Following interactions with businesses and certain owners of professional services firms in Nigeria, we have observed that a lot of persons still do not understand the tax compliance obligations of a typical professional services firm or company in Nigeria.
We have prepared this Guide to assist such persons in navigating the tax compliance landscape, which, for some, can be confusing, especially considering that several professional services firms (like law firms and audit firms) are required to operate as business names or partnerships.
This confusion arises from the general understanding that business names and partnerships pay income tax to the state tax authorities; an understanding which is correct but does not paint the whole picture, because there is an aspect of compliance that relates to the Nigeria Revenue Service (“NRS”).
This Guide is based on the provisions of the Tax Reform Acts which comprise The Nigeria Tax Act, 2025 (“NTA”), The Nigeria Tax Administration Act, 2025 (“NTAA”), the Nigeria Revenue Service (Establishment) Act, 2025 (“NRSEA”) and the Joint Revenue Board (Establishment) Act, 2025 (“JRBEA”).
1. First, What Business Structure Do You Operate?
Almost every question below is answered differently depending on whether you practise through a private or public limited liability company or a registered business name. Let us settle this first.
| Limited Liability Company | Business Name (sole practitioner or partnership) | |
|---|---|---|
| Taxed as | A company, on its own profits | The proprietor or partners, as individuals |
| Income tax rate | 30%, or 0% if a small company | Graduated, 0% to 25% on chargeable income |
| Development levy | 4% of assessable profits, unless a small company | Not applicable |
| Income tax authority | Nigeria Revenue Service | Your State Internal Revenue Service where you do business |
| Annual return due | 6 months after the accounting year end | By March of every year based on financials of the previous year. |
2. Who You Register With for Taxes
Generally, a firm in professional practice deals with two authorities, and the split follows the tax, not the taxpayer.
| Tax | Authority | Why |
|---|---|---|
| Income tax on your profits | State Internal Revenue Service where you are resident | The State tax authority administers taxes for resident individuals and as noted above, proprietors and partners of a business name or partnerships are taxed not the business name - (Section 3(2)(a)) of the NTAA). Residence is determined under the First Schedule to the NTAA |
| Pay-As-You-Earn (PAYE) on your employees’ pay | Same State Internal Revenue Service but could involve multiple State Internal Revenue Services if your employees reside in multiple states across Nigeria. | Employment tax follows the employee's State of residence |
| Value Added Tax (“VAT”) | Nigeria Revenue Service | VAT is within the NRS's exclusive responsibility (Section 3(1)(a)(v)) of the NTAA) |
| Withholding tax (“WHT”) you deduct on payments to companies | Nigeria Revenue Service | WHT is an advance of the recipient's income tax, and the NRS has exclusive responsibility for taxes on companies (Section 3(1)(a)(i) of the NTAA) |
| WHT you deduct on payments to individuals and business names | State Internal Revenue Service where the recipient is tax-resident | Follows the recipient, who is a resident individual |
| Stamp duties | Nigeria Revenue Service | Section 3(1)(b)(iii) of the NTAA |
Every taxable person must register and obtain a Tax ID. Every business entity registered with the Corporate Affairs Commission (“CAC”) and every individual with a National Identity Number (“NIN”) issued by the National Identity Management Commission (“NIMC”) has already been assigned a Tax ID and the Tax ID can be retrieved from taxid.nrs.gov.ng or taxid.jtb.gov.ng. A Tax ID is now a precondition both for opening a bank account and for continuing to operate an existing one.
3. VAT, and the Exclusion that Catches Professional Firms
The income tax rate for a “Small Company” under Section 56 of the NTA is 0% and a “Small Business” is also exempted from VAT compliance obligations under Section 22 (4) of the NTAA. A “Small Company” and “Small Business” are defined in sections 201 and 147 of the NTA and NTAA respectively as “businesses that earn gross turnover of ₦100,000,000.00 or less per annum with total fixed assets not more than ₦250,000,000.00” However, the definition of “Small Business” under the NTAA includes a carveout that hat any business providing professional services shall not be classified as a small business
“Do not assume you are below the VAT threshold. A business earning ₦100 million or less with fixed assets of ₦250 million or less is a "Small Business" and is relieved of monthly VAT returns. But the definition carries a proviso: any business providing professional services shall not be classified as a small business. If you practise a profession, the VAT threshold relief is not available to you at any size. You register, charge and file from the first naira. (Sections .22(4) and 147 of the NTAA)”
Note the asymmetry, because the two are easily conflated. The 0% company income tax rate for a small company uses a different definition, in section 201 of the NTA, and that one has no professional-services carve-out. A small professional services company can therefore be on 0% income tax and still be fully within VAT. Both are true at once.
"Professional services" is not defined for VAT. The nearest statutory guide is the definition of professional fees in the Deduction of Tax At Source (Withholding) Regulations, 2024 (“WHT Regulations”) which includes payments to persons in occupations in the tertiary sector requiring special training in the arts, technology or sciences, regulated and normally requiring a professional license like architects, accountants, engineers, doctors, surveyors, stockbrokers, tax practitioners, lawyers and including technical, management and consultancy services (Reg.13).
How VAT works in your practice
- 1.Output VAT is the 7.5% you charge your client and collect.
- 2.Input VAT is the 7.5% you pay your own suppliers. It is deductible, including on services and fixed assets, to the extent incurred in making taxable supplies (Section 155(4) of the NTA).
- 3.Where output exceeds input, remit the difference by the 21st of the following month. Where input exceeds output, carry the excess forward as a credit (Section 155(1) of the NTA). The return is due whether or not you traded that month (Section 22(1) of the NTAA).
- 4.Unused credit can be refunded on request. Claim the credit within 12 months of the transaction or it lapses and the NRS has 30 days to refund if it receives a valid request, or you can set of the credit against other taxes, including income tax if you pay income tax to the NRS (Section 56 of the NTAA).
- 5.Claim input tax within five years of the end of the tax period in which it was incurred.
- 6.Two everyday costs carry no input VAT: office rent, because land and buildings are exempt and diesel, because VAT on petroleum products is suspended pending a Ministerial Order (Section 185(2), Eleventh Schedule of the NTA).
Recovery depends on the invoice. A valid VAT invoice must carry the supplier's Tax ID, name and address, a sequential invoice number, the supplier's RC or business registration number, the date of supply, your name, the gross amount, and the VAT charged with the rate (NTA s.152). And an expense on which VAT was due but not charged is not deductible for income tax at all; if it is an asset, you lose the capital allowance on the whole of it (ss.21(p) and 27(2)). A cheaper but informal supplier is more expensive than a compliant one.
4. Withholding Tax, in Both Directions
On What you Receive
Professional, consultancy, technical, management and commission fees suffer 5% where the recipient is resident, 10% where non-resident. This is the same whether you practise as a company or as a business name.
The deduction is not a separate tax and must not be added to your fee. It is an advance of your own income tax and you claim it as a credit. You are entitled to that credit even where the client deducted and never remitted because the unremitted amount becomes the client's liability, but only if you hold the receipt. Rev360 lets you view and reconcile withholding credits, including VAT deducted at source, through your tax ledger.
On What You Pay
As a payer you must deduct at source on eligible transactions. A body corporate or unincorporate other than an individual is within the obligation (See Regulation 4(1) of the WHT Regulations). The rates you will meet most often:
| Payment | Resident | Non-resident |
|---|---|---|
| Consultancy, technical, management, professional and commission fees | 5% | 10% |
| General supply of services | 2% | 5% |
| Supply of goods or materials, other than by the manufacturer or producer | 2% | — |
| Rent, hire or lease | 10% | 10% |
| Directors' fees (non-corporate recipients) | 15% | 20% |
- •Small-business relief: no deduction where the supplier holds a valid Tax ID and the transaction is ₦2 million or less in the calendar month.
- •No Tax ID doubles the rate on goods, services and non-passive income.
- •Remit by the 21st of the following month to the NRS, by the 30th to a State authority, and by the 10th for PAYE.
- •Penalties: 40% of what you failed to deduct and for failing to remit what you did deduct, the amount itself plus 10% per annum plus interest (up to 27%), and on conviction up to three years' imprisonment.
5. Worked example of one invoice
You invoice a corporate client ₦5,000,000 for advisory work. You are VAT-registered; the client is not a VAT withholding agent.
Note: VAT Withholding agents include Ministries, Departments and Agencies (“MDA”) of government, and used to include Oil and Gas companies, Deposit Money Banks and certain telecommunications companies like MTN, Airtel and Glo, but the Tax Reform Acts have not specifically named the latter entities as Withholding VAT agents. Withholding VAT agents, other than MDAs, are to be named in a separate regulation made by the Minister of Finance.
| ₦ | Note | |
|---|---|---|
| Professional fee | 5,000,000 | Actual fee |
| VAT at 7.5% | 375,000 | Output VAT — yours to remit |
| Invoice total | 5,375,000 | What you bill |
| Less WHT at 5% | (250,000) | On the fee only, not on the VAT |
| Cash received | 5,125,000 |
You now hold two things: a liability of ₦375,000 output VAT due by the 21st, and an asset, a ₦250,000 withholding credit note to set against your income tax.
If the client is an MDA or an NRS-appointed collection agent, it also withholds the ₦375,000 VAT and remits it by to the NRS. Your cash falls to ₦4,750,000. You still report the output VAT on your return, and claim the VAT deducted at source. The current VAT filing template on Rev360 makes provisions for claiming VAT deducted at source.
6. Worked example of your VAT month
| Amount (₦) | VAT (₦) | |
|---|---|---|
| Fees invoiced | 5,000,000 | 375,000 output |
| Practice management software | 800,000 | Less: 60,000 input |
| Telecoms and internet | 300,000 | Less: 22,500 input |
| Laptops and equipment | 1,200,000 | Less: 90,000 input |
| Office rent | 2,000,000 | nil: exempt supply |
| Diesel | 400,000 | nil: VAT suspended |
| Net VAT payable by the 21st | 202,500 |
Note the laptops. Input VAT on fixed assets is recoverable under the current law, which it was not before. Do not leave it in cost.
7. Worked example — the year
Same practice: Assumed fee income ₦60,000,000, allowable expenses ₦38,000,000, capital allowances ₦2,000,000, WHT suffered ₦3,000,000.
| As a limited company | As a business name | |
|---|---|---|
| Assessable profit | ₦22,000,000 | ₦22,000,000 |
| Less capital allowances | (₦2,000,000) | (₦2,000,000) |
| Total profits / total income | ₦20,000,000 | ₦20,000,000 |
| Less eligible deductions | — | (₦5,050,000) |
| Chargeable amount | ₦20,000,000 | ₦14,950,000 |
| Income tax | ₦0: small company | ₦2,300,000: Fourth Schedule bands |
| Development levy | ₦0: small companies excluded | Not applicable |
| Less WHT credit | (₦3,000,000) | (₦3,000,000) |
| Position | ₦3,000,000 credit recoverable | ₦700,000 credit recoverable |
Eligible deductions in the business name column are NHIS ₦150,000, life assurance premium ₦400,000 and rent.
“Look at the company column twice. At 0% income tax, the ₦3,000,000 withheld on your invoices is not a credit against anything. It is your cash, sitting with the NRS. It is refundable on a claim made within six years of the end of the year of assessment, payable within 90 days of the authority's decision, with an option of set-off. Small practices routinely leave this behind because they do not file income tax returns when due.”
Generally, Rent relief is the lower of 20% of annual rent paid and ₦500,000, so on rent of ₦4,000,000 it caps at ₦500,000. However, for a registered business, the entire cost of rent is deductible. The capped rent relief applies to computing the income tax position of an individual (employee or freelancer) without a registered business. The full list of eligible deductions is: contributions under the Pension Reform Act; National Housing Fund contributions; National Health Insurance Scheme contributions; interest on loans for developing an owner-occupied residential house; annuity or life assurance premiums on your own or your spouse's life; and rent relief. There is no longer a consolidated relief allowance.
If turnover passes ₦100,000,000 or fixed assets pass ₦250,000,000, the company ceases to be small. Income tax moves from 0% to 30% and the 4% development levy begins. Both limbs are tested; failing either is enough.
8. Your calendar
| Obligation | Due | Authority |
|---|---|---|
| VAT return and payment | 21st of the following month, whether or not you traded | NRS |
| WHT on payments to companies | 21st of the following month | NRS |
| WHT on payments to individuals and business names | 30th of the following month | State IRS |
| PAYE remittance | 10th of the following month | State IRS |
| VAT withheld by an appointed agent | 14th of the following month | NRS |
| Employer annual PAYE return | 31 January | State IRS |
| Companies income tax return | 6 months after the accounting year end | NRS |
| Business name / individual return | 31st March | State IRS |
| Object to an assessment | 30 days from service; the authority has 90 days to reply, or your objection stands | Whichever assessed |
| Input VAT refund claim | 12 months from the transaction. | |
| Note: All input VAT claims (not necessarily refunds) to be claimed within 5 years of the relevant transaction | NRS | |
| Retain records | 6 years after the relevant year of assessment | — |
