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30 June 2025 Nigeria Tax Act, 2025 has been signed – highlights
On 26 June 2025, President Bola Ahmed Tinubu signed the Nigeria Tax Act, 2025 (NTA or the Act), along with three related bills: the Nigeria Revenue Service (Establishment) Bill, the Nigeria Tax Administration Bill and the Joint Revenue Board (Establishment) Bill, collectively known as the Tax Reform Bills. These laws should take effect from 1 January 2026. The NTA marks a significant overhaul of Nigeria’s tax framework, aiming to streamline compliance, broaden the tax base, boost revenue and support economic development. It repeals and consolidates major tax legislation including the Companies Income Tax Act, Personal Income Tax Act, Petroleum Profits Tax Act, Value Added Tax Act, Capital Gains Tax Act and Stamp Duties Act, replacing them with a unified, modernized regime applicable to both resident and nonresident taxpayers. The NTA introduces comprehensive reforms across key sectors — digital services, free zones, gaming, petroleum, mining and more — while embedding global tax principles and reinforcing administrative enforcement.
Section 56 of the NTA redefines “small companies” as those with 50 million Nigerian Naira (NGN50m) or less in turnover and NGN250m or less in fixed assets, excluding professional services. Small companies are taxed at 0%, and others taxed at 30%. Section 57 of the NTA applies a 15% minimum ETR to a company that is a constituent entity of a Multinational Enterprises (MNE) group, and any other company with an aggregate turnover of NGN20b or more in the relevant year of assessment. Section 6(2) introduces taxation on undistributed profits of foreign companies controlled by Nigerian companies. Profits attributable to the Nigerian parent, deemed distributable without harming operations, will be taxed as income in Nigeria. Section 6(3) imposes a top-up tax on Nigerian parent companies where foreign subsidiaries pay income tax below a 15% effective tax rate (ETR). Though Nigeria has not adopted the Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) Pillar 2, this top-up tax aligns with its global minimum tax principle, ensuring profits in low-tax jurisdictions are adequately taxed. Deductible expenses: Supporting new businesses, Section 20(1) allows the deduction of business expenses incurred within the six years that preceded a business’s commencement. Expenses in foreign currency are deductible only at the official Naira exchange rate (Section 20(4)). Nondeductible expenses: Section 21(p) disallows deductions if VAT or import duties were applicable but unpaid. Change of accounting date: Section 23 simplifies tax computation when changing accounting periods by eliminating overlapping assessments and requires notification 30 days before filing income tax returns. Capital allowances: Only capital expenditures on which VAT or import levies have been paid qualify for capital allowances (Section 27(2)). Capital allowance proration is not required if nontaxable income is less than 10% of total income. This upholds the fairness canon of taxation by ensuring that companies with a larger portion of nontaxable income do not enjoy the same relief available to companies with income that is largely taxable. The Act also replaces variable initial and annual allowances with uniform annual rates: 10%, 20% or 25% depending on asset type, and requires retention of 1% notional value until asset disposal. Section 59 replaces various earmarked taxes (such as Tertiary Education Tax, Nigeria Police Trust Fund, etc.) with a unified 4% development levy on assessable profits, excluding small and nonresident companies. The scope of deductible donations expands to capital donations, with a new 10% limit of profit before tax (Section 164). This represents a significant shift that promotes infrastructure-focused philanthropy. If a company makes an in-kind donation, the value of the donated item will be determined at the lower of market value or acquisition cost. Also, proper documentation must be submitted to the tax authority. Exempt income now includes income generated by government bonds, agricultural businesses’ first five years, public educational institutions (which, controversially, was subject to tax following the Finance Act 2021 amendment), and asset disposals by angel investors in startups held longer than 24 months. Interest deduction restrictions are expanded from foreign-connected parties to all connected parties, increasing tax exposure on interest payments. Section 63 brings mutual funds under corporate tax, aligning their taxation with other companies to clarify prior ambiguities. Section 61(11) has revised the deductibility provision to reference the statutory minimum paid-up capital, thereby aligning it with the recapitalization requirements set forth by the National Insurance Commission (NAICOM). Expanded tax nexus: Taxation no longer relies solely on the existence of a Permanent Establishment (PE) or Significant Economic Presence (SEP). The NTA broadens and codifies these definitions, expanding taxable scenarios for NRCs. Taxable income: Taxable income includes profits from trade, business, and asset sales in or deemed to be in Nigeria; income linked to PE or SEP in Nigeria; payments for services from Nigeria, even if services are performed outside Nigeria. PE now includes physical locations (e.g., mines, vessels, quarries), project-based activities like construction or installation (even fragmented or partially offshore), service-based presence through employees, agents, or subcontractors. Focus has shifted from form to economic substance, increasing compliance and reporting burdens for multinationals in Nigeria. Scope: Previously, SEP included digital services and management, technical, consultancy and professional services (MTCP). However, the NTA limits SEP to specific digital services (e.g., e-commerce, digital content, data transmission). As such, MTCP services are no longer considered SEP but remain taxable under a broader service income scope. DTA supremacy: Previously, DTA supremacy had been explicit for digital services, but unclear for MTCP. However, the NTA includes a general provision (Section 121) providing that Double Tax Agreements (DTAs) take precedence when applicable. Tax is based on actual profits where ascertainable; otherwise turnover basis applies. The NTA introduces a monthly tax filing of 2% minimum tax on gross monthly Nigerian revenue. Submission of Audited Financial Statements is not mandatory, such that NRCs can submit certified gross revenue statements instead. Also, the NTA provides that tax compliance certificates should now be required for permits/licenses to be granted from regulatory agencies; thereby introducing firmer tax and regulatory harmonization processes. NRCs are required to pay minimum tax equal to withholding tax deducted or a 4% flat rate on Nigerian-source income if no WHT applies. This ensures tax base protection even if profits are low or undeclared. The NTA expands tax base by taxing activities linked to an NRP’s PE even if physically carried out outside the PE. New rules are provided for asset situs based on economic/ownership connection, beyond physical location. Gains from share disposals by NRPs are subject to tax when ownership changes impact Nigerian assets. Indirect transfers of shares are now taxable. The NTA refines residency rules such that individuals with strong economic or immediate family ties to Nigeria are now considered tax residents. Nigerian residents are taxed on worldwide income; nonresidents are taxed only on Nigeria-sourced income, including digital services. The previous broad exemption for nonresident employees under PITA has been narrowed significantly. Taxable income now includes digital/virtual asset gains, prizes, honoraria, grants and nontraditional sources — reflecting a broader, modernized tax base. Defined valuation rules apply to benefits like rent-free accommodation (capped at 20% of gross income) and employer-provided assets (capped at 5% of cost). These replace vague provisions under the Personal Income Tax Act (PITA). The NTA introduces a rent relief (20% of rent, up to a maximum 500k), replacing the previous consolidated relief. Gratuity is now taxable. Other deductions remain (e.g., pensions, National Housing Fund (NHF), National Health Insurance Scheme (NHIS)) but must be claimed in writing with documentation. Capital gains are now taxed under personal income tax rates (up to 25%), instead of the flat 10% CGT rate. Key changes include: gains from digital/virtual assets are now taxable; exemptions are provided for private residences, low-value chattel and two personal vehicles; loss-of-employment compensation exemption is increased from NGN10m to NGN50m. Presumptive taxation will be targeted at informal sector earners with no reliable income records. Income will be taxable under a framework to be prescribed by the Minister. Tax rate on graduated income brackets have been updated, providing for a tax rate range of 0% to 25%. This structure offers relief for low-income earners and higher liabilities for high earners. If capital allowances were claimed, gains = sale proceeds – tax written-down value. If capital allowances were not claimed, use historical cost. This increases CGT for depreciated assets. Disposals are exempt if sales proceeds are less than NGN150m and gains are less than NGN10m, tightening the exemption rules. Gains from indirect transfers of Nigerian assets (e.g., offshore holding companies) now fall under CGT, broadening the tax net. The CGT rate for corporate organizations is increased to match the Corporate Income Tax (CIT) rate: 30% for most companies, 0% for small companies. Likewise, the CGT rate for individuals has been revised such that individuals now pay CGT at the same progressive rates as PIT (up to 25%). Assets are deemed located in Nigeria if held by Nigerian residents or permanent establishments. For digital assets, location is tied to beneficial ownership or control in Nigeria. Sales into Nigerian customs territory: FZEs exporting more than 75% of their goods/services receive 100% tax exemption on sales. If sales into Nigeria customs territory exceed 25%, taxable income arises on that portion. Minimum ETR: Companies with turnover exceeding NGN20b or a constituent entity of an MNE group with ETR less than 15% must recompute to 15%. This applies to FZEs as well. Lottery and gaming companies are taxed under general income rules, rather than a flat 7% on net proceeds. Deductible expenses include: winnings/prizes, statutory Lottery Trust Fund contributions, agency commissions and regulatory levies. Under the NTA, decommissioning/abandonment costs are deductible only if at least 30% of the fund is deposited in escrow with an accredited Nigerian bank. CIT applies to all petroleum operations, including natural gas liquids and LPG across sectors. Acquisition costs for petroleum rights to be written off over five years, with no retention. The NTA amends gas tax credits and Incentives. No double claim of gas tax credit and gas tax allowance may be made for the same output in the same year. The NTA clarifies that the 10-year gas production tax credit on Non-Associated Gas starts from first production date. The Nigeria Revenue Service (NRS) now administers petroleum royalties (previously administered by the Nigerian Upstream Regulatory Commission). Monthly royalty returns must be filed with the NRS. The deductible expense criteria has been relaxed to “wholly and exclusively” (from stricter former rules). Gains on disposal of chargeable assets will be taxed at rates under Section 56 (30% standard), with exemptions for small companies. Tax deductions will be allowed for contributions to approved environmental remediation funds, which must be cash-backed and held in independent trust accounts. Ad-valorem royalties imposed on mineral extraction will be administered by the NRS, similar to petroleum royalties. The NTA clarifies the liable party for stamp duty payments. Policy holders (not insurers) are responsible for stamping insurance policies. Leases will be taxed based on tenure: less than seven years (0.78%), more than seven years (3%), with exemptions for low-rent leases (less than NGN10m or 10 times minimum wage). A 2% stamp duty will apply on transfer of mineral assets (previously 1.5% on conveyance). Exemptions will be provided on property transactions of less than NGN10m (mortgages, transfers, etc.). VAT invoices must include business registration number and sequential numbering. The NTA requires a mandatory fiscalization system and e-invoicing with real-time validation via the Merchant Buyer Solution (MBS). NRPs supplying taxable goods/services in Nigeria are required to register for VAT and withhold VAT. VAT paid on imports via online platforms should not be subject to additional VAT during the customs clearance process, provided the proof of payment is shown. Under the NTA, humanitarian-project goods are reclassified from zero-rated to VAT-exempt. Assistive devices for disabilities are VAT-exempt. Supplies consumed by Export Processing Zone/Free Trade Zone entities are VAT-exempt. Exports are now zero-rated, allowing full input VAT recovery. Zero-rated supplies include basic foods, medical products, educational materials, electricity supplied to the grid, etc. Input VAT on mixed supplies may be claimed in proportion to taxable use. Claims must be made no later than five years from the incurrence. Refunds for excess input VAT must be claimed within 12 months; NRS will process claims within 30 days. Expenses without VAT or import duty properly paid are not deductible for CIT, Hydrocarbon Tax, or PPT purposes. The NTA introduces a 5% surcharge on chargeable fossil fuel products produced or supplied in Nigeria. The surcharge applies on supply/sale/payment — whichever comes first — and is based on retail price. Certain exemptions apply to renewable energy, cooking gas, kerosene and CNG. The NTA repeals the Industrial Development (Income Tax Relief) Act, replacing the Pioneer Status Incentive (PSI) with the Economic Development Tax Incentive (EDTI). The EDTI introduces a more targeted, performance-based framework aligned with national development goals. It focuses on high-impact sectors and ties incentives to tangible capital investment and sectoral alignment. Eligibility now extends to companies granted exemption from incorporation and promoters of pre-incorporation entities. The Tenth Schedule of the Act lists priority sectors and products, introducing stricter entry criteria and investment thresholds. Notably, renewable energy manufacturing has been added, while sectors like telecoms and e-commerce are excluded — reflecting a pivot to industrial and emerging sectors. EDTI sets significantly higher qualifying capital expenditure (QCE) thresholds compared to PSI. Rather than a flat NGN100m to NGN120m, the new regime requires sector-specific QCE ranging from NGN250m to NGN200b. For instance, renewable energy equipment manufacturing requires NGN100b, and utility infrastructure needs NGN200b — clearly targeting large-scale investments. Applications must be made before the company’s declared production day. Unlike PSI, there is no grace period post-commencement. A flat, nonrefundable 0.1% QCE fee (capped at NGN5m) replaces multiple layered PSI fees — making the process simpler and more transparent. Eligible companies enjoy an initial five-year incentive period, extendable by another five years if profits are fully reinvested in the same product line. This structure rewards long-term commitment and expansion in priority areas — offering up to 10 years of benefit versus PSI’s three to five years. The EDTI replaces full tax holidays with a tax credit model. Taxes paid on qualifying profits during the incentive period become credits to offset future liabilities (excluding additional taxes under effective tax rate provisions). Unused credits can be carried forward for up to five years. Beneficiaries must file annual returns, maintain separate books for priority/nonpriority activities, and stay within compliance thresholds. Failure to comply may lead to loss of benefits. Compared to PSI, this regime enforces tighter oversight and accountability. Dividends from EDTI profits no longer enjoy withholding tax exemptions. This contrasts with the PSI regime and aligns with the credit-based structure — ensuring all distributions are properly taxed. Existing PSI beneficiaries will retain their incentives until expiry but may not reapply under EDTI unless they meet new QCE and timing rules. This limits retroactive benefits and prevents requalification based on past investments. In restructurings, EDTI certificates do not transfer automatically. Merged or acquiring companies must reapply, and new certificates cannot exceed the validity of the longest-standing original. This prevents unintended extensions of benefits and ensures alignment with investment intent. Companies enjoying EDTI cannot claim overlapping incentives under any other law. However, those granted the EDTI before a sector’s sunset period will retain benefits until the end of their term. The NTA marks a pivotal step in the country’s journey toward a more robust, efficient and transparent tax system. It signals the government’s intent to align tax incentives with national development goals, curb abuse and expand the tax net — particularly in sectors like digital commerce, petroleum and extractives. Companies operating in Nigeria must urgently review their operations, tax structures and compliance processes in anticipation of the Act’s effective date of 1 January 2026. Proactive engagement with regulators, updating of invoicing systems, alignment with fiscalization mandates and assessment of eligibility for the new EDTI are all critical next steps. Strategic planning and timely compliance will be essential to address potential risk and opportunities under this new regime. Further NGS guidance and relevant authorities will shape the practical implementation, and businesses should remain agile and informed.
Document ID: 2025-5016 | |
