A clear breakdown of CIT exemptions, reliefs, and how proper record-keeping reduces your tax liability.
What is CIT and who pays it
Corporate Income Tax (CIT) is a tax on the profits of companies registered in Nigeria. Under the Companies Income Tax Act (CITA), companies with a turnover above N100 million pay CIT at 30% of taxable profit. Medium-sized companies with turnover between N25 million and N100 million pay at 20%. Small companies with turnover below N25 million are exempt from CIT entirely.
How taxable profit is calculated
Taxable profit is not the same as accounting profit. You start with your accounting profit and make adjustments. Some expenses that are deductible for accounting purposes are not deductible for tax. Capital expenditure is not deductible directly but may attract capital allowances. Some income may be exempt. The resulting number, after these adjustments, is your taxable profit.
Capital allowances
Instead of deducting the full cost of an asset in the year of purchase, Nigerian tax law allows you to claim capital allowances, which spread the deduction over the useful life of the asset. The initial allowance is typically 50% in year one for most assets, with annual allowances applied to the remaining balance. Keeping detailed records of all capital assets is essential for claiming these allowances.
Legitimate deductions that reduce your tax
Expenses that are wholly, exclusively, and necessarily incurred in generating business income are deductible. This includes salaries, rent, professional fees, repairs and maintenance, insurance, interest on business loans, bad debts written off, and depreciation (subject to capital allowance rules). Expenses that are personal, capital in nature, or not connected to income generation are not deductible.
Filing your CIT return
CIT returns must be filed with FIRS six months after your company's financial year-end. If your year-end is 31 December, your return is due by 30 June. You must submit audited financial statements, the tax computation, and payment for any tax due. Penalties for late filing are significant: 10% of the tax due in the first instance, plus additional interest.
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