Introduction
Operating a business in Nigeria entails more than the delivery of quality goods or services; it also demands strict adherence to applicable tax laws and regulations. For many entrepreneurs and business owners, taxation can seem like a maze of paperwork, platforms, and penalties. Nonetheless, tax compliance remains a critical aspect of lawful and sustainable business operations. Non-compliance can result in significant consequences, including financial penalties, exclusion from government contracts, denial of regulatory approvals or licenses, reputational damage, and, in extreme cases, legal action or the closure of business premises. This guide provides a comprehensive tax compliance checklist designed to assist businesses in meeting their tax obligations, thereby safeguarding their operations and enhancing their prospects for long-term success.
The Tax Compliance Checklist
Below is a comprehensive checklist of key tax compliance requirements for businesses operating in Nigeria:
- Business Registration and Tax Identity
Before a business can fulfill any tax obligation, it must be legally recognized and properly registered. First, the business must be registered with the Corporate Affairs Commission,1 and in case of foreign presence, an additional registration with the Nigerian Investment Promotion Commission.2
Registration with the relevant tax authority is also sacrosanct. For Companies, registration is done with the Federal Inland Revenue Service (FIRS) while individuals may register with the State Internal Revenue Service (SIRS) where they reside or business operates, example, Lagos residents must register with the Lagos Internal Revenue Service (LIRS).
Obtaining a Tax Identification Number (TIN) is also very important for tax identity. The TIN is issued by the Joint Tax Board (JTB) and is mandatory for all businesses and individuals engaged in economic activities. Application is done through https://jtb.gov.ng/apply-for-tin/
- Know The Taxes Your Business is Required to Pay
Understanding the types of taxes applicable to your business is fundamental to staying compliant. The nature, size, and sector of your business will determine your specific tax obligations. Below is a breakdown of key federal taxes and state taxes administered by the Federal Inland Revenue Service (FIRS) and State Internal Revenue Service of each state that most Nigerian businesses may be subject to:
- Companies Income Tax (CIT)
All companies operating in Nigeria whether public or private, including partnerships and sole proprietorships are required to file annual tax returns and pay tax on their worldwide income, after deducting allowable expenses and capital allowances. This tax is calculated on the company's chargeable profits in accordance with the Companies Income Tax Act (CITA).
- Petroleum Profits Tax (PPT)
Businesses engaged in upstream petroleum operations, such as oil exploration and extraction, are required to pay tax on profits earned from those activities. This tax is specific to companies involved in petroleum operations and is governed by the Petroleum Profits Tax Act.
- Value Added Tax (VAT)
Businesses that are registered for VAT are expected to charge VAT on all taxable goods and services supplied. The VAT collected must be remitted to the FIRS on a monthly basis, alongside a VAT return that details the input and output tax.
- Pay-As-You-Earn (PAYE) Tax
Employers are responsible for deducting personal income tax from their employees' salaries and wages. These deductions must be filed and remitted monthly to the appropriate State Internal Revenue Service under the PAYE scheme. This ensures employees' income tax obligations are met on time.
- Capital Gains Tax (CGT)
When a business disposes of chargeable assets, such as land, buildings, or shares, it is liable to pay tax on any capital gains derived from such disposals. The rate and process are governed by the Capital Gains Tax Act.
- Tertiary Education Tax (EDT)
Every Nigerian-incorporated company is required to contribute 2% of its assessable profits towards the Tertiary Education Trust Fund (TETFund). This tax is used to support the development of educational institutions across the country.
- Stamp Duties
Stamp duties apply to specific legal instruments and business transactions—such as property leases, share transfers, and loan agreements. The duty payable depends on the nature and value of the transaction, and it must be paid to the relevant tax authority (FIRS for corporate entities or SIRS for individuals).
- Personal Income Tax
This is tax payable on employment income (salaries, wages, allowances, benefits), Business/professional income (self-employment, trades, professions), investment income (interests, dividends, rentals), capital gains from sale of assets and other income sources like royalties, winnings etc.3
- Maintaining Accurate Records and Documentation
Ensuring meticulous financial record-keeping is paramount for Nigerian businesses aiming for tax compliance and operational efficiency. Best practices can be upheld in the following ways:
- Maintain Comprehensive Financial Records: Document all financial transactions, including revenues, expenses, payroll, assets, and liabilities. This practice not only facilitates accurate tax filings but also aids in effective financial planning and auditing processes.
- Issue VAT-Compliant Invoices: When issuing invoices, ensure they contain all mandatory details such as your Tax Identification Number (TIN), VAT amount, invoice date, and a clear description of goods or services provided. Adhering to these standards is crucial for transparency and compliance with Nigerian tax regulations.4
- Preserve All Tax Payment Evidence: Retain receipts, bank statements, and any other documentation that substantiates tax payments. These records are essential during audits or when applying for a Tax Clearance Certificate (TCC).
- Retain Records for the Statutory Period: Financial records should be retained for at least six years, as this duration aligns with the statutory requirements for record retention in Nigeria.5
- File and Remit Taxes on Time
Adhering to tax filing and payment deadlines is crucial for businesses operating in Nigeria. Failure to meet these deadlines can result in penalties, interest charges, and potential legal consequences. Understanding the specific timelines for each tax type ensures compliance and fosters a positive relationship with tax authorities.
- Companies Income Tax
The standard rate for CIT is 30% of taxable profits for large companies (above ₦100 million in annual turnover), 20% for medium-sized companies (between ₦25 million and ₦100 million), and 0% for small companies (less than ₦25 million turnover) as defined in the Finance Act 2020.6
CIT returns are filed annually, and payment is due six months after the end of the financial year. For example, if your accounting year ends on December 31st, your CIT filing and payment must be completed by June 30th of the following year. Filing is done via the FIRS TaxPromax Portal.7
- Education Tax (EDT)
Under the Tertiary Education Trust Fund (Establishment) Act, companies incorporated in Nigeria are obligated to pay Education Tax at a flat rate of 2.5% of their assessable profits. This tax supports public tertiary education institutions in the country.
The Education Tax is filed annually and submitted alongside the Companies Income Tax returns, using the same deadline
- Personal Income Tax (PIT) / Pay-As-You-Earn (PAYE)
Personal Income Tax is payable by individuals and employees, and it is administered by the State Internal Revenue Services (SIRS). For employees, employers are required to deduct the tax at source under the PAYE system and remit it on behalf of their employees.
The tax is calculated using a progressive rate from 7% to 24%, depending on the individual's annual income bracket, as specified under the Personal Income Tax Act (PITA) Cap P8 LFN 2011 (as amended).8
Employers must remit PAYE monthly, no later than the 10th day of the month following the month in which salaries are paid. Lagos-based businesses can remit via the LIRS e-Tax platform.9
- Value Added Tax (VAT)
VAT is a consumption tax charged at 7.5% on the supply of taxable goods and services in Nigeria, under the Value Added Tax Act, Cap V1 LFN 2007 (as amended). Businesses are expected to charge VAT on invoices, collect the tax from customers, and remit it to the FIRS.
VAT must be filed monthly, and remittance is due by the 21st day of the month following the transaction. For example, VAT collected in May should be remitted by June 21st. Filing is done through TaxPro Max.10
- Capital Gains Tax (CGT)
Capital Gains Tax is charged at 10% on profits made from the disposal of chargeable assets, such as land, buildings, and shares, under the Capital Gains Tax Act Cap C1 LFN 2004. Companies and individuals must report and pay CGT when such disposals occur.
CGT is filed as part of the annual tax return, and payment is due when the transaction is concluded or during the annual tax cycle.
- Stamp Duties
Stamp Duty is levied on certain dutiable instruments (documents) such as agreements, leases, share transfers, and property transactions. The rates vary depending on the transaction type:
- Fixed stamp duty: ₦50 per document (e.g., receipts).
- Ad valorem stamp duty: 1% to 2% of the transaction value (e.g., leases, share transfers).
Stamp duties are collected by FIRS (for corporate bodies) and by State IRS (for individuals and unincorporated entities). Filing and remittance occur upon execution of the relevant instrument.
- Apply for A Tax Clearance Certificate
A Tax Clearance Certificate (TCC) is more than just proof of tax compliance. It is a powerful tool for unlocking numerous personal, corporate, and governmental opportunities in Nigeria. Whether you are an individual, a business owner, or a corporate entity, possessing a TCC can offer both legal protection and a competitive advantage.
An application is addressed to the Tax Officers in charge of your local FIRS or SIRS office. Companies can apply via the FIRS TaxPro Max portal via https://taxpromax.firs.gov.ng/. For Lagos residents, can use the LIRS eTCC platform https://etcc.lirs.net.
- Conduct Regular Tax Reviews
Routine tax reviews are a proactive approach to ensuring ongoing compliance with Nigeria's tax laws. By periodically evaluating your tax status, you can detect discrepancies early, correct filing errors, and avoid unnecessary penalties.
Businesses should regularly assess the accuracy and completeness of their financial records. This includes ensuring that all accounting books are current, with income, expenses, payroll, and tax deductions properly recorded. Additionally, it is essential to confirm that all statutory tax filing have been submitted on time using the appropriate platforms.
Timely payment of tax liabilities is equally important. Late remittances often attract interest charges and penalties, which can strain a business's finances.
- Work with Professionals
Navigating the complexities of tax law in Nigeria requires more than just a basic understanding of tax obligations as it demands specialized expertise. Partnering with a licensed tax consultant or experienced tax law firm is a critical step in ensuring full compliance with tax regulations and avoiding costly mistakes.
Conclusion
In conclusion, tax compliance is a critical aspect of operating a successful business in Nigeria. Ensuring that your business adheres to the various tax obligations not only protects your company from severe penalties, fines, and reputational damage, but also strengthens its credibility and sustainability in the long run.
By following the tax compliance checklist outlined in this guide, businesses can confidently navigate Nigeria's complex tax landscape. Whether it is registering with the appropriate authorities, understanding the taxes that apply to your specific business, maintaining accurate records, or filing taxes on time, every step you take toward compliance contributes to your company's success and growth.
Footnotes
1 Section 8 of the Companies and Allied Matters Act CAMA), 2020. See also, section 863 of CAMA, 2020.
2 Section 20 of the Nigerian Investment Promotion Commission Act, 2004.
3 https://www.firs.gov.ng/individual-income-tax accessed April 14, 2025.
4 https://spaceinvoices.com/countries/nigeria accessed April 14, 2025.
5 Section 375(2) of the Companies and Allied Matters Act, 2020.
6 Section 25 of the Finance Act, 2020.
7 https://taxpromax.firs.gov.ng/ accessed April 14, 2025.
8 Section 37 of the Personal Income Tax Act; Sixth Schedule of the Personal Income Tax Act
9 https://etax.lirs.net/ accessed April 14, 2025.
10 https://taxpromax.firs.gov.ng/ accessed April 14, 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
