What Every Nigerian Business Must Know About Taxes: Legal Obligations, Deductions, And The Price of Non-Compliance
In Nigeria’s evolving regulatory and economic landscape, what every Nigerian business must know about taxes is that compliance goes beyond the law, it’s a critical part of long-term business growth. Whether you operate a business name, limited liability company, growing tech startup, or an informal venture receiving payments through a personal account, your tax obligations carry significant legal, financial, and reputational consequences.
At Starr Attorneys, we help Nigerian businesses Establish, Scale, and Thrive by guiding them through tax compliance with clarity and confidence
In this article, we present a clear and practical breakdown of the major tax obligations affecting Nigerian businesses, the penalties for non-compliance, and the hidden risks of operating outside the formal economy. Whether trying to understand your tax responsibilities or just want to avoid costly mistakes, this guide will help you take the right steps toward building a compliant, sustainable business in Nigeria.
This Section covers what every Nigerian business must know about taxes like VAT and CIT.
Value Added Tax (VAT)
What Every Nigerian Business Must Know About VAT:
Legal Framework: Value Added Tax Act 2004 (as amended by the Finance Act 2019)
Regulatory Authority: Federal Inland Revenue Service (FIRS)
VAT is a 7.5% tax on goods and services in Nigeria, updated from 5% by the 2019 Finance Act.
Who Should File: Every individual or corporate entity that supplies taxable goods or services in Nigeria. VAT returns must be filed monthly on or before the 21st day of the following month, even where no VAT was collected.
Penalties for Non-Compliance:
- ₦50,000 for the first month of default;
- ₦25,000 for each subsequent month;
- Possible interest, enforcement measures, and criminal liability under Section 28 of the VAT Act
Note: If your annual turnover is below ₦25 million, you’re exempt from charging VAT, but you still need to file monthly returns unless formally exempted by FIRS, unless they obtain a formal exemption letter from the FIRS. Failure to do so may lead to penalties and unnecessary compliance risks.
VAT non-filing is not a minor infraction; it can escalate into a criminal offense with real legal consequences.
Companies Income Tax (CIT)
Legal Framework: Companies Income Tax Act (CITA), Cap C21 LFN 2004 (as amended)
Regulatory Authority: Federal Inland Revenue Service (FIRS)
Companies operating in Nigeria are subject to Companies Income Tax (CIT) on profits earned during each financial year. Section 9 of CITA sets the framework for this obligation, while Section 8(1)(b) excludes companies engaged in upstream petroleum operations, such companies are instead taxed under the Petroleum Profits Tax Act (PPTA) due to the distinct nature of oil and gas operations.
Applicable Rates Based on Annual Turnover:
- 0% – Small companies with turnover below ₦25 million;
- 20% – Medium-sized companies with turnover between ₦25 million and ₦100 million;
- Large companies with turnover above ₦100 million
Filing Timeline: CIT returns must be filed within 6 months after the end of the accounting year or 18 months from incorporation, whichever is earlier.
Penalty for Non-Compliance: Under Section 40 of CITA, failure to file attracts a 10% penalty on the assessed tax amount, in addition to interest at the prevailing Central Bank of Nigeria (CBN) rate.
Note: Companies involved in petroleum exploration and production are taxed under the PPTA at rates of up to 85%, depending on the type of contract and applicable deductions. This area of tax law is highly technical, and we strongly advise seeking legal counsel to ensure correct classification and reporting.
Informality is Not Immunity: Why Every Business Must Pay Attention
Many Nigerian businesses especially freelancers, vendors, and digital entrepreneurs operate without formal registration, often receiving payments into personal bank accounts. However, this does not absolve them of tax responsibilities.
Under Sections 41 and 94 of the Personal Income Tax Act (PITA), all income earned by individuals is subject to tax, regardless of whether the business is formally registered. With the increasing integration of banking and tax data, high inflows into personal accounts now trigger scrutiny from tax authorities.
Consequences of Informality:
- Backdated income tax assessments, interest, and penalties;
- Ineligibility for legal tax deductions and allowances;
- Risk of personal asset seizure for unpaid taxes
- Disqualification from grants, loans, contracts, and institutional partnerships
Non-compliance with tax obligations is a prosecutable offense under Nigerian law. The longer informal operators remain under the radar, the higher the risk of regulatory consequences.
How Starr Attorneys Supports Tax Compliance
From startup founders to multinational operators, we provide tailored tax compliance solutions across industries. Our services include:
- CAC incorporation and FIRS/IRS registrations;
- Strategic tax planning and optimization;
- Regulatory filings and audit representation;
- Industry-specific tax advisory (e.g., oil & gas, fintech, export)
- Staff training on tax compliance processes
Final Thought
Nigeria’s tax environment is no longer one in which businesses can afford to operate reactively. It is fast-moving, data-driven, and marked by increasingly coordinated enforcement from regulatory bodies. With digital reporting now standard and inter-agency data sharing on the rise, ignorance of tax obligations is no longer a valid defense.
Whether you are a growing startup, a multinational, or a self-employed professional, your tax strategy must align with legal obligations, business goals, and reputational expectations.
Written by: Temitope Odeyinka
International Business lawyer
Managing Partner, Starr Attorneys.
Need help navigating tax compliance for your business? Email us at info@starrattorneys.co or call +234 704 545 9409
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