Introduction
The Nigerian government has changed the tax rules in 2025 and every business owner needs to understand how these changes work. If you run a small or medium sized business in Nigeria, you might now qualify for big tax relief and other benefits that can save you money. The new Nigeria Tax Reform Acts increase the exemption limit for small companies, add new ways to claim back VAT, and introduce a single Development Levy that replaces multiple smaller taxes. Knowing how the new law works can help you pay less tax, avoid penalties, and grow your business faster. In this guide we explain the new tax rules in simple terms with examples so you can see exactly how they apply to your business.
The New Tax Rules in Simple English
On 26 June 2025, the government changed the tax rules in Nigeria. The aim?
- Make more money for the government
- Make paying taxes easier to understand
- Encourage businesses to grow
If you run a business, here’s what it means for you:
1. Small Businesses Get a Big Break
If your business makes ₦100 million or less in a year and your equipment/buildings are worth ₦250 million or less, You don’t have to pay:
Companies Income Tax (tax on profit) Capital Gains Tax (tax on things you sell for a profit, like land or shares) The new “Development Levy” (extra business tax)
For Instance: you runs a bakery that makes 72 million naira in sales a year. Your ovens and other equipment are worth 60 million naira. This is a small company. You does not pay the three taxes listed above.
2. Higher tax when a company sells assets for a gain
- When a company sells land, buildings, shares, or other big assets and makes a gain, the Capital Gains Tax is now 30 percent. It used to be 10 percent. For individuals, the tax on gains follows the person’s income band.
- Example: Your company bought land for 20 million naira and later sold it for 30 million naira. The gain is 10 million naira. Capital Gains Tax is 30 percent of 10 million naira, which is 3 million naira.
3. Selling Nigerian Shares Through a Foreign Company
If you sell shares in a foreign company that secretly owns a Nigerian company, Nigeria will still tax you. This stops people from avoiding tax by selling through companies abroad. Example: A businessman in the UK sells shares in a Dubai company. That Dubai company owns a factory in Lagos. Nigeria will charge tax on the part of the sale linked to the Lagos factory.
4. New development levy (4%) instead of many small levies
Most companies will now pay one single levy of 4% of their profit before tax. Small companies do not pay it. This replaces many small separate levies. Example: Your company’s profit before tax is ₦50 million. Development levy = 4% of ₦50 million = ₦2 million.
5. Big companies must pay at least 15% tax
If your company is very big (₦50 billion sales or more) or part of a large group worldwide, you must pay at least 15% tax. If you pay less somewhere else, you will top it up in Nigeria. Example: A Nigerian company pays only 10% tax in another country. Nigeria will charge an extra 5% so the total is 15%
6. Low earners pay no personal tax
If you earn ₦800,000 or less a year, you pay no personal income tax. People who earn more will pay a higher rate depending on how much they earn (up to 25%). Also, if you get paid after losing your job or getting injured, up to ₦50 million of that is tax-free. Example: A worker earns ₦750,000 in one year — they pay no tax. Another worker earns ₦5 million — they pay tax only on the higher bands.
7. Reward for buying business equipment
The old “tax holiday” is gone. Now if you buy new equipment for your business, you get 5% of its cost back as a tax credit every year for 5 years. If you cannot use it all, you can carry it forward for another 5 years. Example: You buy machines worth ₦20 million. Every year for 5 years, you reduce your tax bill by ₦1 million.
8. Clear rule on who is taxed in Nigeria
If you live in Nigeria with your family, own property here, or mainly work here, you will be taxed on your worldwide income. Example: Chidi lives in Abuja and works online for a US company. He will pay Nigerian tax on his salary.
9. New office for tax complaints
There is now a Tax Ombuds office to help if you think the tax office treated you unfairly. Example: You have been waiting for your tax refund for 8 months. You can take the case to the Tax Ombuds office to push for a solution
10. No VAT on basic goods and services
Some goods and services now have 0% VAT like basic food, medicines, school fees, books, electricity services, and exports (except oil and gas). Businesses selling them can also claim back VAT paid on their supplies. Example: A school buys chairs and pays VAT on them. The school can claim that VAT back, and it does not charge VAT on school fees.
11. Easier to claim VAT back
Businesses can now claim VAT on almost all purchases related to their sales that have VAT, including services and equipment. Example: A hair salon buys dryers and pays VAT. The salon charges VAT on hair services, so it can claim back the VAT paid on the dryers.
12. E-invoicing and real-time sales reporting
Businesses must now use an electronic invoicing system linked to the tax office for VAT. Example: A supermarket’s till sends each sale directly to the tax system. This makes VAT filing faster and avoids disputes with tax officers.
Advantages of the New Tax Reform for Business Owners in Nigeria
The Nigerian government has changed the tax system in 2025 to make it easier for businesses to grow and to improve how taxes are collected. If you are a business owner, here are the main benefits you can enjoy under the new rules explained in simple terms.
1. Bigger Tax Breaks for Small Businesses
If your business earns 100 million naira or less in a year and your assets are not more than 250 million naira, you will not pay Companies Income Tax, Capital Gains Tax, or the new Development Levy. This means you can keep more of your profits to reinvest in your business.
1. Bigger Tax Breaks for Small Businesses
If your business earns 100 million naira or less in a year and your assets are not more than 250 million naira, you will not pay Companies Income Tax, Capital Gains Tax, or the new Development Levy. This means you can keep more of your profits to reinvest in your business.
2. Easier Growth for Startups and New Businesses
With less tax to pay, new businesses have a better chance to survive and grow. You can use the money saved to improve your products, hire more staff, or expand into new locations.
3. One Levy Instead of Many Small Taxes
Before, big companies had to pay several small taxes like the Tertiary Education Tax, IT Levy, NASENI Levy, and Police Trust Fund Levy. Now all these are combined into one Development Levy at 4 percent of profit. This makes it easier to calculate and reduces paperwork.
4. Encouragement to Invest in Business Equipment
The new Economic Development Incentive gives you a 5 percent tax credit every year for 5 years on certain equipment you buy for your business. This reduces the cost of upgrading or expanding your operations.
5. Fairer Personal Income Tax for Business Owners
If your personal income is 800 thousand naira or less per year, you will not pay any personal income tax. If you earn more, the tax rate increases gradually so you only pay higher tax if you earn higher income.
6. Cheaper Essential Goods and Services
Items like basic food, medicine, medical services, books, tuition fees, and electricity services now have zero percent VAT. If your business deals in these, you can sell at better prices while still claiming back the VAT you paid on related expenses.
7. Ability to Claim More VAT Refunds
Before, service-based businesses could not recover VAT paid on their expenses. Now you can claim input VAT back on goods, services, and equipment you buy as long as they are related to what you sell. This means you reduce your overall costs.
8. Digital System for Recording Taxes
The new e-invoicing and fiscalisation rules mean all businesses will use an official system to record VAT. This reduces errors, makes record keeping easier, and can help you avoid unnecessary disputes with the tax office.
9. Independent Office to Handle Tax Complaints
If you have a disagreement with the tax authority, there is now a Tax Ombuds office to handle complaints. This gives you a fair chance to resolve issues without long court cases.
10. More Clarity on Who Pays Tax in Nigeria
The law now clearly explains who is considered a resident for tax purposes. This removes confusion and helps you know exactly what you need to pay and when
Conclusion
The new tax reform in Nigeria is designed to make doing business simpler, fairer, and more rewarding. By reducing the tax burden on small businesses, combining multiple levies into one, offering incentives for investment, and making VAT recovery easier, the government is creating more room for businesses to grow. Clearer rules, digital systems, and an independent complaint office also mean less confusion and fewer disputes with tax authorities. As a business owner, understanding and using these benefits can help you save money, improve efficiency, and position your business for long-term success.