TAXATION OF SMALL COMPANIES UNDER THE NEW TAX REGIME AS 2026 APPROACHES: OVERVIEW OF KEY AREAS OF INTEREST

INTRODUCTION

Nigeria’s evolving fiscal landscape has seen significant reforms through the enactment of the Nigeria Tax Act, 2025 (NTA) and the Nigeria Tax Administration Act, 2025 (NTAA). These statutes represent a major overhaul aimed at simplifying compliance, promoting transparency, and incentivizing the growth of smaller entities within the formal economy.

As 2026 approaches, one of the most discussed aspects of these reforms is the taxation of small companies. The regime introduces clear thresholds for classification of varying tax obligations, and exemptions designed to stimulate enterprise growth while ensuring that the tax system remains equitable and efficient.

DEFINITION OF A SMALL COMPANY UNDER THE NTA 2025

The Nigeria Tax Act (NTA), 2025 defines a small company as:

“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.”[1]

This definition emphasizes two key determinants, turnover and fixed asset value, while expressly excluding entities engaged in professional services such as legal, accounting, or medical practices, which are generally presumed to generate higher income relative to their scale.

AFFECTED TAXES FOR QUALIFYING SMALL COMPANIES

The reform legislation consolidates multiple taxes. For qualifying small companies, the main changes are:

A.   Companies Income Tax (CIT):

Qualifying small companies are generally exempted from CIT on their assessable profits (subject to conditions in the Act and regulations). Under the NTA, small companies are subject to a 0% Companies Income Tax (CIT) rate, effectively exempting them from paying CIT[2]. This is a continuation and expansion of earlier reforms under the Finance Act 2019, designed to encourage small-scale formalization and business sustainability.

B.   Capital Gains Tax (CGT):

Under the provisions of Sections 46 and 47 of the NTA, gains from indirect transfers of shares or interests in companies/assets are now subject to CGT where the asset is located in Nigeria or ownership structure changes. Moreover, there is a view from some quarters indicating that small companies i.e. companies that meet threshold turnover and asset value criteria qualify for relief from CGT under the reforms. While the letters of the NTA does not always explicitly use the phrase ‘exempt from CGT’ in a single clause, multiple interpretative notes confirm this relief. Because of the significance of these changes, small companies should review their potential exposure to CGT (including indirect transfers) and confirm their eligibility for tax reliefs applicable to a small-company.

C.    Development Levy

Every company that pays company income tax under the Companies Income Tax Act (CITA) will have to pay an extra 4% “development levy” on their assessable profits.[3] Assessable profit means the company’s profit after allowable business expenses have been deducted but before any reliefs or tax holidays are applied. So basically, if a company’s assessable profit for the year is ₦100 million, it will pay an additional ₦4 million as this development levy, in addition to its normal company income tax. However, small companies and non-resident (foreign) companies are exempted from this.

D.   Withholding Taxes (WHT) and Other Deductions

The Deduction of Tax at Source (Withholding) Regulations, 2024 though made pursuant to Section 81(9) of the Company Income Tax Act, Section 56 of the Petroleum Profit Tax Act and Section 73(6) of the Personal Income Tax Act, remains operational and applicable under the new regime, unless expressly revoked or revised by the revenue service.  It introduced a notable relief for small companies and unincorporated entities. Such entities are exempted from deducting or suffering WHT if they hold a valid Tax Identification Number (TIN) and the total value of transactions in a calendar month does not exceed ₦2 million[4]. This measure aligns with the broader tax reforms supporting small businesses, easing their cash-flow constraints and compliance burden. However, the exemption is not automatic, and qualifying suppliers must ensure TIN validity, transaction tracking, and compliance with threshold conditions.

DISTINCTION FROM THE CONCEPT OF “SMALL BUSINESS” UNDER THE NTAA 2025

While the Nigeria Tax Administration Act, 2025 (NTAA) introduces a similar classification, “small business”, the two concepts are not identical.

A small business, as defined under Section 147 of the NTAA 2025, “a business that earns gross turnover of N100,000,000 or less per annum with a total fixed assets less than N250,000,000, provided that any business providing professional services shall not be classified as a small business.” Unlike the small company classification, the “small business” provision primarily relates to Value Added Tax (VAT) administration.

In contrast, the “small company” classification applies exclusively to income taxation under the NTA. This means that while a company may qualify as a “small business” for VAT exemption under the NTAA, it may not qualify as a “small company” for income tax exemption under the NTA if its turnover exceeds ₦50 million. This distinction is crucial for compliance, as it determines whether an entity enjoys VAT exemptions, CIT reliefs, or both.

PRACTICAL COMPLIANCE AND REPORTING IMPLICATIONS FOR SMALL COMPANIES

Even with exemptions, qualifying small companies must not be complacent — several administrative and documentary steps are essential:

a.   Register and maintain a valid TIN (Tax Identification Number)

The Taxpayer Identification Number (TIN) has become the central requirement for accessing any form of tax relief, exemption, or administrative concession, particularly for small companies. This means that no business can claim an exemption, file returns, or receive tax refunds without a valid TIN. Specifically, recent reforms provide that small businesses or suppliers under the small-company threshold may qualify for Withholding Tax (WHT) reliefs on certain transactions, but only if they possess a valid TIN. Where a business fails to quote a valid TIN on invoices or contract documents, the withholding agent must deduct WHT at the full statutory rate and remit it to FIRS/NRS, thereby forfeiting any applicable relief. The TIN has thus become a digital proof of compliance, directly linked to VAT filings[5], corporate income tax returns[6], development levy administration, and access to refunds or double-tax reliefs. In practice, without a valid TIN, even qualifying small companies are treated as non-compliant and subject to default withholding, penalties, and denial of input VAT claims.

b.    Keep accurate turnover and fixed-asset records

Maintaining accurate turnover and fixed asset records is a critical compliance requirement, especially for companies seeking to qualify as small companies under the new tax regime. Because these thresholds determine a company’s eligibility for various exemptions, it becomes essential that qualifying companies maintain contemporaneous and verifiable records of both income and asset values. The NTAA empowers the Nigerian Revenue Service (NRS) to conduct audits and spot checks to verify the accuracy of taxpayer declarations[7]. Companies found to have misstated turnover or asset values, whether by omission or poor record-keeping, risk reclassification as large companies and may face back-duty assessments, penalties, or loss of tax reliefs. Therefore, small companies must keep detailed financial statements, up-to-date fixed asset registers, and supporting documentation (such as invoices, bank statements, valuation reports, etc.) to substantiate their qualifications.

c.     Understand the boundaries of the exemption

It is crucial for companies to understand the boundaries of the small-company exemption, as not all entities automatically qualify under the Nigeria Tax Act, 2025 (NTA) and the Nigeria Tax Administration Act, 2025 (NTAA). Section 56 of the NTA provides a 0% Companies Income Tax (CIT) rate for small companies with turnover not exceeding ₦50 million and fixed assets below ₦250million but explicitly excludes sectors such as professional service providers[8]. Similarly, Section 22(4) of the NTAA exempts small businesses from VAT filing only where their operations fall within qualifying economic activities, excluding professional or specialized sectors. This means that companies must carefully assess their sector classification and income composition, as mixed operations or engagement in excluded industries could forfeit eligibility. The FIRS guidelines further clarify that these exemptions are intended to support genuine micro and small enterprises, not entities operating under high-revenue or regulated regimes.

d.    Ensure you obtain certificates for Withholding taxes

Small companies must ensure they obtain Withholding Tax (WHT) credit certificates for any deductions made by customers, even where such deductions occur in error or despite the company’s exempt status. Under Sections 78–81 of the Companies Income Tax Act (as incorporated in the Nigeria Tax Act, 2025) and relevant Federal Inland Revenue Service (FIRS) regulations, tax withheld at source on payments for goods or services is treated as an advance payment of income tax. Therefore, the withholding agent must remit the deducted amount and issue a corresponding credit certificate to the payee. For small companies qualifying for 0% Companies Income Tax under Section 56 of the NTA, this certificate becomes essential to either claim a refund or set off the withheld amount against future tax obligations. Without it, the small company may lose the benefit of the deduction and face compliance challenges during audits or reconciliations. Furthermore, under the Tax Administration Act, 2025, only companies with valid Taxpayer Identification Numbers (TINs) can process WHT credits or claim exemptions, underscoring the importance of maintaining proper registration and documentation to safeguard tax positions.

TRANSITIONAL AND EFFECTIVE DATES — THE 2026 HORIZON

Several significant tax reform measures such as NTAA, NTA, etc. were enacted in 2025, introducing new levies, structural adjustments, and compliance obligations for Nigerian companies. However, the government has deferred the commencement of certain provisions, including specific surcharges and structural tax changes, until January 1, 2026. Businesses are therefore strongly advised to monitor updates from the Federal Inland Revenue Service (FIRS) or its successor tax authority (Nigerian Revenue Service), as well as official gazette publications, to stay informed on the precise effective dates, transitional reliefs, and implementation guidelines. As such, companies should take proactive steps now to review their tax structures, update compliance systems, and engage professional advisers to ensure readiness before the 2026 effective date

CONCLUSION

As Nigeria approaches the 2026 implementation horizon, the taxation landscape for small companies is undergoing a decisive transformation. The Nigeria Tax Act, 2025 (NTA) and Nigeria Tax Administration Act, 2025 (NTAA) collectively signal the government’s intent to formalize and strengthen the small business ecosystem while ensuring fairness and efficiency in the tax regime. However, the benefits of the new framework such as CIT exemptions, VAT and WHT reliefs, and development levy exclusions can only be fully realized by companies that maintain strict compliance, transparent record-keeping, and accurate classification under the law.

For small companies, this period presents both an opportunity and a test: an opportunity to reduce tax burdens and reinvest in business growth, and a test of governance capacity to adhere to the evolving regulatory standards. As implementation nears, early engagement with tax professionals, routine compliance audits, and timely filing of returns will be key strategies to avoid disqualification and penalties. Ultimately, the success of the 2025 tax reforms — particularly for small companies — will depend on a balance between government enforcement and taxpayer education, ensuring that fiscal modernization translates into sustainable economic inclusion and growth within Nigeria’s formal sector.