Sole trader PIT versus a small company on the same profit.
Lower-tax structure
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Sole trader tax
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Net retained —
Company tax (CIT + levy + PAYE)
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Net retained —
Two ways to be taxed on the same profit
The choice between trading in your own name and trading through a registered company is one of the first real tax decisions a Nigerian founder faces, and it rarely comes up until profit starts to matter. As a sole trader you and the business are the same taxpayer, so the whole profit is your personal income and it runs through the six personal income tax bands. Incorporate, and the company becomes its own taxpayer that pays Companies Income Tax, while you are taxed separately on whatever salary you pay yourself. This tool puts both routes on the same profit figure so you can see the gap in cash terms rather than in theory.
Personal income tax is collected by your state internal revenue service, for example the Lagos State Internal Revenue Service or the FCT-IRS, not by the federal body. Companies Income Tax, the development levy, and VAT sit with the FIRS (Federal Inland Revenue Service). So the two routes are not just different rates, they are different filings with different regulators, and that administrative weight is part of the real cost of incorporating.
Why the small-company status changes everything
The reason a company can win on tax in Nigeria right now is the small-company rule introduced by the 2025 reform. A company that keeps annual turnover at or below NGN 50 million and total fixed assets at or below NGN 250 million is treated as a small company and, on the rates this calculator applies, pays 0 percent Companies Income Tax and is also outside the 4 percent development levy. That is a genuine zero, not a token allowance. The catch is that any salary you draw is still employment income, so it carries PAYE on the personal bands. The company shelter only helps the profit you leave inside the business.
One thing to flag about how this tool models the company route: it charges CIT on the full profit and then adds PAYE on the salary on top, without first deducting that salary from the company profit. In a real set of accounts the salary would be an expense that lowers taxable profit. The simplification does not change the answer when the company is small (because 0 percent of any profit is still zero), but it would understate the company advantage for a larger company, so read the output as a small-company comparison.
A NGN 20 million profit, both routes side by side
Take the default case: NGN 20 million profit, NGN 60 million turnover, NGN 40 million in fixed assets, and a NGN 6 million director salary. As a sole trader the full NGN 20 million is chargeable income (this tool assumes no reliefs, which is itself a simplification, since rent relief and pension would lower it), so the bands produce NGN 3,630,000 of tax. The company fails the small-company test because its NGN 60 million turnover is above the NGN 50 million cap, so CIT applies at 30 percent on the profit, NGN 6,000,000, and the development levy adds NGN 800,000. On top of that, PAYE on the NGN 6 million salary comes to NGN 870,000, for a company total of NGN 7,670,000. The sole-trader route is cheaper by NGN 4,040,000 of tax on the same profit.
| Step | Sole trader | Company |
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Where the company advantage appears
The default case shows the company route losing because the company is over the NGN 50 million turnover cap, so it pays the full 30 percent CIT and the levy on the whole NGN 20 million before the owner draws anything. The company only wins when it stays small, because then CIT and the levy are zero and the owner is taxed just on the salary they take home. Even then, money left inside the company is not yours to spend until you pay it out, and paying it out as more salary or as a distribution brings its own tax. The honest comparison is between the lifestyle you can fund now and the profit you are deliberately retaining to reinvest. If you need most of the profit in your pocket each year, any company advantage closes quickly.
A practical tip: incorporation makes most sense once profit comfortably clears the point where the top personal bands bite, and when you genuinely intend to leave money in the business. Below that, the filing burden of a company, audited accounts, annual returns, separate VAT and PAYE remittances, can cost more in fees and time than it saves in tax. The 2025 reform also kept the small-company thresholds under review, so check the current turnover and asset limits, and the latest CIT position, with the FIRS before you restructure.
Does the 0 percent rate mean a small company files nothing?
No. A small company still registers, files annual Companies Income Tax returns and audited accounts, and remits PAYE for staff and any director salary. The rate this calculator applies to its profit is zero, but the compliance is not. Skipping filings because the tax is nil can trigger penalties that wipe out the saving.
Should I pay myself a tiny salary to cut PAYE?
Only within reason. A very low salary lowers PAYE today, but you still need income to live on, and large withdrawals dressed up as something other than salary draw scrutiny. Many owners set a salary that covers their genuine living costs and retain the rest. Confirm the treatment of director remuneration with your tax adviser and your state internal revenue service, because the reform is still bedding in.