dividends taxed in Nigeria?
Withholding tax may apply to dividend payments. Certain closely controlled companies may also face withholding tax on undistributed profits deemed to have been distributed.
What happens when a company cannot establish its taxable profits?
Tax authorities may calculate deemed profits using an applicable profit margin and Nigerian-source revenue. Where financial records are inadequate, a presumptive tax assessment may apply.
Which government authority collects corporate income tax?
Corporate income tax is payable to the federal government. State governments handle personal income taxes and certain taxes on unincorporated businesses, while local governments collect authorised rates and levies.
Source: Nigeria Revenue Service