Name: Finora
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Author: Finora

Nigeria offers significant tax relief for small businesses through the small company exemption. Companies with annual turnover below ₦25 million pay 0% Company Income Tax. This guide explains how to qualify, maintain eligibility, and maximize this benefit.

What is Small Company Tax Relief?

The Exemption

Small companies in Nigeria enjoy:

0% Company Income Tax (CIT) on profits
Exemption from minimum tax (0.5% of turnover)
Simplified compliance requirements

Legal Basis

Introduced through the Finance Act amendments to the Companies Income Tax Act (CITA), this relief aims to:

Support small business growth
Reduce compliance burden on SMEs
Encourage formal business registration

Qualifying as a Small Company

The ₦25 Million Threshold

Your company qualifies as "small" if:

Gross Turnover < ₦25 million per annum

Turnover	Classification	CIT Rate
₦24,999,999 or below	Small	0%
₦25,000,000	Medium	20%
₦25,000,001 or above	Medium/Large	20%/30%

What Counts as Turnover?

Turnover includes all revenue from business activities:

Sales of goods
Service revenue
Commission income
Rental income (if core business)
Interest income (if core business)
Other operating revenue

What Doesn't Count?

Generally excluded from turnover:

Capital gains (separate tax)
One-off asset disposals (not trading)
Investment income (for non-financial companies)

Determination Period

Classification is based on each financial year's turnover:

Year 1 turnover: ₦20M → Small company (0% CIT)
Year 2 turnover: ₦30M → Medium company (20% CIT)
Year 3 turnover: ₦22M → Small company (0% CIT)

Status can change year to year.

Benefits of Small Company Status

1. Zero CIT Rate

The most significant benefit:

Scenario	Profit	CIT @ 0%
Profitable small company	₦5,000,000	₦0
Another small company	₦10,000,000	₦0
Break-even small company	₦0	₦0

Compare to a large company with ₦5M profit: ₦1,500,000 CIT (30%).

2. Minimum Tax Exemption

Large and medium companies pay minimum tax even with losses:

Minimum tax = 0.5% of turnover
Small companies are fully exempt

Example:

Company	Turnover	Loss	Minimum Tax
Small	₦20M	(₦2M)	₦0
Medium	₦50M	(₦2M)	₦250,000
Large	₦200M	(₦10M)	₦1,000,000

3. Cash Flow Advantage

No CIT payments means:

More cash retained in business
Funds available for growth
Reduced compliance costs

4. Simplified Compliance

While filing is still required:

Less complex computations
No CIT payment processing
Reduced audit risk

Maintaining Small Company Status

Monitoring Your Turnover

Track your revenue throughout the year:

Month	Monthly Revenue	YTD Revenue	Status
January	₦2,000,000	₦2,000,000	Small
February	₦1,800,000	₦3,800,000	Small
...	...	...	...
October	₦2,500,000	₦22,500,000	Small
November	₦1,500,000	₦24,000,000	Small
December	₦1,500,000	₦25,500,000	Medium!

Crossing the threshold at any point affects your status.

Legitimate vs Manipulation

Legitimate planning:

Natural business cycles
Timing of contract completions
Seasonal variations

Red flags (avoid):

Artificial revenue deferral
Invoice manipulation
Revenue splitting between related parties

NRS (Formerly FIRS) can look through arrangements designed to artificially maintain small status.

Other Taxes Still Apply

Tertiary Education Tax (TET)

Small companies still pay TET:

Rate: 2.5% of assessable profit
No exemption for small companies

Example:

Item	Amount
Assessable profit	₦5,000,000
CIT @ 0%	₦0
TET @ 2.5%	₦125,000
Total tax	₦125,000

VAT Obligations

If turnover exceeds ₦25M for VAT purposes:

VAT registration required
VAT compliance separate from CIT

Note: VAT threshold and CIT threshold are the same (₦25M) but assessed independently.

Withholding Tax

Small companies must still:

Deduct WHT from qualifying payments
File monthly WHT returns
Remit WHT to NRS

PAYE

Employee taxes still apply:

Deduct PAYE from salaries
Remit monthly
File annual returns

Filing Requirements

Annual Return Filing

Even with 0% CIT, small companies must:

File annual CIT returns
Declare turnover and profits
Confirm small company status

Filing Deadline

Same as other companies:

Within 6 months of year-end
December year-end → June 30 filing

Required Documents

Company Income Tax return form
Audited financial statements (if required)
Tax computation schedule
Schedule of related party transactions (if any)

Consequences of Non-Filing

Failure to file attracts:

Penalties for non-filing
Potential loss of exemption benefits
Audit scrutiny

Transitioning Between Categories

Growing Beyond ₦25 Million

When your business grows:

Year of Transition:

Month	Revenue	Running Total
Jan-Nov	₦23,000,000	₦23,000,000
December	₦3,000,000	₦26,000,000
Status	Medium

The entire year is taxed at the medium company rate (20%).

Planning for Growth

As you approach the threshold:

Project full-year revenue accurately
Understand tax impact of crossing
Budget for CIT if medium status likely

Falling Back Below Threshold

If turnover decreases:

Year	Turnover	Status
2023	₦30M	Medium
2024	₦22M	Small

You regain small company benefits in the lower-turnover year.

Common Questions and Scenarios

Scenario 1: New Company

A company starts operations mid-year:

First year turnover: ₦15M (9 months)
Annualized: ₦20M
Status: Small (use actual, not annualized)

Scenario 2: Investment Income

A trading company has:

Trading revenue: ₦20M
Interest on deposits: ₦3M
Total turnover: ₦23M
Status: Small (total still under ₦25M)

Scenario 3: Multiple Revenue Streams

A company has:

Product sales: ₦15M
Service revenue: ₦8M
Rental income: ₦3M
Total: ₦26M
Status: Medium (total exceeds ₦25M)

Scenario 4: Group Companies

Two related companies:

Company A turnover: ₦20M
Company B turnover: ₦20M
Each is Small (assessed separately)

But: Revenue splitting to stay under threshold may be challenged.

Record Keeping

Essential Records

Maintain clear documentation:

Monthly revenue records
Source breakdown of income
Bank statements supporting revenue
Customer records

Audit Preparation

Be ready to demonstrate:

Turnover calculation methodology
No artificial suppression
Legitimate business operations

How Finora Supports Small Companies

Turnover Tracking

Finora monitors your revenue:

Real-time turnover tracking
Threshold alerts
Projected status updates

Simplified CIT Compliance

For small companies:

Automatic 0% CIT calculation
Filing reminder even for nil returns
TET calculation included

Growth Planning

As you approach threshold:

Projection of full-year status
Tax impact if you cross
Planning recommendations

Easy Filing

Generate required documents:

CIT return data
Financial statement integration
Electronic filing support

Frequently Asked Questions

Do I need to apply for small company status?

No. Status is automatic based on your annual turnover. You claim it in your return by reporting turnover below ₦25M.

What if my turnover is exactly ₦25 million?

₦25 million is the threshold for medium companies. You would be classified as medium (20% rate). Small is below ₦25M.

Can a subsidiary be a small company?

Yes, if its individual turnover is below ₦25M. Subsidiary status doesn't automatically disqualify you, but substance matters.

Does the exemption apply to foreign-owned companies?

Yes. Ownership doesn't affect small company classification—only turnover matters.

What about professional service companies?

Professional firms (legal, accounting, consulting) qualify if turnover is below ₦25M, regardless of industry.

Conclusion

The small company exemption is a significant benefit for Nigerian SMEs:

0% CIT on all profits
Exempt from minimum tax
Simplified compliance

To benefit, you must:

Keep turnover below ₦25 million
File annual returns (even with nil tax)
Comply with other taxes (TET, VAT, WHT, PAYE)
Maintain proper records

Finora helps you track your turnover, project your status, and stay compliant—whether you're firmly in small company territory or approaching the threshold.

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