Small Company Tax: The Turnover Exemption Threshold

Which Nigerian companies qualify for 0% CIT, the turnover and asset tests, and the professional-services exclusion.

· NairaTax Tax Advisory Team · 12 min read

Introduction

In one of the most significant pro-business moves in Nigeria's recent tax history, the Nigeria Tax Act 2025 raised the small company exemption threshold from ₦25 million to ₦100 million annual turnover. This quadrupling of the threshold means hundreds of thousands of small and medium enterprises (SMEs) are now completely exempt from Company Income Tax (CIT).

For entrepreneurs, startups, and small business owners, this change is transformative—potentially saving ₦3-10 million per year in tax that can instead be reinvested in growth, hiring, or working capital.

But as with all tax rules, the devil is in the details: Who qualifies? How is turnover measured? What about group companies? What documentation is required? This comprehensive guide answers all these questions and provides actionable strategies to maximize this exemption legally.

Part 1: The Small Company Exemption—What Changed in 2025

Old Rule (Pre-2025)

Exemption Threshold: ₦25 million annual gross turnover
Inflation Impact: ₦25M in 2007 ≈ ₦150-200M today
Reality: Most "small" businesses exceeded the threshold and paid full 30% CIT

Citation: Mondaq legal analysis notes that the ₦25 million threshold had become "absurdly low" due to naira devaluation and inflation, effectively penalizing businesses that the law intended to protect.

New Rule (Effective January 1, 2025)

Exemption Threshold: ₦100 million annual gross turnover
Scope: Applies to "small companies" as defined by the Act
Benefit: Zero Company Income Tax (CIT) if you qualify
Estimated Beneficiaries: 400,000+ registered SMEs in Nigeria

What This Means:

Turnover Old Tax (30% CIT) New Tax (2025) Annual Savings
₦50M ₦15M (on ₦50M profit, assuming 100% margin for simplicity) ₦0 ₦15M
₦80M ₦24M ₦0 ₦24M
₦100M ₦30M ₦0 ₦30M
₦101M ₦30.3M ₦30.3M ₦0 (threshold exceeded)

⚠️ Important: This is a cliff exemption, not tapered. If you exceed ₦100M by even ₦1, you lose the entire exemption and pay full CIT on all profits.

Part 2: Who Qualifies? Eligibility Criteria in Detail

Definition of "Small Company"

To qualify for the ₦100M exemption, your company must meet ALL of these conditions:

1. Gross Turnover ≤ ₦100 Million

"Gross turnover" means:

What's INCLUDED in turnover:

What's EXCLUDED from turnover:

Example:

TechHub Solutions Ltd. (software dev agency):

Gross Turnover: ₦85M + ₦2M + ₦5M + ₦0.5M = ₦92.5M
✅ Qualifies (under ₦100M)

2. Incorporated as a Nigerian Company

3. Not a "Composite Company" (Associated Company Rules)

This is where it gets tricky—see Part 3 below.

4. Not Engaged in Restricted Activities

Certain industries/activities never qualify, regardless of turnover:

Excluded Sectors:

Why the exclusions? These sectors have special tax regimes or are considered inherently profitable/high-revenue even at "small" scale.

Part 3: Associated Company Rules (The Hidden Trap)

What Are Associated Companies?

Key Rule: If your company is part of a group, you must aggregate turnover across all associated companies. If the group total exceeds ₦100M, all companies in the group lose the exemption.

When Are Companies "Associated"?

Two or more companies are associated if:

  1. Common control: Same person(s) control both companies (directly or indirectly)
  2. Substantial ownership: One company owns ≥50% of another
  3. Same beneficial owners: Companies share the same ultimate beneficial owners (even if different nominal shareholders)

Example 1: Family Business Group

Mr. Ade owns:

Aggregate Turnover: ₦60M + ₦50M + ₦30M = ₦140M
❌ None of the companies qualify (group exceeds ₦100M)

Example 2: Holding Company Structure

HoldCo Ltd. owns:

Aggregate Turnover: ₦40M + ₦70M = ₦110M
❌ Both subsidiaries lose exemption

How to Prove Companies Are NOT Associated

Documentation NRS (formerly FIRS) May Request:

💡 Strategic Tip: If you're planning to split a business into multiple entities to stay under ₦100M, consult a tax lawyer first—artificial arrangements can be challenged by NRS as tax avoidance.

Part 4: How to Calculate Your Turnover (Step-by-Step)

Step 1: Determine Your Financial Year

For 2025 exemption: Use your 2024 financial year turnover (since you file CIT 6 months after year-end).

Step 2: Sum All Revenue

Include:

Exclude:

Step 3: Check for Associated Companies

Step 4: Document Everything

Keep for 6 years:

💡 Use Our Calculator: Our Company Income Tax Calculator helps you model scenarios: "If my turnover is ₦95M, how much CIT do I save vs. ₦105M?"

Part 5: Transition Issues—What If You Cross ₦100M Mid-Year?

Scenario: You Start Below, Then Exceed

Example:

QuickFix Engineering Ltd. had ₦80M turnover in 2024 (qualified for exemption). In 2025, they land a big contract and hit ₦120M turnover.

Tax Treatment:

Key Point: There's no pro-rata exemption. The exemption applies to the entire financial year if turnover ≤ ₦100M. If you exceed it, you lose it for that entire year.

Strategic Planning: Stay Under ₦100M

Legal Strategies:

  1. Defer revenue recognition: Push invoices/contracts to next financial year (must comply with accounting standards)
  2. Split operations: Create a legitimate subsidiary for new product lines (caution: associated company rules apply)
  3. Negotiate payment terms: Spread large contracts over multiple years

⚠️ Illegal Strategies (AVOID):

Penalty for Tax Avoidance: NRS can assess full CIT retroactively + 300% penalty for fraud.

Part 6: Documentation & Compliance Requirements

For Companies Claiming Exemption

Even if you owe zero CIT, you must still:

1. File Annual Tax Returns

In the return, indicate:

2. Maintain Proper Books

3. Obtain Tax Clearance Certificate (TCC)

4. Keep Evidence of Turnover

NRS May Request:

Audit Trigger: If NRS suspects underreporting (e.g., visible lifestyle not matching declared turnover), they can audit.

Part 7: What About Other Taxes? (VAT, WHT, etc.)

Important: CIT Exemption ≠ All-Tax Exemption

You still must comply with:

1. Value Added Tax (VAT)

Example:

StyleShop Ltd. has ₦90M turnover:

2. Withholding Tax (WHT)

If you're a withholding agent (e.g., you pay contractors, landlords, professionals):

Being CIT-exempt does NOT excuse you from withholding tax obligations.

3. PAYE (Pay-As-You-Earn)

If you have employees:

4. Tertiary Education Tax (TET)

Bad News: TET is calculated on "assessable profits," not turnover. Even if CIT-exempt, you may still owe TET (2% of profits for companies with >₦100M turnover—check if you're borderline).

💡 For Comprehensive Compliance: Bookmark our Tax Deadlines Calendar to track PAYE, VAT, WHT, and other monthly obligations.

Part 8: Worked Examples—Real Business Scenarios

Example 1: Sole Proprietor Incorporates

Before 2025:

Fatima runs a catering business as a sole proprietor:

After Incorporating in 2025:

Fatima registers "Fatima's Catering Ltd.":

Additional Benefit: Limited liability, easier to raise capital, professional image.

⚠️ Watch Out:

Example 2: Tech Startup Scaling Fast

CodeCraft Nigeria Ltd. (SaaS startup):

Tax Planning:

Strategic Options for 2026:

  1. Accept CIT cost as "graduation tax" (sign of success)
  2. Split product lines into subsidiaries (e.g., SaaS + consulting as separate entities—only if genuine commercial substance)
  3. Negotiate with clients to spread large contracts over multiple years

Example 3: Family Business Group Restructures

The Problem:

The Okonkwo family owns:

Solution:

Option A - Do Nothing

Option B - Genuine Restructure

⚠️ NRS Will Scrutinize: Restructures done solely to avoid tax can be challenged. Ensure:

Part 9: Common Questions & Pitfalls

Q1: Can I claim the exemption retroactively for 2024?

No. The ₦100M threshold applies to financial years beginning on or after January 1, 2025. If your 2024 financial year ended before that, the old ₦25M threshold applies.

Example:

However, if your financial year is July 1, 2024 - June 30, 2025, the new ₦100M threshold may apply (consult NRS guidance).

Q2: What if my expenses exceed revenue (I make a loss)?

If you're CIT-exempt, losses don't matter for CIT purposes (you weren't going to pay tax anyway). However:

Q3: Can I claim capital allowances if I'm exempt?

No. Capital allowances are deductions against CIT liability. If you're exempt from CIT, capital allowances are irrelevant (you're not paying tax to deduct from).

However: Keep accurate fixed asset registers—if you lose exemption in future years, you'll need this data to claim allowances.

Q4: Does the ₦100M include VAT?

No. Turnover is measured net of VAT (excluding VAT collected on behalf of NRS).

Example:

Part 10: Frequently Asked Questions (FAQs)

Who qualifies for the small company tax exemption?

Nigerian companies with annual gross turnover ≤ ₦100 million qualify for full CIT exemption, provided:

  1. They are incorporated with the CAC
  2. They are not part of a group with aggregate turnover >₦100M (associated company rules)
  3. They are not in excluded sectors (banking, insurance, telecoms, petroleum)

What about associated companies and group turnover?

If multiple companies are under common control (same owners/directors), you must aggregate their turnovers. If the group total exceeds ₦100M, all companies lose the exemption.

Example: You own Company A (₦60M) and Company B (₦50M). Aggregate = ₦110M → both companies pay full CIT.

When do I lose the exemption if I exceed ₦100M?

Immediately—for the entire financial year. The exemption is an all-or-nothing cliff:

There is no pro-rata exemption.

Do I still need to file tax returns if I'm exempt?

Yes. Even with ₦0 CIT payable, you must:

Failure to file: ₦100,000 penalty + 10% of tax due (in this case, ₦100,000 minimum).

Part 11: Action Checklist for Small Business Owners

☐ Calculate your 2024 turnover (to determine if you qualified)
☐ Project your 2025 turnover (will you stay under ₦100M?)
☐ Check for associated companies (do you own/control other businesses?)
☐ Aggregate group turnover (if applicable)
☐ Prepare documentation:

💡 Model Your Scenario: Use our Company Income Tax Calculator to see exactly how much you'll save with the ₦100M exemption.

Conclusion: A Historic Opportunity for Nigerian SMEs

The increase in the small company exemption threshold from ₦25 million to ₦100 million is a game-changer for Nigerian entrepreneurs. For qualifying businesses, it means:

However, success requires:

  1. Understanding the rules (especially associated company aggregation)
  2. Accurate recordkeeping (NRS will audit to verify turnover)
  3. Strategic planning (managing growth to maximize exemption years)
  4. Full compliance with other taxes (VAT, WHT, PAYE—exemption is CIT-only)

The Bottom Line: This exemption is Nigeria's way of saying, "We want small businesses to grow." Take advantage of it—legally, strategically, and with proper documentation.

Related Reading

Tools & Calculators

Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. The small company exemption has complex rules (especially regarding associated companies). Always consult a qualified tax advisor or accountant before making business structuring decisions.