Starting a Business in Nigeria: Complete Guide to Tax Obligations

Starting a business in Nigeria brings tax obligations from day one. Understanding these requirements early helps you build a compliant foundation and avoid costly penalties later. This comprehensive guide walks you through every tax obligation for new Nigerian businesses.

Business Registration First

CAC Registration

Before tax obligations begin, register your business:

Entity Type	Registration Body	Key Documents
Limited Liability Company	CAC	Memorandum, Articles, Forms
Business Name	CAC	Application, Owner ID
Incorporated Trustees	CAC	Constitution, Trustees list

Why Registration Matters for Tax

Aspect	Importance
Legal recognition	Required for tax registration
TIN eligibility	Need RC/BN number first
Bank accounts	CAC certificate required
Contracts	Registration evidence needed

Tax Registration Requirements

Tax Identification Number (TIN)

When: Immediately after CAC registration

Entity	TIN Source
Companies	NRS (Formerly FIRS)
Business names	JTB (linked to owner's TIN)
Individuals	JTB

Required Documents:

• Certificate of Incorporation/BN Certificate
• CAC Forms (2, 3, 7 for companies)
• Directors' TINs
• Proof of business address

VAT Registration

When: Within 6 months of commencement OR when turnover exceeds ₦25 million

Criterion	Requirement
Mandatory threshold	Turnover > ₦25 million
Below threshold	Voluntary registration permitted
Timeline	Within 6 months of commencement

Registration Process:

1. Apply through NRS (Formerly FIRS) TaxPro Max
2. Submit supporting documents
3. Receive VAT number (same as TIN)
4. Begin charging/remitting VAT

Employer Registration (PAYE)

When: When you hire your first employee

Registration	Authority
PAYE	State Internal Revenue Service
Pension	National Pension Commission (PenCom)
NHF	Federal Mortgage Bank
ITF	Industrial Training Fund
NSITF	Nigeria Social Insurance Trust Fund

Understanding Your Tax Obligations

Company Income Tax (CIT)

What: Tax on company profits

Company Size	Turnover	Rate
Small	≤ ₦25 million	0%
Medium	> ₦25M - ₦100M	20%
Large	> ₦100 million	30%

Key Points:

• Due 6 months after financial year-end
• File with NRS (Formerly FIRS)
• Audited accounts required (most companies)
• First return after 18 months (new companies)

Value Added Tax (VAT)

What: Consumption tax on goods and services

Aspect	Details
Rate	7.5%
Filing	Monthly (21st)
Who pays	End consumer
Your role	Collect and remit

VAT Basics:

• Charge 7.5% on taxable supplies
• Claim input VAT on purchases
• Remit net VAT monthly
• Keep proper records

Withholding Tax (WHT)

What: Tax deducted at source from payments

Payment Type	Rate
Contracts/supplies	5%
Professional fees	10%
Rent	10%
Interest	10%
Dividends	10%

Your Obligations:

• Deduct WHT from qualifying payments
• Remit to NRS (Formerly FIRS) by 21st
• Issue WHT certificates to payees

PAYE (Employees)

What: Tax on employee salaries

Component	Your Obligation
Calculate	Determine employee tax
Deduct	Withhold from salary
Remit	Pay to State IRS by 10th
File	Annual returns (Form H1)

PAYE Calculation:

• Apply graduated tax rates
• After consolidated relief allowance
• Monthly deduction and remittance

Pension Contributions

What: Mandatory retirement savings

Party	Minimum Rate
Employer	10% of basic + housing + transport
Employee	8% of basic + housing + transport

Requirements:

• Register with PenCom
• Choose Pension Fund Administrator
• Remit within 7 days of salary payment

Other Statutory Deductions

Deduction	Rate	Authority
NHF	2.5% of basic	Federal Mortgage Bank
ITF	1% of payroll (>5 employees)	ITF
NSITF	1% of payroll	NSITF

First-Year Tax Calendar

Month 1-6: Setup Phase

Task	Timeline
CAC registration	Month 1
TIN registration	Month 1-2
Open bank account	Month 2
VAT registration	Within 6 months
PAYE registration	When hiring
Pension registration	When hiring

Monthly Obligations (Once Operating)

Tax	Due Date
PAYE remittance	10th
VAT return	21st
WHT return	21st
Pension remittance	Within 7 days of payroll

Annual Obligations

Obligation	Deadline
CIT return	6 months after year-end
Annual PAYE returns	January 31
CAC annual returns	42 days after AGM
Audited accounts	6 months after year-end

Common New Business Scenarios

Scenario 1: Solo Consultant

You start a consulting business as a sole proprietor with ₦15 million annual revenue.

Tax	Obligation
TIN	Required
VAT	Optional (below ₦25M)
CIT	0% (small company)
PAYE	Only if you hire staff

Scenario 2: Retail Business

You open a retail shop with ₦40 million turnover and 3 employees.

Tax	Obligation
TIN	Required
VAT	Required (above ₦25M)
CIT	20% (medium company)
PAYE	Required (3 employees)
Pension	Required
WHT	On qualifying payments

Scenario 3: Tech Startup

You launch a software company with ₦120 million revenue and 15 employees.

Tax	Obligation
TIN	Required
VAT	Required
CIT	30% (large company)
PAYE	Required (15 employees)
Pension	Required
ITF	Required (>5 employees)
WHT	On qualifying payments

Record Keeping Requirements

What to Keep

Record Type	Examples
Income records	Invoices, receipts, bank credits
Expense records	Purchase invoices, receipts
Bank records	Statements, reconciliations
Payroll records	Salaries, deductions, payslips
Tax records	Returns, payments, certificates
Contracts	Customer and supplier agreements

How Long to Keep

Record	Minimum Period
Tax records	6 years
Financial records	6 years
Employee records	6 years after employment
Company records	Permanently

Organizing Records

Method	Recommendation
Digital storage	Cloud backup, organized folders
Physical files	Secure, organized by year/type
Accounting software	Transaction tracking
Document scanning	Digitize paper records

Common Mistakes to Avoid

Registration Mistakes

Mistake	Consequence
Delayed TIN registration	Bank account difficulties
Missing VAT registration	Penalties when threshold exceeded
No PAYE registration	Penalties on payroll

Filing Mistakes

Mistake	Consequence
Late returns	Penalties accumulate
Incomplete returns	Rejected, must refile
Wrong forms	Processing delays

Payment Mistakes

Mistake	Consequence
Late payment	Interest and penalties
Wrong tax head	Payment not credited
No payment reference	Reconciliation issues

Record Keeping Mistakes

Mistake	Consequence
Poor records	Audit problems
Missing invoices	Cannot claim VAT input
No employee files	PAYE issues

Tax Planning for New Businesses

Legitimate Tax Efficiency

Strategy	Benefit
Claim all allowable expenses	Reduce taxable profit
Capital allowances	Deductions for assets
Loss carry forward	Offset future profits
Small company rate	0% if under ₦25M

Timing Considerations

Decision	Tax Impact
Year-end selection	Affects filing deadlines
Asset purchases	Capital allowance timing
Expense timing	Deduction year

Structure Considerations

Choice	Tax Implication
Sole proprietor	Personal income tax
Limited company	CIT rates apply
Partnership	Partner taxation

Getting Professional Help

When to Engage Professionals

Situation	Professional
Company setup	Lawyer, accountant
Tax registration	Tax consultant
Ongoing bookkeeping	Bookkeeper, accountant
Tax returns	Tax preparer, accountant
Complex issues	Tax advisor, lawyer

What to Look For

Quality	Importance
Qualifications	ICAN, CITN membership
Experience	Nigerian tax expertise
Responsiveness	Timely communication
References	Track record

How Finora Helps New Businesses

Getting Started

Feature	Benefit
Company setup wizard	Configure your business
Nigerian chart of accounts	Pre-built for compliance
Tax registration tracking	Know what's needed

Daily Operations

Feature	How It Helps
Invoice generation	VAT-compliant invoices
Expense tracking	Capture all costs
Bank integration	Automatic reconciliation
Payment tracking	Know who owes what

Tax Compliance

Feature	Benefit
Automatic VAT calculation	On every transaction
WHT tracking	Deductions recorded
PAYE computation	Payroll taxes calculated
CIT preparation	Return data ready

Reporting

Report	Use
Financial statements	Required for CIT
VAT reports	Monthly filing
WHT schedules	Returns and certificates
PAYE summaries	Monthly and annual

Checklist for New Business Tax Compliance

Before Starting Operations

• [ ] Register business with CAC
• [ ] Obtain TIN from NRS (Formerly FIRS)/JTB
• [ ] Open corporate bank account
• [ ] Set up accounting system

Within First 6 Months

• [ ] Register for VAT (if required)
• [ ] Register for PAYE (if hiring)
• [ ] Register with pension regulator
• [ ] Set up payroll system

Ongoing (Monthly)

• [ ] Issue VAT invoices
• [ ] File VAT returns by 21st
• [ ] File WHT returns by 21st
• [ ] Remit PAYE by 10th
• [ ] Remit pension contributions
• [ ] Reconcile bank accounts

Ongoing (Annual)

• [ ] Prepare financial statements
• [ ] File CIT returns
• [ ] File annual PAYE returns
• [ ] File CAC annual returns
• [ ] Renew business permits

Frequently Asked Questions

Do I need an accountant from day one?

Not necessarily, but having professional guidance early helps avoid costly mistakes. At minimum, consult an accountant for setup advice and use accounting software.

What if I can't afford to pay all taxes?

Contact the tax authority to discuss payment arrangements. It's better to communicate than to ignore obligations, which leads to penalties.

Can I handle tax compliance myself?

For very small businesses, yes, with good software and basic training. As you grow, professional help becomes increasingly valuable.

What happens if I made mistakes in year one?

You can file amended returns and make corrections. The sooner you address issues, the lower the penalties.

Do startups get any tax breaks?

Small companies (under ₦25M turnover) pay 0% CIT. Pioneer status may be available for qualifying industries. Agricultural and certain other sectors have specific incentives.

Conclusion

Starting a business in Nigeria requires attention to tax obligations:

Registration Requirements:

• TIN immediately
• VAT within 6 months or at threshold
• PAYE when hiring
• Pension when hiring

Ongoing Obligations:

• Monthly: VAT, WHT, PAYE, pension
• Annual: CIT, PAYE returns, CAC returns

Success Factors:

• Register properly from the start
• File and pay on time
• Keep accurate records
• Seek help when needed

Finora helps new businesses build compliant foundations with automated tax calculations, deadline tracking, and organized record keeping.

---

Start your business on the right foot.

Get started for free and let Finora handle your tax compliance from day one with automated calculations and easy-to-use bookkeeping.

Start Free →