• By admin
• 0 Comments

Over the past few months, a familiar idea has been circulating among founders, agency owners, and early-stage startup operators in Nigeria. The argument goes like this: register a company, shift income away from your personal account, and qualify for the proposed 0 percent Companies Income Tax starting January 2026.

At first glance, this sounds clever. In practice, for most startups built on knowledge and services, it is a costly misunderstanding of the law.

This article explains why.

The tax shift founders need to pay attention to

From January 2026, Nigeria’s tax framework will be enforced under a new structure backed by new legislation and a new revenue authority. This is not a cosmetic change. It comes with clearer definitions, stricter classifications, and far less room for informal interpretation.

At the center of the discussion are two types of tax:

Personal Income Tax (PIT)

Personal Income Tax applies to individuals. Founders, freelancers, consultants, and employees pay PIT on salaries, fees, and personal earnings. PIT is progressive. Income is divided into bands, and higher rates apply only to higher portions of income.

Companies Income Tax (CIT)

Companies Income Tax applies to registered companies. Under the new framework, certain businesses may qualify for a 0 percent CIT rate, but only if they meet very specific conditions defined in law.

The two laws that define who qualifies

Two Acts form the backbone of the new tax regime:

• The National Tax Administration Act (NTAA)
• The National Tax Act (NTA)

There are supporting laws, but these two determine who can and cannot benefit from CIT exemption. Most of the confusion founders have today comes from not reading these Acts closely.

The classifications that sound similar but are no

The law uses two separate labels when discussing tax-exempt entities:

• “Small business” under the NTAA
• “Small company” under the NTA

To qualify for CIT exemption under either label, a business must satisfy both of the following:

• Gross annual turnover below ₦50 million
• Total assets below ₦250 million

If a business meets these thresholds, it appears eligible for 0 percent CIT. This is where many founders stop reading.

They should not.

The exclusion that disqualifies most startups

Both Acts include the same restriction, expressed almost word for word.

Under Section 147 of the NTAA, a small business is defined, but the definition excludes any business that provides professional services.

Section 202 of the NTA applies the same exclusion to small companies.

This single phrase is the reason most startups, agencies, and digital businesses will not qualify for CIT exemption.

How the law defines services

The National Tax Act defines services broadly. Services are anything that is not goods and not employment under a contract of service.

The definition explicitly includes:

• Intangible products
• Digital assets
• Intellectual property
• Any non-physical value that can be transferred or from which economic benefit is derived

In other words, the law was written with modern digital and knowledge-based businesses in mind.

What counts as professional services

The same Act goes further to define professional services.

Professional services are services provided by individuals or firms with specialized knowledge, skills, or qualifications. The definition covers consulting, planning, advisory work, design, engineering, software development, product support, and similar activities.

Artisans and vocational trades are explicitly excluded. Knowledge work is not.

What this means for founders in real terms

If your startup primarily sells expertise rather than physical goods, you are almost certainly providing professional services under the law.

This includes, but is not limited to:

• Software development and engineering teams
• Product design and UX studios
• Digital and creative agencies
• Consulting and advisory firms
• Tech-enabled service startups
• Most early-stage SaaS companies

If your business falls into any of these categories, revenue thresholds alone do not make you tax-exempt. The nature of your work already disqualifies you.

The tax burden many founders underestimate

Creating a company solely to avoid Personal Income Tax often produces the opposite outcome.

A non-exempt company may be liable for:

• 30 percent Companies Income Tax
• 4 percent Development Levy
• 7.5 percent Value Added Tax

In addition, founders who pay themselves salaries are still subject to Personal Income Tax on those earnings.

The result is a combined burden that can exceed what many founders would have paid under PIT alone. This is especially important because PIT is progressive, while CIT applies at a fixed rate once liability exists.

Why enforcement will not be optional

This regime is tied to institutional reform, including the transition from the Federal Inland Revenue Service to the National Revenue Service. The intent is clarity, consistency, and enforcement.

These provisions are not theoretical. They are designed to take effect immediately from January 2026.

Practical steps founders should take now

Founders do not need panic. They do need preparation.

• Maintain clear descriptions for every transfer, withdrawal, and deposit.
• Ensure your company’s activities are accurately described in official records.
• Avoid relying on social media summaries or hearsay. Read the law or consult a qualified tax professional.
• Align internally with co-founders, finance leads, and operators so tax planning decisions are made with full context.
• Expect a difficult adjustment period as the new regime beds in.

A final note for startup operators

Company structure does not override substance. If your business is built on knowledge, skills, and expertise, the law already classifies it accordingly.

Tax planning in 2026 will reward accuracy and foresight, not shortcuts.

This article is for general information only and does not constitute legal or financial advice.