Nigeria Tax Act 2025: How Assessable Profits Are Determined for Individuals and Companies

Nigeria Tax Act 2025: How Assessable Profits Are Determined for Individuals and Companies

The Nigeria Tax Act, 2025 provides a detailed framework for how both individuals and companies are taxed on their income and profits. It covers everything from continuity of trade to capital allowances, losses, and even situations where proper records are not kept. Let’s break down what this means in practical terms for entrepreneurs, businesses, and individuals.

Continuity of Trade

A business or profession does not stop being taxable simply because of a change in residence or because someone joins or leaves a partnership. As long as the trade itself continues in the same nature, it is treated as ongoing. This prevents individuals from escaping tax obligations by making formal changes while carrying on essentially the same business.

Assessable Income for Individuals

For individuals, assessable income includes business or professional profits, employment income, pensions, and chargeable gains from asset disposals. Employment income is deemed to accrue daily, but bonuses, commissions, or terminal benefits are treated as income on the day they are paid or, if after employment, on the last day of service.
When it comes to chargeable assets, assessable income includes the gains from disposals in the year immediately before the year of assessment. For trustees, executors, or estate beneficiaries, income is also assessed based on the prior year, ensuring that estates and trusts are captured in the tax net.

Total Profits for Companies

For companies, total profits are the sum of assessable profits from all sources, including chargeable gains, less any allowable losses and capital allowances. Capital allowances are permitted only on qualifying capital expenditures directly tied to generating taxable profits. If VAT or import duties are unpaid, such expenditures lose their eligibility. Where assets are only partly used to generate taxable profits, the allowance must be prorated. However, proration is not required if non-taxable income is less than 10% of total income. Special priority is given to industries benefiting from economic development incentives, but deductions can only be applied to the profits of those specific priority businesses.

Treatment of Losses

Losses are carefully regulated to prevent abuse. They cannot exceed the actual amount incurred and must always be offset against profits from the same trade or business where they arose. Losses can be carried forward year after year until fully recouped. Importantly, losses from digital or virtual assets can only be deducted against gains from similar digital or virtual transactions, ensuring fairness and preventing mismatched offsets.

Total Income of an Individual

For individuals, total income is assessable income minus deductions. Deductions include verified losses, capital allowances, exempt income, and income already taxed at source. Losses can be carried forward, but they must always be matched to actual profits in future years until fully recouped.

Presumptive Taxation

Where individuals or businesses fail to keep proper records, or their income cannot reasonably be ascertained, the Act provides for presumptive taxation. In such cases, the Joint Revenue Board, with advice from the Minister, may prescribe how tax will be assessed. This ensures that everyone contributes fairly, even when records are incomplete.

Why This Matters

These rules ensure fairness and close loopholes that could allow businesses or individuals to avoid taxes. By regulating capital allowances, restricting the use of losses, and providing fallback rules like presumptive taxation, Nigeria’s tax system is better equipped to capture revenue across traditional businesses, estates, trusts, and even modern sectors like digital assets.

For entrepreneurs and professionals, this means keeping proper records, understanding allowable deductions, and planning ahead to avoid surprises. For companies, it reinforces the need to align tax planning with compliance.

At Bahas Books, we simplify Nigeria’s tax laws so you can focus on growth, compliance, and smarter decision-making.

👉 Learn more at bahasbooks.com

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