What the 2025 Tax Reforms Actually Mean for Businesses Below the Threshold, By Robert Ajigboye

As 2026 approaches, the reforms present both opportunity and responsibility, and as such, companies that engage early, understand the boundaries of the law, and maintain disciplined compliance will be best positioned to benefit.

The 2025 tax reforms mark a deliberate attempt to recalibrate Nigeria’s approach to taxing small companies. For qualifying entities, the framework offers real relief through CIT exemptions, reduced withholding exposure, VAT concessions, and exemption from the development levy, so if you own a business that falls within this band, it’s great news for you.

Nigeria’s tax architecture is undergoing one of its most consequential restructurings in recent years. With the enactment of the Nigeria Tax Act, 2025 (NTA) and the Nigeria Tax Administration Act, 2025 (NTAA), the government has signalled a clear policy shift towards simplification, consolidation, and wider participation in the formal tax system.

As attention increasingly turns to 2026, a major point of interest has been how these reforms affect small companies. The new framework introduces clearer classification thresholds, rationalised exemptions, and targeted reliefs aimed at encouraging enterprise growth without abandoning equity or fiscal discipline.

For small companies, in particular, the reforms promise meaningful relief. However, those benefits are neither automatic nor unconditional. Understanding how the law defines a small company, what taxes are affected, and what compliance obligations remain is essential.

What Is a “Small Company?”

Under Section 202 of the Nigeria Tax Act, 2025, a company qualifies as a small company where it satisfies all of the following conditions:

1. Annual gross turnover does not exceed ₦50,000,000
2. Total fixed assets do not exceed ₦250,000,000
3. The company is not engaged in professional services

This is also reinforced in Section 147 of the Nigeria Tax Administration Act, 2025.

The exclusion of professional services is deliberate. Businesses like legal practices, accounting firms, medical practices, and similar service-based professions are presumed, as a matter of policy, to operate at higher margins relative to scale and are therefore excluded from the small-company incentive regime.

In effect, the classification rests on both financial thresholds and the nature of the business itself.

Examples of Small Companies Under the NTA 2025

To bring the statutory definition into practical focus, it is useful to consider how the small-company classification applies to real-world scenarios. The following examples assume compliance with all formal requirements and exclude professional services, as mandated by the Act.

Example A: Retail Trading Company

A limited liability company operates a small chain of retail stores selling household goods across two states.

1. Annual turnover: ₦38,000,000
2.  Total fixed assets (shop fittings, shelves, POS terminals): ₦120,000,000
3. Nature of business: Retail trading

This company qualifies as a small company under Section 202 of the NTA. As a result, it is subject to a zero per cent Companies Income Tax rate, exempt from the development levy, and may benefit from applicable withholding tax reliefs where threshold conditions are met. However, it must still file returns and maintain proper records.

Example 2: Manufacturing Start-Up (Light Industry)

A small-scale manufacturing company produces packaged food items for local distribution.

1. Annual turnover: ₦47,500,000
2. Total fixed assets (machinery, generators, factory equipment): ₦230,000,000
3. Nature of business: Light manufacturing

Despite operating capital-intensive equipment, the company remains within both the turnover and asset thresholds. It therefore qualifies as a small company and enjoys CIT exemption under the NTA. The fact that its asset base is relatively high does not disqualify it, provided it does not exceed ₦250 million.

Example 3: Company That Does Not Qualify Due to Total Fixed Assets

A specialised printing and packaging firm operates with heavy industrial machinery but has a relatively low volume of sales due to a niche market.

1. Annual turnover: ₦42,000,000
2. Total fixed assets (Printing presses, industrial cutters, factory plant): ₦260,000,000
3. Nature of business: Industrial Printing

Status: This company does not qualify as a small company under the NTA and the NTAA. Although its turnover (₦42 million) is well within the ₦50 million limit, its total fixed assets (₦260 million) exceed the statutory threshold of ₦250 million.

Example 4: Company That Does Not Qualify Due to Turnover

A logistics company provides delivery services within a single state.

1. Annual turnover: ₦68,000,000
2. Total fixed assets: ₦150,000,000
3. Nature of business: Logistics and courier services

Although the company’s asset base is well within the threshold, its turnover exceeds ₦50 million. As a result, it does not qualify as a small company under the NTA and will be subject to Companies Income Tax at the applicable rate for medium-sized companies.

Example 5: Professional Services Company (Excluded Regardless of Size)

A registered accounting firm operates as a limited liability company.

1. Annual turnover: ₦22,000,000
2. Total fixed assets: ₦40,000,000
3. Nature of business: Accounting and audit services

Despite falling well below the financial thresholds, this company does not qualify as a small company because it provides professional services. The exclusion applies regardless of turnover or asset size.

Taxes Most Affected by the Small Company Regime

The 2025 reforms consolidate several tax obligations and, in doing so, significantly alter how small companies are treated.

Companies Income Tax (CIT)

Perhaps the most significant change is the effective exemption from Companies Income Tax. Under Section 56(a) of the NTA, qualifying small companies are subject to a zero per cent CIT rate on assessable profits.

This is not an entirely new policy. It builds on reforms introduced under the Finance Act 2019, but the NTA broadens and clarifies the exemption within a consolidated tax framework. The policy objective is straightforward. Reduce the tax burden on genuinely small enterprises so they can stabilise, formalise, and reinvest.

Capital Gains Tax (CGT)

Capital gains taxation has been substantially reworked, particularly with respect to indirect transfers of shares or interests in Nigerian assets. Sections 46 and 47 of the NTA expand the scope of CGT to cover such transactions.

While the Act does not always state, in a single clause, that small companies are exempt from CGT, interpretative guidance and policy notes suggest that companies meeting the small-company thresholds may qualify for CGT reliefs. This is especially relevant where ownership changes occur as part of internal restructuring rather than value extraction.

Given the complexity of these provisions, small companies should assess CGT exposure carefully, particularly in transactions involving share transfers or reorganisations.

Development Levy

A new feature of the consolidated framework is the development levy. Companies liable to Companies Income Tax are required to pay an additional 4 per cent levy on assessable profits.

However, small companies are expressly exempt. Since assessable profit is calculated before reliefs and incentives, this exemption is not trivial. It ensures that companies already shielded from CIT are not indirectly burdened through auxiliary levies.

Withholding Tax and Source Deductions

The Deduction of Tax at Source (Withholding) Regulations 2024 continue to apply under the new regime unless amended or revoked. These regulations introduced a notable compliance relief for small companies and unincorporated entities.

Where a qualifying entity holds a valid Tax Identification Number and the value of transactions with a counterparty does not exceed ₦2 million in a calendar month, such transactions may be exempt from withholding tax deductions.

This relief is conditional. It requires valid documentation, accurate transaction tracking, and strict adherence to thresholds. Where these conditions are not met, withholding obligations apply in full.

Compliance Obligations for Small Companies

Tax exemptions do not eliminate administrative responsibilities. If anything, the reforms place greater emphasis on documentation and traceability.

1. Maintain a Valid Tax Identification Number

The Tax Identification Number has become the gateway to every tax relief, exemption, and concession. Without a valid TIN, a company cannot claim small-company benefits, process withholding tax credits, or access refunds.

Where a supplier fails to quote a valid TIN, the withholding agent is required to deduct tax at the statutory rate, regardless of the supplier’s actual eligibility for relief.

In practical terms, the TIN functions as proof of compliance and integration into the tax system.

2. Understand Sector and Activity Limitations

Not all businesses qualify, even if they meet financial thresholds. Professional services are excluded, and companies with mixed operations must assess whether excluded activities jeopardise eligibility.

The exemptions are intended for genuinely small, non-specialised enterprises. Attempts to stretch the definition invite scrutiny.

3. Obtain and Retain Withholding Tax Credit Certificates

Where withholding tax is deducted, whether correctly or in error, the company must obtain a credit certificate. These certificates represent advance tax payments and are necessary to claim refunds or offsets.

Without them, even exempt companies may lose the benefit of the amounts withheld.

4. Keep Accurate Financial and Asset Records

Eligibility for small-company status depends on turnover and asset thresholds. The Nigerian Revenue Service is empowered under the NTAA to verify these figures through audits and spot checks.

Companies that cannot substantiate/back-up their declarations risk reclassification, retrospective assessments, and penalties. Proper bookkeeping, fixed asset registers, and supporting documentation are therefore not optional.

Conclusion

The 2025 tax reforms mark a deliberate attempt to recalibrate Nigeria’s approach to taxing small companies. For qualifying entities, the framework offers real relief through CIT exemptions, reduced withholding exposure, VAT concessions, and exemption from the development levy, so if you own a business that falls within this band, it’s great news for you.

However, these benefits come with heightened expectations around compliance, transparency, and record-keeping. Small-company status is no longer a passive classification. It is a position that must be actively maintained and defensibly documented.

As 2026 approaches, the reforms present both opportunity and responsibility, and as such, companies that engage early, understand the boundaries of the law, and maintain disciplined compliance will be best positioned to benefit. Those that assume total exemption without grasping the structure risk losing it entirely.

Robert Ajigboye, a Chartered Accountant, is based in Lagos.