Assessment of Companies Income Tax in Nigeria: What Every Business Owner Must Know Biznalytiq

If you own or manage a company in Nigeria, understanding how companies income tax is assessed is not optional. It affects your cash flow, compliance status, audit risk, and long-term business survival.

Many businesses don’t fail because they can’t make money—they fail because they misunderstand tax obligations. This guide explains the assessment of companies income tax in Nigeria in plain language, with practical insights, legal backing, and real business examples.

Table of Contents

What Is the Assessment of Companies Income Tax?

The assessment of companies income tax (CIT) is the process by which the Federal Inland Revenue Service (FIRS) determines how much tax a company must pay based on its chargeable profits for a specific year.

In simple terms, assessment answers three questions:

How much profit did the company make?
How much of that profit is taxable?
How much tax must be paid to the government?

Once an assessment is issued, it becomes legally binding unless the company objects within the allowed period.

Legal Basis for Companies Income Tax Assessment in Nigeria

The assessment of companies income tax is governed by:

Companies Income Tax Act (CITA), Cap C21 LFN
Finance Acts (2019–2024)
FIRS Establishment Act
FIRS guidelines and circulars

These laws give FIRS the power to:

Request company tax returns
Review and audit financial records
Raise tax assessments
Impose penalties and interest

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Which Companies Are Required to Pay Companies Income Tax?

Companies Liable to CIT

Private limited liability companies (Ltd)
Public limited companies (Plc)
Foreign companies earning income from Nigeria
NGOs and associations (on non-exempt income)

Companies Not Covered

Sole proprietorships
Partnerships

These are taxed under Personal Income Tax, not companies income tax.

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Companies Income Tax Rates in Nigeria

Nigeria operates a tiered tax system based on annual turnover:

Company Category	Annual Turnover	CIT Rate
Small company	₦25 million or less	0%
Medium company	₦25m – ₦100m	20%
Large company	Above ₦100m	30%

This structure is designed to protect small businesses while ensuring large companies contribute fairly.

What Is Chargeable Profit?

Companies income tax is not charged on revenue. It is charged on chargeable profit.

How Chargeable Profit Is Calculated

Total Revenue

– Allowable Business Expenses

= Profit Before Tax

– Capital Allowances

= Chargeable Profit

Common Allowable Expenses

Cost of goods sold
Staff salaries and wages
Rent and utilities
Interest on business loans
Professional fees

Common Non-Allowable Expenses

Personal expenses
Fines and penalties
Capital expenditure (handled via capital allowance)

Types of Companies Income Tax Assessment

Understanding assessment types helps you know what to expect from FIRS.

1. Self-Assessment (Most Common)

Under self-assessment:

The company computes its own tax
Files annual returns
Pays tax due voluntarily

FIRS may later review or audit the return.

2. Best of Judgment (BOJ) Assessment

A BOJ assessment occurs when a company:

Fails to file returns
Submits incomplete or misleading information
Refuses to cooperate during audits

FIRS estimates income using available data.
BOJ assessments are usually higher than actual tax liability.

3. Additional Assessment

Issued when FIRS discovers:

Under-declared income
Disallowed expenses
Errors during audit

This increases the original tax payable.

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4. Revised Assessment

Issued after:

A successful objection
Correction of calculation errors
New supporting documents

Step-by-Step Process of Companies Income Tax Assessment

Step 1: Tax Registration

Every company must register with FIRS and obtain a Tax Identification Number (TIN).

Step 2: Filing Annual Tax Returns

Companies must file:

Audited financial statements
Tax computation
Capital allowance schedule
Evidence of tax payment

Deadline:

6 months after financial year-end, or
18 months after incorporation (whichever is earlier)

Even companies with zero tax payable must file nil returns.

Step 3: FIRS Review and Audit

FIRS may:

Accept the return
Conduct a desk review
Carry out a full tax audit

Audits often lead to additional assessments if issues are found.

Step 4: Issuance of Notice of Assessment

FIRS issues a notice stating:

Tax payable
Basis of computation
Payment deadline

Failure to respond triggers enforcement.

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Real Business Example 1: SME Self-Assessment

Company: TechNova Ltd (Lagos)
Turnover: ₦90 million
Chargeable Profit: ₦25 million

Since it is a medium-sized company, the tax rate is 20%.

Tax payable:
₦25,000,000 × 20% = ₦5,000,000

The company filed early and avoided penalties.

Lesson: Proper classification and early filing reduce risk.

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Real Business Example 2: Best of Judgment Assessment

Company: FashionHub Nigeria Ltd
Turnover: ₦350 million
Issue: Failed to file returns for 2 years

FIRS issued a BOJ assessment of ₦42 million.

After objection and submission of records:

Tax reduced to ₦19 million

Lesson: Non-filing almost always leads to higher tax exposure.

Objection to Companies Income Tax Assessment

Companies have the right to object.

Conditions for a Valid Objection

Must be filed within 30 days
Must be in writing
Must state clear grounds
Must include supporting documents

Unresolved disputes go to the Tax Appeal Tribunal (TAT).

Penalties and Interest

Failure to comply may result in:

Late filing penalties
Interest on unpaid tax
Additional assessments
Enforcement actions (bank account freeze)