Company tax computation in Nigeria is not as simple as applying a tax rate to profit. Many Nigerian businesses still make this mistake, and it often leads to overpayment, penalties, or disputes with the Federal Inland Revenue Service (FIRS).
In reality, company tax is calculated using specific tax rules, not normal accounting rules. This means the profit shown in your financial statements is only the starting point—not the final figure used for tax.
This guide explains company tax computation in Nigeria step by step, using:
- clear language
- Nigerian tax laws
- real business examples
- practical compliance insight
Whether you run a startup, SME, or large company, this guide will help you understand how your company tax is calculated and how to avoid costly mistakes.
Company tax computation in Nigeria is the process of calculating company income tax payable after adjusting accounting profit to comply with the Companies Income Tax Act (CITA).
What Company Tax Computation Means Under Nigerian Tax Law
Company tax computation is the process of determining how much Company Income Tax (CIT) a company must pay based on its taxable profit for a financial year.
In Nigeria, this process is governed mainly by:
- the Companies Income Tax Act (CITA)
- annual Finance Acts
- FIRS guidelines and circulars
Importantly, taxable profit is not the same as accounting profit. Several adjustments must be made before tax is calculated.
Source: Federal Inland Revenue Service (FIRS), Companies Income Tax Act (CITA)
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Companies Required to Compute and Pay Company Income Tax
The following entities must compute and pay company income tax in Nigeria:
- Limited liability companies (Ltd)
- Public companies (Plc)
- Foreign companies with taxable presence in Nigeria
- Companies registered under Nigerian law
Sole proprietors and partnerships do not pay company income tax. They are taxed under personal income tax.
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Current Company Income Tax Rates in Nigeria (2026)
Nigeria uses a tiered tax system based on annual turnover:
| Company Category | Annual Turnover | Tax Rate |
|---|---|---|
| Small company | ₦25 million or less | 0% |
| Medium company | ₦25m – ₦100m | 20% |
| Large company | Above ₦100m | 30% |
This structure was introduced to support SMEs and encourage business growth.
Source: Finance Act 2019–2024, PwC Nigeria Tax Summary
Accounting Profit vs Taxable Profit (Very Important)
This is where many Nigerian businesses go wrong.
Accounting Profit
This is the profit shown in your financial statements:
Revenue – Expenses
It follows accounting standards (IFRS).
Taxable Profit
This is the profit used for tax purposes.
It follows tax law, not accounting rules.
To move from accounting profit to taxable profit, you must:
- add back disallowed expenses
- remove non-taxable income
- replace depreciation with capital allowances
Step-by-Step Company Tax Computation in Nigeria
Step 1: Start With Accounting Profit
Take the profit before tax from your audited accounts.
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Step 2: Add Back Disallowed Expenses
Some expenses reduce accounting profit but are not allowed for tax purposes.
Common examples include:
- depreciation
- fines and penalties
- provisions for doubtful debts
- personal or non-business expenses
These must be added back.
Source: CITA, PwC Nigeria Tax Summary
Step 3: Deduct Allowable Business Expenses
Expenses are deductible only if they are:
- wholly
- exclusively
- necessarily incurred for business
Examples:
- staff salaries
- rent and utilities
- repairs and maintenance
- advertising and marketing
Step 4: Remove Non-Taxable Income
Certain income is exempt from company tax, such as:
- franked investment income
- some government securities
These should be deducted from profit.
Step 5: Compute Adjusted Profit
Adjusted Profit = Accounting Profit + Disallowed Expenses – Non-Taxable Income
Step 6: Apply Capital Allowances (Not Depreciation)
In Nigeria, depreciation is not tax-deductible.
Instead, companies claim capital allowances on qualifying assets such as:
- plant and machinery
- motor vehicles
- office equipment
Capital allowances are granted at statutory rates and may be restricted to two-thirds of adjusted profit, except for manufacturing and agricultural companies.
Source: Companies Income Tax Act, PwC Nigeria
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Step 7: Arrive at Taxable Profit
Taxable Profit = Adjusted Profit – Capital Allowances
This is the figure used to calculate company tax.
Step 8: Apply the Applicable Tax Rate
Apply the rate based on your company’s turnover:
- 0%, 20%, or 30%
Step 9: Deduct Withholding Tax Credits
Withholding tax already deducted from your income can be used as a credit against your company tax liability.
Physical Example 1: Medium-Sized Nigerian Company
Lagos Retail Solutions Ltd
- Turnover: ₦80,000,000
- Accounting profit: ₦18,000,000
- Disallowed expenses: ₦2,000,000
- Non-taxable income: ₦1,000,000
- Capital allowance: ₦4,000,000
Computation:
Adjusted profit
= ₦18,000,000 + ₦2,000,000 – ₦1,000,000
= ₦19,000,000
Taxable profit
= ₦19,000,000 – ₦4,000,000
= ₦15,000,000
Company tax (20%)
= ₦3,000,000
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Physical Example 2: Large Nigerian Manufacturing Company
Delta Foods Plc
- Turnover: ₦250,000,000
- Accounting profit: ₦50,000,000
- Disallowed expenses: ₦4,000,000
- Capital allowance: ₦10,000,000
Taxable profit
= ₦44,000,000
Company tax (30%)
= ₦13,200,000
Common Company Tax Computation Mistakes in Nigeria
- using accounting profit directly
- ignoring capital allowance limits
- claiming disallowed expenses
- wrong turnover classification
- poor record keeping
These mistakes often lead to FIRS penalties.
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Best Practices for Accurate Company Tax Computation
- keep clean financial records
- separate business and personal expenses
- review Finance Act updates yearly
- reconcile withholding tax regularly
- engage qualified tax professionals
In conclusion, company tax computation in Nigeria is not guesswork. Once you understand the steps, the process becomes predictable and manageable. The key is knowing what to add back, what to deduct, and which rate applies.
Frequently Asked Questions (FAQs)
Is depreciation allowed for tax purposes in Nigeria?
No. Depreciation is replaced with capital allowances.
Do small companies pay company income tax?
No. Companies with turnover of ₦25 million or less are exempt.
What law governs company tax computation?
The Companies Income Tax Act (CITA), as amended by Finance Acts.
Sources (Authoritative)
- Federal Inland Revenue Service (FIRS)
- Companies Income Tax Act (CITA)
- Finance Act (2019–2024)
- PwC Nigeria – Corporate Tax Summary
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