BUSINESS NAME AND LIMITED LIABILITY COMPANIES TAX COMPARISON

Business owners have called us multiple times to ask if registering as a business name will result in lower taxes than operating as a limited liability company (LLC).
Let's use data and facts to resolve this argument.
1. Unless your transactions are expressly exempt, both structures are subject to transaction taxes like VAT, WHT, and stamp duties.
2. Business names pay the state in which they conduct business personal income tax. The appropriate tax rates are 25% for income beyond ₦50 million and 0% for the first ₦800,000 of taxable income.
3. The Federal Inland Revenue Service (FIRS) receives tax payments from limited liability companies. For small businesses with less than N100 million in revenue, the tax rate is 0%; for large businesses with more than N100 million in revenue, it is 30%.

Let's take a decent scenario now. Let's say both businesses make ₦10 million in profit and ₦45 million in revenue over the course of a year. How much income tax would each of the two entities pay?

👉 Business Name: Profits up to ₦800,000 are exempt. The graduated tax scale (i.e., 15–18%) is then applied to the remaining ₦9.2 million. ₦1,590,000 would be the anticipated tax.
👉 Limited Liability Companies: They are considered small businesses because their turnover is less than ₦100 million, and they pay ₦0 in CIT.

👉 On the other hand, suppose both entities make ₦500 million and make ₦100 million in profit. This means that the business name will pay taxes at the maximum rate of 25%, or ₦22,930,000, according to the tax scale. However, Limited Liability Companies will pay 30%, or ₦30,000,000, not including the 4% development charge.
You would concur with me that Limited Liability Companies are subject to a fixed 30% tax rate once their turnover above ₦100 million, but they may enjoy tax-free status at lower revenue levels.

Our Honest Advice:
Since the CIT rate would be 0%, registering as a Limited Liability Company would be tax-efficient if your company's revenue is expected to stay at ₦100 million for the duration of its existence.

However, if your company anticipates making hundreds of millions of dollars, keeping a business name might become more flexible and tax-efficient because the maximum profit rate would be 25%, which is less than the 30% rate for a limited liability company.

Many clients and organizations still feel more at ease doing business with a Limited Liability Company, even though taxes may vary and perception frequently influences preference.

The optimal business structure is one that fosters development, credibility, and long-term vision rather than one that saves the most on taxes right now.