Executive summary

Under the Nigeria Tax Administration Act (NTAA), which like the Nigeria Tax Act (NTA), took effect on 1 January 2026, the international tax framework in Nigeria is undergoing a subtle but consequential shift.

The NTAA addresses how taxes are collected and how the tax laws contained in the NTA are applied. (For related background, see EY Global Tax Alerts, West Africa | From legislation to action - 2026 business outlook on tax reforms in Nigeria and Ghana, dated 15 January 2026, and Nigeria Tax Act, 2025 has been signed — highlights, dated 30 June 2025.)

The treatment of income tax administration largely remains intact, including the substantive tax treatment of many cross-border payments and the long-standing principles (as reiterated under the NTA) that withholding tax (WHT) constitutes a final tax for nonresident companies (NRCs) without a permanent establishment (PE) or significant economic presence (SEP).

But the administrative expectations governing tax registration have expanded significantly under the NTAA. In particular:

• A mandatory registration requirement is provided in section 4 of the NTAA.
• An expanded definition of a taxable person is provided in section 147 of the NTAA.
• A potentially limited passive income exemption is included in NTAA section 6.
• The administrative penalty imposed under NTAA section 100(2) on Nigerian companies that transact with unregistered persons reshapes the compliance landscape for cross-border transactions.

This development is not merely technical but could pose some direct commercial consequences. Specifically, under NTAA section 100(2), Nigerian companies now face a statutory penalty of 5,000,000 Nigerian naira (NGN5m) for awarding contracts to unregistered persons. As a result, many Nigerian counterparties may be increasingly unwilling to engage foreign vendors that cannot demonstrate either tax registration in Nigeria or a defensible legal basis for exemption. In some cases, payments may potentially be delayed, contracts renegotiated or vendor relationships suspended pending clarity on registration status. Consequently, what was once a peripheral administrative matter is quickly becoming a threshold commercial issue.

Of particular concern is the evolving treatment of royalty and rental income, which was traditionally regarded as passive income. Based on section 147 of the NTAA, the exploitation of tangible and intangible properties is now characterized as an economic activity. Thus, for NRCs that are earning such income but have historically remained outside Nigeria's registration net, the new provision when read alongside the passive income carve-out in section 6, appears to create an interpretational tension and potential exposure for these NRCs.

This Alert examines the emerging registration dilemma, the potential risks of inaction and practical steps foreign vendors and their Nigerian customers must now consider.

Introduction

For many NRCs, engagement with Nigeria's tax system traditionally has been limited. Specifically, if services were rendered offshore and no PE or SEP existed, Nigerian tax exposure was generally confined to WHT deducted at source as a final tax.

Though the underlying tax treatment of many cross-border payments remains unchanged, the administrative framework governing tax registration, identification and compliance visibility has expanded, particularly for foreign companies.

The central question emerging from this shift is whether NRCs without a PE or SEP in Nigeria may now be expected to register for tax purposes, notwithstanding that WHT continues to apply as a final tax.

Historically, Nigeria's approach to taxing cross-border transactions was generally anchored in the concept of final WHT for dividends, interest, rent and royalties (generally regarded as passive income in practice) to the extent that the NRC does not have a PE or SEP in Nigeria. Under the Finance Act 2019 and the SEP Order, which introduced (among other updates) the digital tax nexus (SEP) to Nigeria's international tax space, the scope of income subject to final WHT was further expanded to include management, consulting, professional and technical services provided virtually by an NRC to Nigeria.

Following the recent tax reforms in Nigeria that brought a more consolidated tax regime, the scope of taxation was further expanded/amended. Specifically, section 17 of the NTA provides that all offshore services to a Nigerian resident (or the PE of a nonresident person in Nigeria) should be subject to WHT in Nigeria. The WHT deducted on these payments should, however, constitute the final tax, unless the income is attributable to a PE or SEP of the NRC.

This statutory framework shaped long-standing administrative practice:

• NRCs without a PE or SEP were generally not required to register for tax in Nigeria.
• Compliance responsibility focused on the Nigerian withholding agent, not on the foreign recipient.
• If NRCs without a PE/SEP were registered, it was typically for administrative convenience (such as obtaining WHT credit certificates) rather than due to a legal obligation.

These practically settled understandings are now being tested by changes introduced under the NTAA.

Substantive tax rules versus administrative reach

Final WHT under the NTA — what remains unchanged

It is important to note that the substantive tax position under the NTA has not materially shifted. The combined effect of NTA sections 17(3)(b) and 17(4) continues to support the conclusion that, in the absence of a PE or SEP, WHT deducted on offshore services represents the full Nigerian tax liability of an NRC.

Accordingly, there is no express provision in the NTA requiring NRCs, solely because they earn income subject to final WHT, to file income tax returns or pay additional tax in Nigeria.

However, this conclusion does not resolve the separate and increasingly important issue of tax registration.

Mandatory registration and the expanded definition of a "taxable person"

The NTAA introduces a broader administrative framework. Section 4 of the NTAA requires every taxable person to register with the relevant tax authority and obtain a Tax ID.

Crucially, section 147 of the NTAA defines a taxable person to include any person who carries out economic activity or exploits tangible or intangible property for the purpose of earning income by way of trade or business. This definition is notable for two reasons:

1. It is not expressly linked to physical presence.
2. It is not conditioned on the existence of a PE or SEP.

Based on a combined reading of NTAA sections 4 and 147, it is therefore possible for an NRC to have no further Nigerian income tax liability beyond final WHT under the NTA, yet still fall within the category of persons required to register for tax purposes.

This represents a significant conceptual shift — administrative registration is no longer perfectly aligned with substantive tax liability.

Passive income and the limits of the registration exemption

Section 6 of the NTAA provides that a nonresident person who derives only passive income from investment in Nigeria may not be required to register for tax purposes. This provision appears intended to preserve historical treatment for certain investment-type income streams. However, the NTAA does not define passive income exhaustively, nor does section 6 expressly override the expansive definition of economic activity in section 147. As a result, the scope of this exemption is narrower and less certain than it might initially appear.

Royalties and rent — recharacterization risk

Royalty income has traditionally been regarded as passive, with WHT operating as a final tax and no expectation of registration. However, NTAA section 147 expressly includes the exploitation of intangible property within the meaning of economic activity.

On this basis, an argument may be made that ongoing licensing arrangements, particularly those in which intellectual property is actively commercialized in Nigeria, constitute economic activity rather than passive investment. This interpretation places royalty income in a grey zone between section 6 (passive income exemption) and section 147 (economic activity definition).

A similar analysis applies to rental income, especially if assets are deployed in Nigeria under structured or long-term commercial arrangements. Although WHT may still apply as a final tax under the NTA, the registration exemption under section 6 of the NTAA may not be reliably available in all cases.

Penalty exposure under section 100(2) of the NTAA

The compliance implications of these provisions are significantly amplified by NTAA section 100(2), which imposes an administrative penalty of NGN5m on any statutory body or company that awards a contract to an unregistered person. Although the term "unregistered person" is not separately defined, it must be read in light of the mandatory registration requirement in NTAA section 4 and the definition of a registered person in NTAA section 147.

Critically, the statutory language of section 100(2) is triggered upon the act of awarding a contract to an unregistered person. On a plain reading, this suggests that the NGN5m penalty may apply per contract and potentially per unregistered vendor.

If a Nigerian company engages multiple foreign suppliers or enters into multiple contracts with the same foreign vendor, the exposure could therefore multiply. The financial risk is not merely theoretical; it may be cumulative and commercially significant.

For large Nigerian corporates operating in sectors such as technology, oil and gas, telecommunications, financial services or manufacturing, in which cross-border service, licensing and equipment contracts are routine, the potential penalty exposure could be substantial if foreign counterparties are not properly registered where required.

In practical terms, this provision shifts compliance risk decisively onto Nigerian companies. Faced with possible multi-million-naira penalties on a recurring contractual basis, there is a risk that Nigerian counterparties may increasingly be unwilling to assume interpretational risk. Instead, they are likely to:

• Request confirmation of Tax ID registration upfront
• Insert tax registration warranties into contracts
• Delay contract execution or payment settlement pending compliance verification
• Seek formal comfort positions for situations in which registration is disputed

As a result, the commercial pressure to resolve the registration question now originates from the Nigerian customer and flows directly to the foreign vendor.

Registration as the new commercial gatekeeper

Nigeria's recent tax reforms do not amount to a wholesale expansion of taxing rights over nonresident companies. Final WHT remains firmly embedded in NTAA sections 17(3)(b) and 17(4). However, when read together with NTAA sections 4, 6, 100(2), and 147, it is evident that tax registration and tax identification now operate on a parallel and increasingly independent compliance track. Indeed, the practical implications may be significant.

An NRC may have no additional income tax liability in Nigeria beyond WHT and yet still:

• Fall within the expanded definition of a taxable person and, effectively, be required to register for income tax
• Struggle to rely confidently on the passive income exemption in NTAA section 6, particularly for rent and royalty income
• Expose its Nigerian customer to a NGN5m administrative penalty if registration is required but not obtained

This shifts the conversation from "Is there additional Nigerian tax?" to a more commercially urgent question: "Will our failure to register jeopardize our ability to contract, receive payment or maintain relationships with Nigerian customers?"

In practice, there is a risk that foreign vendors who do not evaluate and clarify their registration position may encounter delayed contract execution, payment suspensions pending Tax ID confirmation, renegotiation of commercial terms, increased withholding exposure under the WHT Regulations and reputational strain with Nigerian counterparties seeking to manage their own statutory risk. In short, registration is no longer merely an administrative formality — it is becoming a commercial gatekeeper for cross-border business with Nigeria.

For NRCs earning income from Nigeria, particularly royalties, rent and other ongoing commercial payments, the prudent course is clear:

1. Conduct a structured impact assessment against the provisions of the NTA and NTAA.
2. Determine whether registration is required, despite final WHT treatment under the NTA.
3. If registration is not required, prepare a reasoned, documented comfort position that Nigerian customers can rely upon to mitigate exposure.

In Nigeria's evolving tax environment, proactive clarity is now a competitive advantage. Silence or reliance on historical practice is no longer sufficient.