Nigerian companies with annual turnover of up to ₦50 million now qualify for a full exemption from Companies Income Tax under the Nigeria Tax Act 2025, up from a ₦25 million threshold under the previous regime.
President Bola Ahmed Tinubu signed four separate tax bills into law on June 26, 2025, creating the expanded threshold as part of a broader reform package, according to a legal analysis published by BusinessDay and authored by KENNA’s Tax Practice Unit.
The reforms aim to simplify tax compliance, reduce the tax burden on individuals and small businesses, harmonise revenue administration, and improve Nigeria’s tax-to-GDP ratio, the analysis states.
Company Classification Under Section 202
The Nigeria Tax Act splits companies into two categories for tax purposes: small companies, and a residual category the law treats as “any other company.” Under Section 202, a small company is one with annual gross turnover not exceeding ₦50 million and total fixed assets not exceeding ₦250 million. The classification excludes professional service providers, including lawyers, accountants and consultants, regardless of their turnover.
The Act does not create a separate statutory bracket for mid-sized companies. Section 56(b) treats any company that falls outside the small company definition as “any other company.”
What Small Companies Gain
Sections 27(1) and 56(a) of the Act set Companies Income Tax at 0% on a small company’s total profits, including chargeable gains. Small companies also skip the Development Levy entirely. This benefit now reaches a wider pool of businesses, since the qualifying turnover threshold has doubled from ₦25 million to ₦50 million.
Small companies don’t need to register for VAT, charge VAT, or file VAT returns unless they choose to. This eases the burden of monthly filings and can let small businesses offer more competitive pricing. However, businesses that skip registration also lose the ability to recover input VAT on their purchases and operating expenses, a trade-off the analysis says companies should weigh carefully.
Reliefs Available to Mid-Sized Companies
Companies that exceed the small company threshold pay Companies Income Tax at 30%. The Act does not carve out a separate mid-sized bracket, but several of its provisions benefit that segment disproportionately.
The Act simplifies the deductibility test for business expenses. Expenses previously had to pass a “wholly, exclusively, necessarily and reasonably” test to qualify for deduction. The new Act narrows this to “wholly and exclusively.” This cuts tax authorities’ discretion to disallow genuine business expenses and lowers audit risk for companies with complex cost structures.
Section 156(5) expands input VAT recovery. Registered businesses can now deduct input VAT on taxable supplies, including services and fixed assets, where they incurred the VAT to make taxable supplies. This matters most for companies scaling through investment in machinery, buildings or equipment. It matters even more for companies supplying zero-rated goods in sectors such as food, agriculture, education and healthcare. These companies can charge 0% VAT on qualifying supplies while still recovering input VAT on their production costs.
The Act also introduces the Economic Development Tax Incentive under sections 166 to 184, replacing the former pioneer status regime under the now-repealed Industrial Development Act. The incentive converts the tax a company would ordinarily pay on profits from an approved priority product into a credit. Companies can use this credit for five years, then carry any unused balance forward for a further five years before it expires.
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To qualify, a company must operate in a priority sector the Act’s Tenth Schedule names, covering manufacturing, agriculture, solid minerals and infrastructure. The company must also meet minimum capital spending thresholds before beginning production. Mid-sized companies are often well placed to benefit, the analysis notes, since they are large enough to meet the spending thresholds while still small enough for the credit to meaningfully affect their bottom line.
The Act restructures capital allowances too. It replaces variable initial and annual rates with uniform annual rates of 10%, 20% or 25%, depending on asset category. Companies now apply a single rate to each asset category until they fully write down its cost, giving them more predictability when planning capital expenditure.
TIN Registration and Filing Requirements
Access begins with registration. Every taxable business must hold a valid Tax Identification Number. Section 8(2) of the Nigeria Tax Administration Act now requires banks to verify TIN status for business accounts. Without a valid TIN, a business cannot claim withholding tax exemptions, process VAT credits, or access refunds.
VAT-registered businesses must also monitor refund timelines closely. Tax authorities must process refunds within the statutory period, and businesses must file excess input VAT claims within the applicable timeframe. Missing these windows means losing the cash-flow advantage the reform is meant to deliver.
Companies should check their annual turnover and fixed asset levels against the Section 202 threshold regularly, particularly where turnover sits close to the line, since crossing it carries direct tax consequences.
The analysis identifies poor documentation and misclassification as the two most common pitfalls. Businesses must back every exemption, deduction or relief claim with records, and applying the wrong tax category exposes a company to reassessment and penalties.
The Bottom Line
The 2026 tax reforms create real opportunities for small and mid-sized companies, but the benefits are not automatic. Businesses must first establish where they fall under the new thresholds, then match their activities, expenses and transactions to the reliefs available. Classification, documentation and timely compliance will determine who actually benefits.
