Tax-Deductible Expenses in Nigeria: What Qualifies for CIT Relief

Understanding which expenses are tax-deductible is crucial for minimizing your Company Income Tax liability in Nigeria. Not every business expense reduces your tax—some are specifically disallowed. This guide explains what you can deduct, what you can't, and how to maximize legitimate tax savings.

The Basic Principle

General Deductibility Rule

An expense is tax-deductible if it is:

1. Wholly, exclusively, and necessarily incurred for business purposes
2. Revenue in nature (not capital)
3. Not specifically disallowed by tax law

Why This Matters

Every deductible expense reduces your taxable profit:

Scenario	Without Deduction	With Deduction
Revenue	₦100,000,000	₦100,000,000
Expenses claimed	₦50,000,000	₦60,000,000
Taxable profit	₦50,000,000	₦40,000,000
CIT @ 30%	₦15,000,000	₦12,000,000
Tax saved	—	₦3,000,000

Commonly Deductible Expenses

1. Staff Costs

Expense	Deductible?	Notes
Salaries and wages	Yes	Must be actually paid
Employer pension contribution	Yes	Within statutory limits
NHF contributions	Yes	Employer portion
NSITF contributions	Yes	Statutory
Staff training	Yes	Business-related training
Staff welfare	Yes	Reasonable amounts
Medical expenses for staff	Yes	Within policy limits
Staff transportation	Yes	Business purposes

2. Premises Costs

Expense	Deductible?	Notes
Rent	Yes	Business premises only
Utilities (electricity, water)	Yes	Business use
Property maintenance	Yes	Repairs, not improvements
Security costs	Yes	Business premises
Insurance (premises)	Yes	Business property

3. Professional Fees

Expense	Deductible?	Notes
Legal fees (operational)	Yes	Related to business operations
Accounting fees	Yes	Audit, bookkeeping
Tax advisory fees	Yes	Compliance costs
Consulting fees	Yes	Business advisory
Valuation fees	Yes	Business purposes

4. Marketing and Sales

Expense	Deductible?	Notes
Advertising	Yes	Promoting business
Marketing materials	Yes	Brochures, samples
Website costs	Yes	Development and maintenance
Trade shows	Yes	Business exhibitions
Sales commissions	Yes	Paid to agents/staff

5. Administrative Expenses

Expense	Deductible?	Notes
Office supplies	Yes	Stationery, consumables
Communication costs	Yes	Phone, internet
Postage and courier	Yes	Business correspondence
Bank charges	Yes	Account maintenance
Software subscriptions	Yes	Business software
Insurance (business)	Yes	Operational insurance

6. Travel Expenses

Expense	Deductible?	Notes
Business travel	Yes	Related to business
Accommodation (business trips)	Yes	Reasonable rates
Per diem allowances	Yes	Within policy
Transportation	Yes	Business purposes

7. Finance Costs

Expense	Deductible?	Notes
Interest on business loans	Yes	With limitations (see thin cap)
Bank charges	Yes	Transaction fees
Foreign exchange losses	Yes	Trading transactions

8. Bad Debts

Expense	Deductible?	Notes
Specific bad debts	Yes	Actually written off, efforts made to collect
Debt recovery costs	Yes	Legal and collection costs

Disallowed Expenses

1. Capital Expenditure

Capital items are not deductible as expenses:

Item	Treatment
Buildings	Capital allowance instead
Plant and machinery	Capital allowance instead
Vehicles	Capital allowance instead
Furniture	Capital allowance instead
Improvements to assets	Capital allowance instead

Key distinction:

• Repair (restoring to original condition) = Deductible
• Improvement (enhancing beyond original) = Capital

2. Depreciation

Accounting depreciation is not deductible:

• Add back depreciation in tax computation
• Claim capital allowances instead
• Different rates and rules apply

3. General Provisions

Provision	Deductible?
General provision for bad debts	No
Provision for contingencies	No
Provision for future costs	No
Specific provisions (identified)	May be allowed

4. Personal Expenses

Expenses not related to business:

• Owner's personal costs
• Non-business entertainment
• Private travel
• Personal insurance
• Family expenses

5. Fines and Penalties

Item	Deductible?
Tax penalties	No
Regulatory fines	No
Traffic fines	No
Court-imposed penalties	No

6. Donations (Non-Approved)

Donation	Deductible?
To approved charities/funds	Yes (with limits)
Political donations	No
General charitable giving	Limited/No
Personal donations through company	No

7. Entertainment

Entertainment	Deductible?
Client entertainment	Limited/No
Staff parties	Limited
General entertainment	No

Note: Entertainment deductions are highly restricted in Nigeria.

8. Income Tax

Tax	Deductible?
Company Income Tax	No
Tertiary Education Tax	No
Capital Gains Tax	No

9. Illegal Payments

Payment	Deductible?
Bribes	No
Kickbacks	No
Illegal commissions	No

Special Deduction Categories

Research and Development

R&D expenses may qualify for enhanced deduction:

• Regular R&D costs: Deductible
• Some R&D may qualify for additional relief
• Documentation requirements apply

Approved Donations

Donations to specific approved bodies:

• Maximum 10% of assessable profit
• Must be to government-approved organizations
• Receipts required

Employee Benefits

Certain benefits are deductible:

• Pension contributions (up to limits)
• Group life insurance
• Medical schemes
• Housing allowances

Interest Deductions (Thin Capitalization)

Interest deduction may be limited:

• Debt-to-equity ratio rules
• Related party interest restrictions
• Transfer pricing considerations

Determining Deductibility: A Checklist

For each expense, ask:

✓ Business Purpose Test

• Is it for business, not personal use?
• Would a reasonable business incur this?
• Is there a commercial rationale?

✓ Wholly and Exclusively Test

• Is 100% of the expense for business?
• If mixed, can business portion be identified?

✓ Revenue vs Capital Test

• Does it maintain existing operations (revenue)?
• Or create/enhance long-term assets (capital)?

✓ Statutory Prohibition Test

• Is this expense type specifically disallowed?
• Are there caps or limits that apply?

✓ Documentation Test

• Do you have invoices/receipts?
• Can you prove the expense was incurred?

Tax Computation Adjustments

The Adjustment Process

Start with accounting profit, then adjust:

Accounting Profit Before Tax          ₦50,000,000
Add: Depreciation                     ₦10,000,000 Add: General provisions                ₦2,000,000 Add: Donations (non-approved)            ₦500,000 Add: Entertainment                       ₦300,000 Add: Penalties                           ₦100,000
----------- Subtotal                              ₦62,900,000 Less: Capital allowances             (₦12,000,000) Less: Approved donations                (₦500,000)
----------- Taxable Profit                        ₦50,400,000

Common Add-Backs

Item	Amount Added Back
Depreciation	Full amount
General provisions	Full amount
Disallowed entertainment	Excess over limit
Non-approved donations	Full amount
Personal expenses	Full amount
Capital items expensed	Full amount

Common Deductions

Item	Amount Deducted
Capital allowances	Calculated amount
Approved donations	Up to 10% limit
Prior year losses	Up to 50% relief

Industry-Specific Considerations

Manufacturing

• Raw material costs: Deductible
• Factory maintenance: Deductible
• Quality testing: Deductible
• R&D for products: Enhanced deduction possible

Services

• Professional liability insurance: Deductible
• Training and certification: Deductible
• Client entertainment: Limited
• Professional memberships: Deductible

Retail

• Cost of goods sold: Deductible
• Inventory shrinkage: Deductible (with limits)
• Shop fitting repairs: Deductible
• Shop fitting initial: Capital

Technology

• Software development (for sale): Cost of sales
• Internal software: May be capital
• Cloud services: Deductible
• Hardware: Capital (claim allowances)

How Finora Manages Expense Deductibility

Automatic Classification

When you record expenses in Finora:

• Automatic categorization by type
• Flagging of non-deductible items
• Proper tax treatment applied

Expense Categories

Pre-configured categories ensure:

• Staff costs tagged correctly
• Capital vs revenue distinguished
• Disallowed items flagged

Tax Computation Support

At year-end:

• Automatic add-backs calculated
• Capital allowances computed
• Taxable profit determined

Audit Trail

Complete documentation:

• Receipt/invoice attachment
• Approval workflows
• Deductibility justification

Frequently Asked Questions

Can I deduct car expenses?

The car itself is capital (claim allowances). Running costs (fuel, maintenance) for business use are deductible.

What about home office expenses?

If working from home for business, you may apportion certain costs (rent, utilities) based on business use percentage.

Are regulatory costs deductible?

Legitimate regulatory compliance costs (licenses, permits, professional registrations) are generally deductible.

What if an expense is partly personal?

Only the business portion is deductible. You must have a reasonable basis for apportionment.

How strict is NRS on entertainment?

Very strict. Keep entertainment claims minimal and well-documented. Excessive claims attract scrutiny.

Conclusion

Maximizing deductible expenses is key to managing your CIT liability. Remember:

Deductible: Staff costs, premises, professional fees, business travel, marketing Not Deductible: Depreciation, personal expenses, penalties, most entertainment, capital items

The key is maintaining proper documentation and understanding the distinction between revenue and capital expenses.

Finora automates expense classification, ensuring every deductible expense is captured while flagging items that need special treatment.

---

Want to maximize your tax deductions?

Get started for free and let Finora automatically classify expenses, flag non-deductible items, and optimize your CIT computation.

Try Finora Free →