CIT and Lease Agreements: Tax Implications for Lessor and Lessee in Nigeria.

Lease Agreement: Types, Features, Advantages and Limitations


Leasing is a common practice in Nigeria, benefiting both lessors (property owners or equipment providers) and lessees (individuals or businesses renting these assets). However, lease agreements can have significant tax implications for both parties. In this article, we will explore the key tax considerations and implications of lease agreements under the Companies Income Tax (CIT) Act for lessors and lessees in Nigeria.

Taxation for Lessor:

  1. Companies Income Tax (CIT): If the lessor is a company, they may be subject to CIT on the rental income generated from leasing assets. CIT is currently assessed at a rate of 30% of taxable profits. Accurate determination of taxable income is essential, taking into consideration specific deductions and exemptions applicable to leasing activities.
  2. Value Added Tax (VAT): Lessors may be required to charge and remit VAT on lease rentals, depending on the type of leased asset and the terms of the lease agreement.
  3. Withholding Tax (WHT): Payments made by the lessee to the lessor under the lease agreement may be subject to withholding tax deductions, depending on the nature of the payment.

Taxation for Lessee:

  1. Deductibility of Lease Expenses: Lessees can typically deduct lease expenses from their taxable income. However, the deductibility of lease payments may vary based on the type of lease (finance or operating lease) and the intended use of the leased asset.
  2. Value Added Tax (VAT): Lessees may be required to pay VAT on lease rentals, depending on the type of leased asset and the terms of the lease agreement.

Tax Planning and Compliance:

To effectively manage tax obligations related to lease agreements, lessors and lessees in Nigeria should consider the following strategies:

For Lessors:

  1. Accurate Record-Keeping: Maintain meticulous records of all lease transactions, including rental income, expenses, and tax deductions, to ensure compliance and facilitate accurate tax reporting.
  2. Compliance with Regulatory Standards: Adhere to regulatory standards and reporting requirements related to leasing activities.
  3. Professional Guidance: Engage with tax experts and legal counsel with expertise in lease agreement tax regulations to navigate the complexities effectively.

For Lessees:

  1. Lease Structuring: Carefully structure lease agreements to optimize the deductibility of lease expenses and minimize tax liabilities.
  2. Accurate Record-Keeping: Maintain detailed records of lease transactions, including rental payments and any applicable VAT, to support accurate tax reporting.
  3. Professional Guidance: Seek advice from tax experts and legal counsel to ensure compliance with tax laws and regulations related to lease agreements.


Lease agreements are a common practice in Nigeria, providing opportunities for businesses and individuals to access assets and properties. Understanding the tax implications of lease agreements is crucial for both lessors and lessees to ensure compliance with the CIT Act and other relevant tax regulations. By aligning their tax strategies with these provisions, lessors and lessees can navigate the tax landscape effectively while benefiting from the advantages of lease agreements in Nigeria.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, You can also reach us via WhatsApp at +2348038460036.