Understanding Corporate and Insurance Taxation Under the Nigerian Income Tax Act 2025

Understanding Corporate and Insurance Taxation Under the Nigerian Income Tax Act 2025

By Baha’s Books

Private Motor Vehicles and Capital Gains

Under the Nigerian Income Tax Act 2025, motor vehicles used solely for personal or non-profit purposes are not recognized as taxable assets for Capital Gains Tax (CGT). This means that if you sell your private vehicle, the gain from the sale isn’t taxable. However, the exemption applies to a maximum of two vehicles per individual per year of assessment. Selling more than two vehicles within the same year could trigger CGT on the excess.

Gifts and Capital Gains

When an individual gives away an asset — whether land, cash, or property — as a gift, the transaction is not treated as a taxable gain, provided that no payment or exchange takes place. In other words, you don’t pay tax for giving or receiving a genuine gift. The law only treats it as a taxable disposal if money or other consideration changes hands. This clarification separates charitable giving and personal gifting from commercial transactions.

Charities, Religious Trusts, and Cooperative Societies

The Act provides tax relief for charitable, religious, cooperative, and friendly societies. Any property held in trust for these organizations is exempt from capital gains tax, as long as the income is used strictly for the organization’s stated purpose and not for private gain.
If such property stops serving charitable purposes — for example, if it’s converted to a commercial asset — the trustees are deemed to have “disposed” of it and must pay tax on its market value. This ensures transparency and prevents the misuse of tax-exempt assets for personal profit.

Corporate Tax Rates: The 2025 Standard

For Nigerian companies, the Act sets clear tax obligations:

  • Small companies pay 0% company income tax.

  • All other companies pay 30% on total profits.

However, Section 57 introduces an Effective Tax Rate Rule. If a large company ends up paying less than 15% tax (after deductions and exemptions), it must recompute and pay additional tax until its effective rate equals 15%. This rule mainly affects multinational enterprise (MNE) groups and large corporations with ₦20 billion or more in turnover, ensuring fair contribution to public revenue.

Development Levy: Funding National Progress

The Act introduces a 4% Development Levy on the assessable profits of all taxable companies, except small and non-resident companies. This levy funds national development initiatives across multiple sectors:

  • Tertiary Education Trust Fund (TETFUND): 50%

  • Nigerian Education Loan Fund: 15%

  • National IT Development & Engineering Infrastructure Funds: 16% combined

  • Technological Incubation Board: 4%

  • Defence & Security Infrastructure Fund: 10%

  • National Cybersecurity Fund: 5%

Each agency benefiting from this levy must submit its financial and expenditure reports to the National Assembly, reinforcing transparency and accountability. The levy doesn’t apply to hydrocarbon profits, which are already covered by petroleum-specific tax laws.

Special Economic and Export Zones

Businesses operating within Export Processing Zones (EPZs) or Free Trade Zones (FTZs) fall under special tax rules as outlined in the Second Schedule of the Act. These zones enjoy incentives and reliefs designed to encourage export-led growth, job creation, and foreign investment, while still being required to maintain transparent record-keeping and periodic reporting.

Insurance Taxation: Life and General Insurance

Insurance companies are treated under two broad categories:

  1. General (Non-life) Insurance — covering property, liability, or vehicle insurance.

  2. Life Insurance — covering human life policies and annuities.

For general insurance companies, taxable profit is calculated by taking gross premiums and receivables, subtracting reinsurance costs and allowable deductions, and creating reserves for unexpired risks — future liabilities that haven’t matured by the end of the year.

For life insurance companies, tax applies to investment and other incomes after deducting management and commission expenses. Dividends from actuarial revaluations are treated as taxable profits, ensuring insurers pay tax on real income, not projections.

Companies offering both life and non-life insurance must maintain separate books for each class. Losses from one cannot offset profits from the other. This provision ensures accurate reporting and prevents creative accounting across business lines.

Reserves, Reinsurance, and Deductions

Insurance companies are allowed to deduct:

  • Reserves for unexpired risks and outstanding claims.

  • General reserves for life insurance, including 1% of gross premium or 10% of net profit (whichever is greater).

  • Reinsurance companies can deduct up to 50% of profits for reserve funds if below statutory capital, or 25% if above it.

Furthermore, insurers must report agents, brokers, and adjusters in their annual returns — including employment dates and contact details — to enhance compliance and auditability.

Key Terms Defined

  • Gross Premium: Total premiums received (excluding unearned or refunded portions).

  • Gross Income: Total investment and fee income for life insurance, excluding reinsurance receipts.

  • Investment Income: Earnings from shareholder fund investments.

  • Non-Life Insurance Business: All forms of insurance other than life assurance.

  • Other Income: Any non-life business income outside premium and investment returns.

Conclusion: Why It Matters

The Nigerian Income Tax Act 2025 modernizes how personal, corporate, and insurance income is assessed, ensuring equity, accountability, and alignment with global tax standards. Businesses and individuals must now navigate new thresholds, reporting requirements, and effective tax minimums — but also enjoy clear exemptions for personal, charitable, and developmental contributions.

For small business owners, financial professionals, and corporate taxpayers alike, understanding these provisions is essential to maintaining compliance while optimizing tax efficiency.

Stay informed, stay compliant, and grow smarter with Baha’s Books — your hub for tax education and financial literacy.
📘 Visit bahasbooks.com for more expert insights and business tax breakdowns

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