February 12, 2026

Tax Exemption: The Ultimate Thing

by Ekosolicitors

Introduction to Tax Exemption

President Bola Tinubu, on June 26, 2025, signed a groundbreaking Tax Reform Bill into law. This law fundamentally changes how individuals and businesses pay tax in Nigeria. This law allows for tax exemption. As of January 1, 2026, the full implementation of the Nigeria Tax Reform Acts 2025 has started.

These reforms represent a massive structural reset of the country’s tax system. It consolidates several older laws including the Companies Income Tax Act and Personal Income Tax Act into a unified framework designed to simplify compliance and promote business growth.

The reform consists of four distinct Acts that work together to create a more streamlined tax environment:

The Nigeria Tax Act (NTA): Consolidates federal tax laws and defines taxable items and rates
Nigeria Tax Administration Act (NTAA): Creates a unified framework for tax administration
Nigeria Revenue Service (Establishment) Act (NRSA): Establishes the Nigeria Revenue Service (NRS) as the central federal tax collection body
Joint Revenue Board (Establishment) Act (JRBA): Coordinates tax harmonisation across government levels

If you’re a small business owner earning under ₦50 million annually, these reforms could dramatically give room for tax exemption. However, here’s the critical detail many entrepreneurs are missing. Having your business registered as a business name or as a limited company has different effect. Understanding this distinction could save you significant money and determine whether you qualify for generous tax exemptions.

Business Name vs Incorporated Companies

Before we dive into tax exemptions, everything that affects how your business is taxed is a fundamental legal distinction you need to understand.

1. Business Name

Section 868 of the Companies and Allied Matters Act, 2020 defines business name as:

“the name or style under which any business is carried on whether in partnership or otherwise”

Think of your business name like a small shop operating under your personal umbrella. If you’re registered as a business name or sole proprietor, your business and you are legally seen as the same person. That means whatever happens to your business, whether profits, losses, or taxes, happens to you personally.

A registered business name, whether structured as a sole proprietorship or partnership, is not considered a “company” under Nigerian law. It’s an extension of the individual or individuals who own it. Because a business name is an unincorporated enterprise, its profits are treated as your personal income. This means business names are subject to progressive Personal Income Tax rates ranging from 0% to 25%, depending on your total income.

2. Incorporated Company

Incorporated companies, on the other hand, are entirely different creatures in the eyes of the law. Section 21 of the Companies and Allied Matters Act, 2020 defines a company and classifies them as either private or public.

More importantly, Section 42 of the Companies and Allied Matters Act, 2020 establishes that:

“As from the date of incorporation mentioned in the certificate of incorporation, the subscribers of the memorandum together with such other persons as may become members of the company, shall be a body corporate… having perpetual succession and a common seal… with power to hold land…”

Once a company is registered, it becomes a “juristic person.” In the eyes of the law, the company is a separate “human being” distinct from its owners. It can sue, be sued, own property, and enter into contracts in its own name.

The Companies and Allied Matters Act 2020 does not grant “body corporate” status to business names under Part E, which is the section governing them. This seemingly technical distinction has enormous practical implications for taxation, and it’s the key to understanding whether your small business qualifies for the generous tax exemptions introduced in 2025.

Companies pay Companies Income Tax and are entitled to specific tax exemptions that business names simply cannot access, regardless of their turnover or size.

Tax Exemptions for Incorporated Companies

If your business is properly registered as a limited company and meets certain criteria, the 2025 tax reforms offer tax exemption benefits. Here are four critical things you need to know:

1. Zero Companies Income Tax (CIT) for Small Companies

Section 202 of the Nigerian Tax Act, 2025 provides that:

“small company” means a company that earns gross turnover of 50,000,000 or less per annum with total fixed assets not exceeding 250,000,000, provided that any business providing professional services shall not be classified as a small company.

Section 56 of the Nigerian Tax Act, 2025 is even more explicit, stating:

“Tax shall be levied, for each year of assessment in respect of total profits of every company, in the case of –

(a) a small company, at 0%; and

(b) any other company, at the rate of 30 per cent from the commencement of this Act.”

This means if your incorporated company earns ₦50 million or less annually and has fixed assets below ₦250 million, you pay absolutely no Companies Income Tax. This allows you to reinvest every naira of profit back into your business for growth, expansion, and development. There’s an important caveat: any business providing professional services cannot be classified as a small company, regardless of turnover.

2. Value Added Tax Exemption

Section 148 of the Nigerian Tax Act, 2025 states that:

“Subject to the provisions of Part IV of Chapter Eight of this Act, VAT shall be charged on the value of all taxable supplies at the rate of 7.5%”.

However, Section 22(1) & (4) of the Nigerian Tax Administration Act, 2025 provides crucial relief:

“(1) A taxable person shall, in respect of value added tax, with or without a notice, and whether or not an economic activity has taken place, submit a return to the Service in the prescribed form, on or before the 21st day of the following month.

(4) The provision of subsection (1) shall not apply to a small business.”

This means businesses with an annual turnover of ₦100 million or less do not need to charge or remit VAT. Additionally, the VAT exemption list for essential goods including food, medical supplies, educational materials, and electricity has been expanded, which benefits all businesses and consumers regardless of size.

3. Development Levy and Capital Gains Tax (CGT) Exemption

“(1) A development levy of 4% is imposed on the assessable profits of all companies chargeable to tax under Chapters Two and Three of this Act, other than small companies and non-resident companies.”

This clearly exempts small companies from the Development Levy obligation. Small companies that meet the turnover and asset thresholds are also exempt from a certain tax. This includes Capital Gains Tax, providing additional savings when disposing of capital assets or investments.

4. Withholding Tax (WHT) Considerations

While small companies enjoy exemptions from CIT, VAT, CGT, and the Development Levy, there’s one area where vigilance is still required: Withholding Tax. Your business may still have WHT deducted from payments by clients for certain services, typically at rates ranging from 5% to 10% depending on the type of service.

It’s crucial to obtain WHT credit certificates from the deducting agent (your client) for every payment where tax is withheld. These certificates serve as proof that tax has been paid on your behalf . The certificates can potentially be used to claim a refund or set off against future tax liabilities if they arise. You are therefore advised to keep meticulous records of all WHT deductions.

Tax Exemption: Takeaway for Small Businesses

The Nigeria Tax Reform Acts 2025 represent a significant opportunity for small businesses, but only if you’re structured correctly. For 2026 and beyond, a small business with an annual turnover under ₦50 million is exempt from Companies Income Tax, Value Added Tax, Capital Gains Tax, and the new Development Levy, provided it meets three critical conditions:

First, your business must be properly registered as a limited liability company, not just a business name or sole proprietorship. Second, your total fixed assets must not exceed ₦250 million. Third, your business must not be offering professional services such as legal, accounting, consulting, or similar services.

The 2025 reforms introduced a new 4% Development Levy on assessable profits. Section 59(1) of The Nigerian Tax Act, 2025 states:

If your business currently operates as a business name and earns under ₦50 million annually, it may be time to have a conversation with a corporate lawyer or tax adviser about incorporating as a limited company. The tax savings alone could justify the modest incorporation costs. It could also justisfy additional benefits of limited liability protection and enhanced credibility with clients and financial institutions make it an even more compelling proposition.

Final Thoughts on Tax Exemption

The new tax regime is designed to support small business growth and formalisation. Make sure your business is positioned to take full advantage of these benefits. The difference between paying 0% tax and paying progressive rates up to 25% could be the difference between a struggling business and a thriving one.

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