A single figure decides whether a business must bother with VAT at all: its annual turnover. Cross it, and registration, charging and filing all become compulsory.
The turnover test
A business qualifies as a small business for VAT purposes if its turnover is ₦100 million or less in a year. This test sits in the Nigeria Tax Administration Act, separately from the company income tax exemption, which uses a different Act and a different, disputed figure.
Sales of a capital asset, or of the business itself, do not count towards this turnover figure. Only ordinary trading income is measured.
What the exemption actually covers
Qualifying is not just a paperwork shortcut. Exempt from VAT registration, from charging VAT and from filing VAT returns, so a genuinely small business sits outside the VAT system altogether rather than registering and filing nil returns.
That is a wider exemption than most people expect. It is not only about skipping the monthly return; the business does not charge VAT on its invoices either.
Who is excluded regardless of turnover
One carve-out applies whatever your turnover looks like: a business providing professional services cannot be treated as a small business under this test. Commentary points to firms such as law practices, accountants and consultants as the kind of business this rule targets.
Opting out of the exemption
A qualifying small business is not stuck with the exemption if it does not want it. Opting in takes by written notice to the NRS, which switches a business into the ordinary VAT system: registering, charging and filing from that point.
Some small businesses do this so they can recover input VAT on equipment or services they buy in. Once a business opts in, it takes on the same monthly filing duty as any other registered business.
Reassessing your position
Turnover moves year to year. A business that qualified as small last year might not this year. The reverse is also true.
Check the figure regularly. Do not assume last year's answer still holds.
Why this is not the only turnover test
Nigeria's tax law uses more than one turnover figure, and they do not all measure the same thing. The company income tax exemption for a "small company" is a separate test, with its own disputed figure of either ₦50 million or ₦100 million, depending on which text of the Act is read.
Mixing the two tests up is an easy mistake. A business can be small enough to skip VAT and still owe company income tax, or the other way round, depending on which test its turnover actually meets. Treat each tax on its own terms, and check both every year rather than assuming one answer settles the other.
Our guide to who must register for VAT covers the registration side in full, and the small-company tax exemption is worth reading if you are also weighing up company income tax. Once you know where you stand, the VAT monthly return guide covers what filing involves, or visit the NRS and Rev360 hub for more.