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What is Small Company Relief under the Nigeria Tax Act 2025?
- The Key Provisions of Small Company Relief
- Why Professional Services May Not Qualify
- The Companies Income Tax Advantage
- The difference between “small company” and “small business”
- Common mistakes businesses make
- Does small company relief apply automatically?
- Interaction with Development Levy
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Frequently Asked Questions
- What is the turnover threshold for small company relief in Nigeria?
- Are professional service firms eligible for small company relief?
- Does a small company still need to file tax returns?
- Is small company relief the same as VAT exemption?
- What happens if a company exceeds ₦50 million turnover during the year?
- Can restructuring be used to remain under the threshold?
- Practical Steps to Determine Qualification
- Conclusion
What is Small Company Relief under the Nigeria Tax Act 2025?
Small Company Relief under the Nigeria Tax Act 2025 refers to the tax benefits granted to companies that meet the statutory definition of a “small company.” Under the current framework, qualifying small companies enjoy significant relief, particularly in relation to Companies Income Tax.
Section 202 of the Nigeria Tax Act 2025 defines a small company primarily by reference to its annual turnover and fixed assets. A company qualifies where its gross turnover does not exceed ₦50 million and the value of its fixed assets does not exceed ₦250 million. Certain professional service providers are excluded from this classification regardless of turnover.
Section 56(a) of the Act further provides that a small company shall be subject to Companies Income Tax at 0 percent. This relief is substantial, but it applies strictly within the boundaries of the statutory definition.
The Key Provisions of Small Company Relief
The foundation of small company relief is found in Section 202 of the Nigeria Tax Act 2025. To qualify, a company must satisfy the statutory conditions.
A company qualifies as a small company where:
(a) Its gross turnover does not exceed ₦50 million in the relevant year of assessment
(b) The value of its fixed assets does not exceed ₦250 million
(c) It is not engaged in excluded professional services
Gross turnover refers to total income before deductions. It is not net profit. Many businesses mistakenly rely on profit figures when assessing eligibility, which is incorrect under the law.
Fixed assets include long-term capital assets such as land, buildings, plant, machinery, and equipment. An accurate and up-to-date asset register is therefore essential.
Why Professional Services May Not Qualify
The policy objective behind excluding certain professional services is to prevent high-margin advisory practices from benefiting from relief intended for genuinely small-scale enterprises.
If a company is primarily engaged in legal, accounting, consulting, or similar professional services, it may not qualify even if its turnover is below ₦50 million. The nature of the business activity is therefore as important as the financial thresholds.
Businesses operating hybrid models should carefully assess their primary source of income to determine eligibility.
The Companies Income Tax Advantage
Section 56(a) of the Nigeria Tax Act 2025 provides that small companies are subject to Companies Income Tax at 0 percent.
However, this does not eliminate compliance obligations. A qualifying small company must still:
(a) Register with the relevant tax authority
(b) File annual Companies Income Tax returns
(c) Maintain proper accounting records
(d) Respond to lawful information requests
Failure to comply with filing requirements may attract penalties even where no tax is payable.
It is also important to note that the 0 percent rate applies to Companies Income Tax only. Other taxes, including Value Added Tax, withholding tax, and payroll-related deductions, may still apply depending on the circumstances.
The difference between “small company” and “small business”
It is important not to confuse the definition of “small company” under the Nigeria Tax Act with “small business” definitions under tax administration laws.
Under the Nigeria Tax Administration Act 2025, a small business may be defined using a higher turnover threshold for certain administrative or VAT-related purposes. The ₦100 million turnover threshold often appears in administrative contexts.
However, for Companies Income Tax relief, the relevant threshold remains ₦50 million under Section 202 of the Nigeria Tax Act 2025.
Confusing these thresholds may result in incorrect self-classification.
Common mistakes businesses make
Many businesses incorrectly assume they qualify for small company relief because their profit is low. Profit is not the test. Turnover is.
Another common mistake is ignoring asset value. A company with turnover below ₦50 million but fixed assets above ₦250 million does not qualify.
Some businesses also fail to consider related-party transactions or group restructuring that may artificially reduce turnover for classification purposes. Tax authorities may examine substance over form where restructuring appears designed solely to obtain relief.
Accurate documentation and transparent reporting are essential.
Does small company relief apply automatically?
Relief is not automatic. A company must properly assess its eligibility and reflect its status in its annual tax filings.
Tax authorities retain audit and verification powers under the Nigeria Tax Administration Act 2025. If a company claims relief incorrectly, it may face reassessment, interest, and penalties.
It is prudent for management to prepare an internal memorandum annually confirming eligibility and documenting the basis for classification.
Interaction with Development Levy
Section 59(1) of the Nigeria Tax Act 2025 introduces a development levy of 4 percent of assessable profits for companies generally. However, small companies are exempt from this levy.
This exemption further reinforces the importance of proper classification. A company that incorrectly claims small company status may become liable not only for Companies Income Tax but also for the development levy.
Frequently Asked Questions
What is the turnover threshold for small company relief in Nigeria?
Under Section 202 of the Nigeria Tax Act 2025, the turnover threshold is ₦50 million per year of assessment.
Are professional service firms eligible for small company relief?
Certain professional services are excluded from qualifying as small companies. Eligibility depends on both financial thresholds and the nature of business activities.
Does a small company still need to file tax returns?
Yes. Even though the Companies Income Tax rate is 0 percent under Section 56(a), filing obligations remain mandatory.
Is small company relief the same as VAT exemption?
No. VAT obligations are governed by separate statutory provisions. A company may qualify for Companies Income Tax relief and still have VAT responsibilities.
What happens if a company exceeds ₦50 million turnover during the year?
If turnover exceeds the statutory threshold in the relevant year of assessment, the company may lose small company status for that year and become subject to the applicable Companies Income Tax rate.
Can restructuring be used to remain under the threshold?
Artificial restructuring undertaken solely to obtain tax relief may attract scrutiny. Tax authorities may examine the economic substance of transactions rather than their formal structure.
Practical Steps to Determine Qualification
Businesses seeking to rely on small company relief should take the following steps:
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Review annual gross turnover using audited or properly prepared financial statements
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Confirm the valuation of fixed assets and maintain an updated asset register
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Examine the nature of business activities to ensure they are not within excluded professional services
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Reconcile accounting records with tax filings to ensure consistency
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Document eligibility annually through an internal compliance review
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Seek professional guidance where turnover or asset values are close to statutory thresholds
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Conclusion
Small Company Relief under the Nigeria Tax Act 2025 provides a significant advantage through a 0 percent Companies Income Tax rate under Section 56(a). However, qualification depends strictly on compliance with Section 202.
Turnover, asset value, and the nature of business activities must be carefully assessed. Relief is not automatic, and incorrect classification may result in reassessment, penalties, and interest.
Businesses operating near the statutory thresholds should adopt disciplined annual reviews and maintain clear documentation to ensure lawful access to available relief.
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