The tax reforms introduced by the Federal Government come with major advantages for micro-businesses, but only if you understand how the rules work. Many small entrepreneurs wrongly assume that being “tax-exempt” means zero compliance. That mistake alone can attract penalties.
If your business earns below ₦50 million in annual revenue, you fall under the new small-business exemption category. This allows you to enjoy reduced tax obligations while still maintaining access to loans, grants, and corporate opportunities.
Below is what every small business owner should know.
1. Small Businesses Now Pay 0% Company Tax, If They Qualify
Under the revised tax framework, businesses that qualify as “Small Enterprises” enjoy a 0% Company Income Tax (CIT) rate.
To qualify, your business must have:
- Annual turnover not exceeding ₦50 million
If you meet these criteria, you are exempt from:
- Company Income Tax
- Capital Gains Tax on qualifying disposals
- The new development levy
For many business owners, this is a huge relief, your profits remain yours.
2. Tax Exemption Does NOT Mean You Can Ignore Filing
The biggest misunderstanding among small business owners is the belief that “no tax” means “no paperwork.”
This is wrong.
The law makes it clear that:
Every business, taxable or exempt—must file annual returns.
If you fail to file:
- You lose your exemption.
- You become liable for penalties.
- The tax authorities automatically classify you as non-compliant.
Late filing attracts fines even if you owe no tax at all.
3. VAT Threshold Increased, But There’s a Catch
The VAT exemption threshold has now been raised to ₦50 million annual turnover.
What this means:
- Your business does not need to charge or collect VAT.
- You do not remit VAT monthly.
- You are still required to pay VAT on items you buy,unless they are VAT-exempt (e.g., rent, education, medical services, food, and transport).
If you mistakenly charge VAT, you must remit it by the 20th of the following month.
4. “Professional Services” Are Treated Differently
The exemption does not automatically apply to businesses that offer professional services, regardless of turnover.
Examples include:
- Legal practitioners
- Accountants
- Architects and engineers
- Business or financial consultants
- Medical specialists
If your business relies on expertise rather than sale of goods, confirm your status so you don’t unknowingly fall into non-compliance.
5. No TIN = No Financial Operations
The new rules strictly link your Tax Identification Number (TIN) to your ability to use financial institutions.
You cannot operate a:
- Corporate bank account
- Investment account
- Insurance policy
without a valid TIN.
How to get a TIN:
- Registered companies receive it automatically during CAC registration.
- Individuals or unregistered businesses use their NIN as their Tax ID.
If you already have a TIN, it remains valid.
6. Owners Must Still Pay Personal Income Tax
Remember:
- The company is separate from the owner.
- The company may pay 0% tax, but the owner must still pay Personal Income Tax (PIT) on whatever salary or allowance they take from the business.
This is paid to the State Internal Revenue Service.
Case Study: Kemi’s Beauty Studio
The Scenario:
Kemi is a hairstylist in Abuja running her operations informally. Clients send money directly to her personal account. She mixes business income with personal spending and keeps records mentally.
The Goal:
She wants to upgrade her brand, register properly, open a business account, and start paying herself a structured salary of ₦450,000 per month.
Phase 1: Registration and Bank Setup
Kemi registers KEMI BEAUTY STUDIO LTD with the CAC for about ₦85,000.
Benefits immediately gained:
- Her business becomes a separate legal entity.
- If the company earns ₦35 million in a year and she pays herself ₦5.4 million, she pays PIT only on the ₦5.4 million, while the company pays 0% tax on the rest (since it qualifies as a small enterprise).
To open a corporate account, she presents:
- CAC Certificate
- Automatically issued TIN
- Proof of address
- BVN/NIN
Phase 2: Salary and Structure
Kemi now pays herself a monthly salary, records business expenses, tracks income properly, and separates personal spending from company money.
This structure strengthens her:
- Loan applications
- Grant eligibility
- Credibility with suppliers
- Compliance with Nigerian tax law
The tax reforms are designed to help small businesses grow, but the benefits only apply if you follow the rules. The exemptions reduce your tax burden, yet compliance, including annual filing remains non-negotiable.
If you run a small business, ensure:
- Your TIN is active
- Your annual filings are up to date
- You understand the VAT threshold
- You separate personal finances from your company
With the right structure, you can grow your business while staying fully protected under the law.