Everything you need to know about taxes in Nigeria, explained in simple terms.
⚠️ Updated for Nigeria Tax Act 2026 (Effective Jan 1, 2026)
PAYE is the tax system used in Nigeria for employed individuals. It means your employer deducts income tax from your salary every month before you receive your pay. This is the most common form of taxation for salary earners.
Instead of paying a lump sum at the end of the year, your tax is spread across 12 months. Your employer calculates how much tax you owe, deducts it from your gross salary, and remits it directly to the Nigeria Revenue Service (NRS, formerly FIRS) on your behalf.
PAYE calculation now follows these simplified steps:
Note: These are ANNUAL income thresholds. Monthly equivalents: ₦800k = ₦66,667/month
Let's say you earn ₦250,000 per month (₦3,000,000 annually):
Tax Calculation:
First ₦800,000 @ 0% = ₦0
Next ₦1,960,000 @ 15% = ₦294,000
Note: This is a simplified example. Use our PAYE calculator for accurate results based on your specific situation.
Understanding tax obligations for small businesses and companies in Nigeria.
Company Income Tax is charged on the profits of registered companies in Nigeria. As of 2026, Nigeria uses a simplified 2-tier system based on annual turnover.
Annual turnover < ₦50M
Annual turnover ≥ ₦50M
Great news for small businesses! The threshold doubled from ₦25M to ₦50M in 2026. This means thousands more businesses now pay ZERO company tax!
Development Levy is a brand new tax introduced in 2026. It's charged at 4% of assessable profit and applies ONLY to large businesses (turnover ≥ ₦50M).
The Development Levy consolidates three old levies into one simple payment:
Development Levy - 4% (Single payment)
Who Pays: Only companies with annual turnover of ₦50M or more. Small businesses are exempt!
VAT is a consumption tax charged on goods and services. The current rate remains 7.5% in 2026 (unchanged).
Businesses with annual turnover above ₦25 million must register for VAT, charge it on their sales, and remit it to NRS monthly.
Use our updated 2026 business tax calculator to estimate your company's tax obligations.
Start CalculatingLegal deductions that reduce your taxable income.
The complex Consolidated Relief Allowance (CRA) formula has been abolished and replaced with a simple ₦800,000 tax-free threshold + optional Rent Relief. Much simpler!
The first ₦800,000 of your annual income is completely tax-free! No complex calculations needed - it's automatic.
You can now deduct 20% of your annual rent from taxable income (maximum ₦500,000 per year). Must be formally claimed.
Mandatory pension contributions (usually 8% of your basic, transport, and housing allowances) are deducted before tax. Unchanged in 2026.
Optional contribution of 2.5% of basic salary to the National Housing Fund, which also reduces taxable income. Unchanged in 2026.
For freelancers, contractors, and service providers.
Withholding Tax (WHT) is an advance payment of income tax. When a company pays you for services, they're required to withhold a percentage and remit it to NRS on your behalf.
This is common for freelancers, consultants, and contractors. The withheld amount is a credit against your annual tax liability — meaning you can claim it back when filing your annual returns.
Several withholding tax rates were updated under the new tax law:
🆕 Reduced in 2026
🆕 Reduced in 2026
🆕 Increased in 2026
🆕 Increased in 2026
Know when and how to file your tax returns.
The Federal Inland Revenue Service (FIRS) has been renamed to Nigeria Revenue Service (NRS) under the 2026 tax laws. All tax filings and payments now go to NRS.
If you're employed and your employer deducts PAYE, you may not need to file — your employer handles it.
However, if you have additional income (rental, business, investments), you must file annual returns by March 31st of the following year.
Companies must file annual tax returns within 6 months of their financial year-end (usually by June 30th for December year-end).
VAT returns must be filed monthly by the 21st day of the following month.
Failure to file on time attracts penalties and interest charges. For businesses, penalties can be ₦25,000 for the first month and ₦5,000 for each subsequent month. Always file on time to avoid penalties.
Use our free 2026-compliant calculators to understand exactly how much tax you should pay.