Nigerian Tax Law Reform: The Official Legislative Changes 2025

UPDATE (11 September 2025):

Nigeria’s newly gazetted tax legislation has now been reissued after errors were discovered in the initial versions.
The revised gazettes correct several technical points, though some uncertainty remains. Notable differences include:

• The Nigerian Tax Administration Act now includes a commencement date of 1 January 2025, although this appears to be incorrect. Given that the Act was only signed in mid-2025, the likely intended effective date is 1 January 2026.
• Taxes assessed in foreign currency can now be paid in Naira, using the official exchange rate – except for the upstream petroleum sector, where USD payment is still required.
• Companies operating in Free Zones are now exempt from the new top-up tax on income from approved Free Zone activities, though this does not apply to sales into the customs territory or to entities within multinational groups with turnover above EUR 750 million.
• The corporate income tax rate of 25% can now be reduced in future by Executive Order, if the President chooses to issue such an order.

We wrote some months ago about significant tax reforms in Nigeria. At that time, we had seen the draft legislation. This has now passed through the legislative process and has been enacted as four pieces of legislation. Two of these mostly deal with the government organisations that collect tax (the Nigerian Revenue Service (Establishment) Act and the Joint Revenue Board of Nigeria (Establishment) Act). We will have to get used to a new name for the Federal Inland Revenue Service (FIRS), which will be the Nigerian Revenue Service (NRS).

The other two pieces of legislation bring dramatic, sweeping, changes to the Nigerian tax system, albeit perhaps a bit less dramatic and sweeping than envisaged when we saw the draft legislation.   The Bills went through some changes in their passage through the National Assembly.  Some of those changes were welcome.   On the other hand, some are hard to understand, and there are some disappointments.  These two Acts are the Nigerian Tax Act 2025, and the Nigerian Tax Administration Act 2025. 

Anyway, the Acts are now law, after a long and arduous process. So, now the job is to try to understand the changes, and what they mean for different types of taxpayer. Government is also trying to get to grips with the new law and is promising to release guidance and regulations on at least some aspects. The various tax authorities have a lot to do to train and sensitize their staff, and to update their procedures.

The Nigerian Tax Act (the Tax Act) will take effect on 1 January 2026.   Government has also indicated that the Nigerian Tax Administration Act (the TAA) will also take effect on 1 January 2026, but it does not contain an effective date.  It could be argued therefore that it came into effect on signature by the President or gazetting, and both of those happened on 26 June 2025.  This may influence penalties and some other administrative issues. 

In this newsletter, we will outline what appear to us to be the more important or interesting changes that will affect our clients.  This is a long newsletter, due to the scale of the changes, but even so, In the space available, we cannot provide a full description of these changes and can certainly not list every change from the current position or provide a comprehensive text on the new legislation.  And some of the changes will take some time to fully digest!  So, we expect to release further comments later, and to host some webinars, and we are always available to discuss our thoughts privately with clients.  We have also not discussed the changes as they affect oil and gas production companies, due to their specialist nature. 

Changes Affecting Companies

Corporate tax rate: The rate of company income tax has not changed, so remains as 30%. The Chairman of the Presidential Fiscal Policy and Tax Reforms Committee commented in a recent webinar that the Tax Act contains a provision enabling the President to change the tax rate, and he hoped it would be possible for this to happen before 1 January 2026. However, we have not been able to find this provision in the Act.

The Education Tax, NASENI levy, NIDTA levy and Police Trust Fund Tax will all be subsumed into a new Development Levy, charged at 4% on assessable profits (which are taxable profits including chargeable gains, before deducting losses and capital allowances).    This means a slight tax rate increase to 34% for companies that are not subject to either NIDTA levy or NASENI levy. 

Chargeable gains will now be taxed at a total of 34%, instead of the previous Capital Gains Tax rate of 10%, which is clearly a dramatic increase. 

There is a special rate of income tax, of zero percent, for “small companies.”  A small company is one with annual turnover of less than Naira (NGN) 50 million, and with fixed assets of less than NGN 250 million.   A small company is also not subject to Development Levy.  

Taxes must be paid in the same currency as the currency of the transaction. This is a disappointing reversal of the position in the draft legislation. This rather delegitimises the Nigerian currency, and creates practical problems and expense, especially for companies paying foreign currency expenses, who must fund not only the expense but also the applicable withholding tax, and possible any reverse charge VAT that applies.

Capital Allowances: Capital allowances will be on a straight-line basis, with no first-year allowance. The capital allowance rates have also been streamlined, as either 10%, 20% or 25%, depending on the asset.

Moratorium Loans: The special withholding tax treatment for some longer terms foreign loans will no longer be available. This will be disappointing and detrimental for investors who had structured their investment to take advantage of this treatment.

Interest deductions: There is a slight change to the interest deduction limitation, in that this now applies to interest paid to other related companies, not just to foreign companies. The deduction limit is still 30% of EBIDTA.

Conversion of foreign currency denominated expenses and capex: Tax deduction and capital allowances can only be claimed on the expense or cost, converted in Naira at the official exchange rate. There is some good news though, in that the proposed excise duty on “parallel market” transactions has not been legislated.

Export Processing Zones: The proposed tax treatment has been slightly relaxed. A company operating in one of these zones can make up to 25% of its sales to the “customs territory” and still qualify for the tax exemption. Once sales to the customs territory exceed 25% of total sales, the company will be taxable on all its profit from sales to the customs territory. Then, the full profit from sales to the customs territory will be taxable from January 2028, but the President can extend this deadline up to end of December 2035. However, please see a further comment when we look at Top Up Tax below.

Solid Minerals Royalty: The royalty is now imposed at ad valorem rates between 7.5% and 15%, which depend on the mineral. The value used is the official selling price specified by the Federal Ministry of Solid Minerals, or the ruling price on an international trading platform or market. This a bit vague. Who will decide which of the two methods will apply? What value will be used if there is more than one international trading market for a particular mineral? Mineral royalty rates have been on a rising trend in Nigeria. This could lead to sterilisation of mineral reserves, as royalty is imposed on value, with no recognition of the costs of production, thereby adding to production costs which must be covered in order for extraction of the mineral to be profitable.

These royalties are deductible for income tax. 

Nigerian Company is now defined, as one that is formed, registered or incorporated in Nigeria, or has its place of central management or control in Nigeria, or whose place of effective management or control is in Nigeria. The effect is that a foreign company which is “managed” from Nigeria will be a Nigerian company for tax purposes, and taxable in Nigeria. This may lead to debate and uncertainty about what companies will be regarded as Nigerian companies. We advise any foreign company which could be at risk of being found to be a Nigerian company to prepare a robust defence as to where it is managed, bearing in mind that the burden of proof will be on the company to show why and how it is not managed from Nigeria if the FIRS/ NRS asserts that it is.

The “excess dividend tax” rules are still in the Act but worded so that they should not normally apply. However, they could apply to a foreign company which is now a Nigerian tax resident, and which declares a dividend out of profits earned before it became Nigerian resident. Those profits would not have been subject to Nigerian tax in earlier years.

Controlled Foreign Companies (CFC): If a foreign company is controlled by a Nigerian company and has not distributed profits to its shareholders in a year, it will be deemed to have distributed the profits that could have been distributed without detriment to its business. The effect is that the deemed dividend will be taxable in Nigeria. This fits badly with an exemption we talk about later. This CFC rule only applies if the foreign company is controlled by a Nigerian company, not by one or more Nigerian resident individuals. However, it is still necessary to consider where the foreign company is resident, as that test could still mean it is taxable in Nigeria. Further, a person is deemed to participate in management, control or capital if it controls 30% or more of voting rights, rights to dividends, or other income or right to capital. This is a low threshold and seems to mean that a 30% interest in a foreign company could be sufficient to bring it into the CFC provisions. This could also provide a test for when transfer pricing rules will apply to transactions between companies. The NRS will issue detailed rules for CFCs.

There is still a separate deemed distribution rule for a Nigerian company which is controlled by 5 or less individuals. This provision has not been used much by tax authorities in the past, but it may now become more popular with them.

Again, any company at risk of being deemed to have made a distribution should prepare a defence, to show why a distribution would have been detrimental to its business. A company should presume that it will have to satisfy the burden of proof to prevent the tax being imposed on a deemed distribution.

Limited Liability Partnerships (LLPs): As seen in the draft law, an LLP is deemed to distribute all of its profits to the partners. Thus, it will be subject to corporate income tax on its profits, and the profits will also be subject to dividend withholding tax at 10%, even if the LLP retains all or part of those profits. This results in an overall tax rate of 40.6%, which is much higher than the maximum personal income tax rate. This seems to make the use of an LLP unattractive.

Top-up Tax for foreign companies: If a foreign subsidiary of a Nigerian company, or a foreign member of a multinational group of a Nigerian company, has paid less than 15% tax, the Nigerian parent company must pay a top up tax to the 15% rate. NRS will produce detailed rules. This rule applies with no threshold. However, it will not apply to a foreign company that is treated as a Nigerian company due to its place of tax residence – but see the next point before getting too excited!

Top-up tax for Nigerian companies: If a Nigerian company which is either a member of a multinational group or has a turnover of more than NGN 20 billion (about USD 13 million at the time of writing) has an effective tax rate of less than 15%, then it must pay a top-up tax so that the effective rate becomes 15%. In computing the effective tax rate, use the profit before tax shown in the financial statements, less 5% of depreciation and personnel costs. Companies operating in Free Trade or Export Processing Zones are excluded from this. However, companies which earn foreign passive income or export proceeds and qualify for a tax exemption (see later for more on this) do not, on the face of it, escape from the top up tax requirement, but their tax liability will be 15% (or a bit less due to the extra 5% allowance for depreciation and staff costs), rather than 34%.

Pre-trading expenses: Expenses incurred up to 6 years before a business commences are allowed as a deduction, if they would have been allowed if incurred after the business commenced. This should be useful for some new businesses.

Research & Development (R&D) costs: R&D costs are deductible but limited to 5% of turnover. This is simpler than the current position, and it is good that the limit is based on turnover rather than profit.

Liabilities waived, released or recovered: Any liabilities waived, etc, will be included in assessable profits or chargeable gains. This is somewhat clearer than the current provision, as it does not require consideration of what caused the liability. As now, this means that careful consideration of the tax position is required before debts are waived. As a general rule, do not waive debts owing by Nigerian companies!

Bad debts: Bad debts arising from a transaction with a connected person are not deductible.

Foreign companies operating in Nigeria: If a foreign company operates in Nigeria through a permanent establishment (PE) or a Significant Economic Presence (SEP), it will be taxed on the actual profits it makes in Nigeria. If the use of the global profit margin leads to a higher figure than the actual profits, then the profit margin approach is to be used. In any case, the tax payable will not be less than any Withholding Tax suffered, or 4% of sales if no WHT was suffered. If a company does not publish financial statements or is not required to do so, that that the profit margin cannot be established, the FIRS/ NRS can use the profit margin of a comparable company. Overall, the tax position for foreign companies operating in Nigeria will continue to be complicated.

Foreign Airlines and Shipping companies must pay tax of at least 2% of their income for passengers or cargo loaded in Nigeria. These companies must provide a monthly return of income, in addition to the annual tax return.

A foreign insurance company which receives a premium from Nigeria is subject to withholding tax.

Any foreign company earning income from Nigeria should also check relevant Double Taxation Agreements, to see if these over-ride the Tax Act.

A foreign company which has a PE or SEP will not be liable to Development Levy.

A foreign company will not be deemed to have a PE or SEP in Nigeria solely because it employs people in Nigeria, if the duties of those employees in Nigeria are not primarily for customers in Nigeria. This should be useful for foreign companies wanting to use Nigerian employees, for example as customer service agents for foreign customers, or to provide IT engineering to a company operating outside Nigeria.

Digital or virtual assets: Losses on disposal or other transactions of digital or virtual assets can only be set off against profits arising from such assets.

Mining: Contributions to funds or arrangements to provide for environmental protection, remediation, land reclamation or mine rehabilitation or mine closure expenses, are allowable. The fund or arrangement must be approved by a relevant authority. This seems to be slightly more flexible than the current provision.

Pioneer Status (a tax holiday): This has been replaced by the Economic Development Tax Incentive (EDI). A holder of existing pioneer status benefits will continue to enjoy those for their unexpired period.

The NIPC will continue to manage the new scheme. There is a new list of industries and products that qualify for the new incentive. All of these have a “sunset date” by when they are expected to be adequately established in Nigeria and therefore no longer requiring an incentive. However, if the EDI status is granted before the sunset date, the benefit will continue for its unexpired period. EDI status is granted for 5 years, from the commencement of the business. The approval of the incentive cannot have retrospective effect. The incentive period can be extended by up to 5 further years, if the company invests 100% of its profits during the incentive period for expansion of production of the same products.

The incentive is that the tax payable on the profits is regarded as an Economic Development Tax Credit and can be used to pay the tax payable for the priority period. It therefore appears to be, in essence, a tax exemption. Our understanding is that this mechanism means that the holder of this incentive will not be liable to the domestic top up tax, as it will be regarded as having been liable to tax.

We are not sure if foreign countries will regard this as a Nigerian tax liability, when considering if the parent of the Nigerian company is subject to a Pillar 2 type top-up tax.

Double Tax Credits: The method for granting foreign tax credits to Nigerian companies has been greatly improved, with a unilateral credit now given for foreign taxes. This will no longer be restricted to taxes paid in Commonwealth countries (which was an anachronism) or restricted to 50% of the foreign tax. However, it seems that a Nigerian company will not be allowed to claim a tax deduction for foreign taxes where a credit cannot be used.

Capital gains: We mentioned earlier that capital gains will now be taxed at income tax rates.

There are two circumstances in which a gain on the disposal of shares in a Nigerian company is not taxable. These are:

• The proceeds from such disposal are, in aggregate, less than NGN 150 million (about USD 98,000) , and the capital gain is no more than NGN 10 million (about USD 6,500), in any 12 consecutive months.
• The proceeds on disposal of a Nigerian company are reinvested in shares of Nigerian companies, in the same year of assessment as the disposal. This is a roll over provision, and the time limit is restrictive.

Broadly speaking, if a non-resident person disposes of shares in a foreign company, this will lead to a chargeable gain for the non-resident, if the disposal results in a change of ownership structure or group membership of a Nigerian company, or the change of ownership of any asset located in Nigeria. This extends Nigeria’s capital gains taxation system to “indirect disposals” of Nigerian assets.

Group reorganisations: The provisions for taxation of group reorganisations have been significantly changed. Transactions can be structured so that no capital gains tax or recoveries of capital allowances arise on the transaction, and unutilised capital allowances continue to be available to the continuing company. In some cases, unabsorbed losses can be carried forward. The tax authority must be informed of the transaction in advance. There will no longer be a need for the two parties to be part of the same group of companies for 12 months prior to the transaction, which is a welcome simplification.

If a business, or part of a business that is capable of separate operation, is transferred as a going concern, and the purchaser will use the assets in the same kind of business, and the purchaser is either registered for VAT or is registerable because of the transaction, then the transfer will not be subject to VAT.

Other income tax exemptions for companies: The following types of income will be exempt from income tax.

• Dividends received from investment in wholly export oriented businesses – this is more likely to be applicable to individuals as dividends earned by a Nigerian company from another one are exempt from tax anyway, after withholding tax has been deducted from the dividend.
• Dividend, interest, rent or royalty derived outside Nigeria and brought into Nigeria through approved channels. However, if the income is not brought into Nigeria, or if a dividend is deemed to have been distributed by a foreign company due to the CFC rules, this exemption appears not to apply. The recipient will also still be subject to the top-up tax if it meets the thresholds for that tax. This provision seems to have been inserted late in the legislative process and returns the tax system to apparently encouraging investment outside Nigeria rather than in the country.
• Profits of any Nigerian company in respect of goods or services exported from Nigeria, if the proceeds are repatriated to Nigeria through official channels. This will not apply to any company in the upstream, downstream or midstream petroleum industry. Once again, it seems that the company will still be subject to the top-up tax.

Value Added Tax (VAT)

VAT has been fundamentally reformed, and now closely resembles a “normal” VAT system. The rate has not increased, as originally expected, but remains at 7.5%.

The main change is that all VAT registered vendors can now claim input tax, on operating costs and capex. This is no longer restricted to the costs of stock for resale or manufacturing. This is welcome and overdue but will need changes to accounting systems, in time for implementation on 1 January 2026. Input tax can be claimed on taxable supplies after 1 January 2026. Input tax can be claimed within 5 years from when it was incurred.

The VAT threshold is NGN 50 million (about USD 33,000 at the time of writing).

Tax invoices must be issued for all sales and must contain stipulated information. A tax invoice is required to support input tax claims.

Exported goods (other than oil and gas) and exported services are zero rated. Oil and gas exports are exempt from VAT, as are supplies of crude petroleum and feed gas for processed gas. Supplies of land and buildings or interest in these remain exempt from VAT.

Some electricity supplies are zero rated. Supplies consumed by an approved entity in a EPZ or free zone are exempt from VAT.

Banks will need to apportion the input tax they incur, and only claim the portion that relates to the taxable supplies made (such as fee income), rather than interest or income from the sale of securities.

As is already the case, a non-resident who makes taxable supplies of goods or services in Nigeria must register for VAT, and charge VAT in its invoices. The Nigerian customer must deduct VAT at source and pay it to the NRS, unless the NRS appoints an agent to collect the VAT. The agent can be the foreign supplier. If goods are imported into Nigeria through an online platform operated by a non-resident supplier, the goods will not be subject to VAT on clearing of the import, if the VAT was paid on sale and proof of payment of the VAT is provided to the Customs Service.

There are some rather strange provisions, including-

• If a person who received a taxable supply and was issued an invoice on which VAT was not charged, the NRS can direct that the person should self-account for the VAT payable. It is unclear as to when NRS will do this rather than seeking to collect the VAT from the supplier, or if may even recover the VAT from both parties.
• If an amount was subject to VAT (or to customs duty on import) and this was not paid, the amount is not allowable as a deduction for income tax.

Taken together, taxpayers will need to ensure that their suppliers have correctly charged VAT.

VAT returns are to be filed monthly.

A small company (that is, with annual turnover of NGN 50 million (about USD 33,000) or less per year, and with fixed assets not exceeding NGN 250 million (about USD 163,000)) are not required to register for VAT or to file returns. However, it can choose to opt out of this exemption.

VAT returns must include details of the place of consumption of taxable supplies. We understand that this means that the return must disclose the value of sales in each state, so that the VAT can be properly attributed to the various states.

The NRS can require a person making a taxable supply to use a fiscalisation system as prescribed or deployed by the NRS, or to use an electronic invoice system.

The VAT sections of the Tax Act do not appear to deal with bad debts, discounts or other adjustments to agreed prices, among other issues. We expect that the NRS will issue detailed guidance or regulations, and we expect further changes to the law in future years, as deficiencies in the legislation are identified.

Fuel Tax

A tax of 5% (called Surcharge) will be imposed on fossil fuel products provided or produced in Nigeria, levied on the retail price. This will not be charged on household kerosene, cooking gas, compressed natural gas, or clean or renewable energy products. This is expected to increase energy costs for all consumers, both businesses and individuals, and can be seen as part of a journey away from subsiding energy use. Charging of VAT on certain fuels remains suspended.

Stamp duty

Stamp duties have been somewhat simplified, but there are still a lot of different documents subject to stamp duty, including some which look like “nuisance taxes,” as imposing a bureaucratic burden without the likelihood of raising significant revenue. Some of the new rates will impose a noticeable burden on businesses and individuals.

Examples:

Sale of real property. 1.5% of value, but property with value of less than NGN 10 million is exempt. There is an exemption for transfer between associated companies where those companies have 90% common ownership.

Transfer of mineral assets, 2%.

Assignment by security, or mortgage. 0.375% of value but exempt if value of the property is less than NGN 10 million.

Bills of exchange 0.1% of value

Capital duty on nominal shares at 0.75%. We are not totally sure what this, but presume it is a duty on the nominal value of authorised or issued share capital.

Leases. Term up to 7 years, 0.78%. Term longer than 7 years, duty at 3%. Property with an annual value of less than NGN 1 million is exempt. We presume that the duty is imposed at the inception of the lease, on the annual rental.

Capital duty on loan capital at 0.125%. Bank overdrafts, loans for a term of less than 12 months, and loans for on-lending are exempt. The rate is reduced to 0.1% if the loan is used to convert or consolidate existing debt.

Policy of insurance, at 0.075%. This may discourage Nigerians from arranging insurance cover. However, marine insurance and personal injury insurance attracts duty of NGN 500.

Receipt for more than NGN 10,000 (approx. USD 7) attracts a duty of NGN 50. The good news is that the rate is no longer ad valorem.

Electronic receipts for money transfers of more than NGN 10 000 (approx. USD 7)– the duty remains as NGN 50 (approx. USD 0.03), with the existing exemptions for payments into a person’s own accounts or transfers between the same owner’s accounts at the same bank. Cheque books attract a duty of NGN 50 per leaf, presumably to discourage use of cheques to avoid the duty on electronic transfers.

Transfer of marketable securities 0.225%, and contract note for marketable securities 0.04%. However, these rates do not apply, as the Tax Act contains an over-riding provision that all instruments or documents relating to transfer of all stock and shares are exempt from stamp duty. This restores the position under the current law.

All agreements or contracts are subject to a duty of NGN 1,000, but contracts for a value of less than NGN 1 million (approx. USD 650), for the hire of a labourer or menial servant or employee, of the sale of any goods, wares or merchandise are exempt. We wonder if there are many instruments that will be subject to this duty, or whether it will raise a worthwhile amount of revenue.

Changes affecting individuals

Many of the changes which affect companies and are dealt with earlier will also affect individuals.

Tax rates for individuals have been changed. This is good news for those earning lower amounts, but less welcome for those who earn high amounts. The first NGN 800,000 (approx. USD 520) of annual earnings will be exempt from tax. The top rate will be 25% for income above NGN 50 million (approx. USD 33,000). This is higher than the existing maximum effective rate (after taking the exempt amount into account) of about 19%. The tax rate will be higher than the current rates when income exceeds about NGN 12 million (approx. USD 8,000).

Resident individual is now defined. An individual will be resident in Nigeria, if they are domiciled in Nigeria, or have a permanent place available for domestic use in Nigeria, or have a place of habitual abode in Nigeria, or stay in Nigeria for an aggregate of 183 days or more in a 12 month period (inclusive of annual leave or periods of temporary absence), or have substantial economic and immediate family ties in Nigeria, or serve as a diplomat of Nigeria in another country. This is a very comprehensive definition! In some cases, double taxation agreements will provide some protection, but we expect many expatriates to become “residents” in Nigeria under this definition, and it could also affect diaspora Nigerians.

Income of a resident individual: All income, gains, and profits of an individual who is resident in Nigeria are taxable in Nigeria, even if not brought into Nigeria or received in Nigeria. This, in essence, makes the Nigerian personal income tax system and capital gains tax system to a world-wide basis. There is a rather narrow exemption for non-resident employees of start-ups, or tech driven services or creative arts, whose employment income is taxable in their country of residence.

Exemption for certain foreign income: Foreign dividends, interest, rent or royalties that are brought into Nigeria through official channels are exempt from tax. This exemption was inserted into the Tax Act late in the legislative process and appears to be an attempt to restore the current position. However, the over-riding system of taxing world-wide income and gains now means that any income that is derived outside Nigeria and is not brought into Nigeria (or is brought to Nigeria through unofficial channels) will now be taxable. People with foreign passive income may find it useful to bring the income to Nigeria and deposit it in a foreign currency (domiciliary) account, if it is possible to send funds from such accounts back out of Nigeria without restrictions. This exemption does not apply to foreign employment income or fees. It may also not apply to dividends from foreign companies which are resident in Nigeria, or to dividends deemed to have been declared by a company controlled by 5 or fewer individuals.

Military officer salaries: The salaries of military officers will be exempt from income tax. This is an unexpected exemption. We are not sure if it applies to all military personnel, or just to commissioned officers. We also assume that it is intended to apply to officers of the Nigerian military forces, rather than foreign or irregular forces. We are not sure that this provision is valid in terms of s 42 of the Constitution. There is a separate exemption for emoluments of “other ranks” and other personnel serving in combat zones, hazardous areas and designated operations.

Rent Relief: An individual will have rent relief for 20% of rent they pay for a residence. This obviously does not apply to an individual who lives in a property he or she owns. The relief is limited to NGN 500,000 per year. The individual must declare the rent paid and any other information that the tax authority requires, presumably so that the tax authority can ensure that the landlord declares the income. An individual who borrows money to develop a residence remains entitled to tax relief on the interest, as now.

Personal injury compensation: Compensation for personal injury, including compensation for loss of office, libel, etc, is only taxable on amounts exceeding NGN 50 million (about USD 33,000).

Capital gains tax reliefs: The sale of a person’s principal private residence is exempt from tax. This exemption can extend to land immediately adjoining the residence, up to 1 acre. This exemption is only granted once in a lifetime. The disposal of motor vehicles is not subject to capital gains tax, if these are used for private or non-profit purposes, and is limited to two vehicles per individual per year.

Accommodation fringe benefit: The benefit that is taxable will be the annual value of the premises, up to a maximum of 20% of annual gross income from the employment. The annual value is the annual rental value for local rates. However, where there is no local rating law, the annual value will be determined by the tax authority.

Other Administrative changes

The Tax Administration Act does not contain an effective date, so appears to come into effect on 26 June 2025. This could mean that the new provisions on penalties and assessing timelines come into force immediately, despite the verbal comments from the FIRS Executive Chairman that implementation will be on 1 January 2026.

Tax ID: A person can now only have one Tax ID, which will be valid for all taxes and all tax authorities. This Tax ID number must be stated on all correspondence for tax compliance purposes, stated on documents prepared in respect of any transaction, and is required for entering into a contract with any federal or state government body or agency, or local government. Banks, insurance companies, stockbrokers and providers of other financial services must ensure that any customer who is a taxable person provides a Tax ID.

Changes in the details of a person with a Tax ID must be notified to the tax authority within 30 days. This includes the change in any person who holds 5% or more of the shares of a company, or a change in the beneficial owner of shares held by a nominee. The sale, take-over or merger of a company must also be notified to the tax authority.

A company or statutory body which awards a contract to an unregistered person shall suffer a penalty of NGN 5 million (about USD 3,300).

Registration by non-residents: Any non-resident that supplies taxable goods or services to any person in Nigeria, or derives income from Nigeria, must register for tax and obtain a Tax ID. However, this is not required for a person who only derives passive income from Nigeria. A non-resident person which only earns income which is subject to withholding tax as a final tax does not have to file a tax return, but will have to register.

Virtual Asset Service Providers: Any person engaged in activities related to virtual assets, including exchange, trading, custody or issuance, must register with the tax authority. They must also obtain a licence from the Securities and Exchange Commission (SEC) before commencing activity. They must maintain KYC documentation, will have to make reports to the Nigerian Financial Intelligence Unit (NFIU) and will need to obtain a certificate from the Special Control Unit against Money Laundering (SCUML).

They must file a monthly return of activities.

Tax Agent Accreditation: Tax agents will need to be accredited by tax authorities. The tax authorities are to set out the requirements for accreditation. We understand that the FIRS/ NRS is discussing this with relevant professional organisations.

Tax Clearance Certificates: Tax Clearance Certificates are to be issued within two weeks of request but can be denied if reasons are given by the tax authority.

Objections: The objection timelines and procedures are unchanged. Tax authorities must respond to objections within 90 days, or the objection will be deemed to be upheld. This will require new working methods by tax authorities.

Appeals: If a taxpayer appeals to the High Court, against a decision of the Tax Appeal Tribunal, it must pay a deposit of 20% of the disputed amount as security, into an account designated by the High Court. This is an improvement on requiring a portion of the tax in dispute to be paid to the tax authority.

Assessing time limits: If a tax audit has been commenced within 6 years of an assessment, the tax authority can continue with the tax audit and can raise additional assessments. The tax authority does not have to show any wrong behaviour by the taxpayer, just that the audit commenced before the 6th anniversary of the making of the assessment. We predict that many tax audits will be commenced shortly before the 6th anniversary of assessments, and the tax authorities will not have any urgency to complete these. Taxpayers will be jeopardised by what is likely, in practice, to become an open-ended timeframe for additional assessments to be made.

Disclosure of tax planning: Any transaction or agreement which has a principal purpose to obtain a tax benefit or advantage (which are broadly defined) must be disclosed to the tax authority, without request. The details to be disclosed are those required by the tax authority, and the time limit for making the disclosure will be specified in regulations. We understand that the FIRS is drafting the regulations, and this mandatory disclosure cannot be required until the regulations are issued. There is likely to be some doubt as to what transactions or agreements have a principal purpose of obtaining a tax benefit, but the burden of proof will be on the taxpayer.

Tax authorities can take measures against tax avoidance arrangements, including assessments and adjustments.

Advanced Tax Rulings: Tax Rulings can be issued by tax authorities, either at their own instance or within 21 days of an application. The tax authority can decline to issue a ruling that has been requested, giving reasons for their inability to issue the ruling.

Assignment of tax debts: A tax authority can assign tax debts to third party collectors, if it has exhausted all legal steps for debt recovery.

Compounding of offences: A tax authority can “compound” any offence, by accepting a monetary settlement that does not exceed the amount of tax involved plus the maximum fine. This does not constitute conviction. This is likely to make tax authorities more willing to apply penalties that otherwise require prosecution and conviction, as there will be circumstances when taxpayers will prefer to make a cash settlement of the matter rather than risk prosecution and conviction.

Formal Settlement Procedures: Tax disputes will not have to be settled by resolution of objections and appeals by the tax authorities, Tax Appeal Tribunal and courts. The method for settling disputes has been formalised. However, this will not be available for cases of intentional tax evasion, fraud, or where it will be in the public interest to have judicial interpretation of an issue and the case will promote taxpayer compliance. This appears to add a degree of extra formality or bureaucracy to what is currently somewhat informal.

Tax refunds: Tax refunds are to be paid after an audit by the tax authority. Claims for refunds must be made within 6 years of the end of the year of assessment that they relate to. The refund is to be paid (or set off against any other tax owed by the same taxpayer) within 90 days of a decision by the tax authority. Unfortunately, there is no stipulation on the time frame for the tax authority to make a decision.

There is a special provision for VAT refunds. These are to be made within 12 months of the transaction giving rise to the refund. The refund is to be made within 30 days of receipt of a valid request. We are not sure what constitute a valid request, or who determines if it is valid. The refund can be set off against any tax liability of the taxpayer or paid in cash. It seems that the VAT refund could be set off against other taxes, not just VAT, but we expect that there will be practical problems in arranging setoffs against income tax, and more serious problems in setoffs against taxes owed to a state tax authority.

Interest: The interest rate on overdue tax is the Monetary Policy Rate (MPR) plus a spread, for NGN debts, as is currently the case. For foreign currency tax debts, the interest rate will be the SOFR rate plus a margin of 10% or a different spread as determined by the Minister of Finance. This could lead to very high rates for foreign currency tax debts.

Penalties: There are many new penalty provisions. Some of these are listed below-

• Not making an attribution of VAT on sales, or not notifying the tax authority, NGN 1 million (about USD 650).
• Failure to deduct withholding tax, 40% of the amount not deducted. If the tax was deducted, but not paid over to the tax authority, the penalty is rather 10% per annum. It is a bit surprising that deducting tax and not paying it to the tax authority is treated more leniently than not deducting it at all, but we also wonder how a penalty is applied per annum, as that conceptually appears more like interest. However, there is another prevision that can apply in this scenario.
• Not paying over any tax withheld, or not self-accounting for the correct amount of tax, 50% of the tax due, or 3 years imprisonment, or both. This seems to apply to under-reporting of tax due on a self-assessment return or on a VAT return and is therefore rather more significant than the 10% penalty that applies under the former law.
• A virtual asset service provider which fails to comply with the Act, NGN 10 million (about USD 6,500) for the first month, and NGN 1 million (about USD 650) for each subsequent month, or revocation of the licence.
• Stamp duty. 10% of the duty.
• Corrupting a tax official. NGN 500,000 (about USD 325) for an individual or NGN 2 million (about USD 1,300) for a body corporate, or 3 years in prison, or both. The tax due must also be paid.
• Being a corrupt tax official (for example, demanding or taking bribes, keeping taxes for own use, falsely accounting for taxes collected, stealing documents, compromising on assessment or collection of tax). A fine of 200% of the tax involved or 3 years in prison, or both.

Apparently missed opportunities

We are disappointed that the opportunity was not taken to make some other changes, such as –

Death or estate tax: This is still not contained in the tax legislation, and it appears that the National Assembly was wary of doing anything that could presage such a tax. However, Nigeria already has a form of tax on dying, in the form of the probate duty imposed under the rules of the High Courts. We still think this should form part of the body of tax legislation.

Certificate of Acceptance of Fixed Assets: This requirement to obtain a certificate from the Industrial Inspectorate Division of the Ministry of Industry (IID), supporting the cost of fixed assets acquired for more than NGN 5 million, has not been abolished. This is an unnecessary bureaucratic requirement that only appears to benefit the employees of the IID and consulting firms who assist in obtaining these certificates. The Industrial Inspectorate Act actually requires any person who intends incur capital expenditure of NGN 5 million (approx. USD 3,300) to notify the IID of this intention, which is an unnecessary obstruction to investment.

Thresholds and penalties: Penalties (except those which are a percentage of the tax involved) and the various thresholds have all been expressed in NGN. Inflation (which is currently more than 20% per annum) will quite rapidly erode the “real” value of these amounts, and it is cumbersome to arrange fresh legislation to change these. It may have been useful to specify these in “units,” and define a unit as an amount of NGN so that it can be easily changed by Ministerial Order or other Statutory Instrument. elementor-action%3Aaction%3Dpopup%3Aopen%26settings%3DeyJpZCI6IjMzNzEiLCJ0b2dnbGUiOmZhbHNlfQ%3D%3D

So as you can see, this is a major overhaul of the Nigerian tax system, and businesses and individuals will need to adapt their current processes to ensure that they stay ahead of the law. If you’d like to discuss how this affects your business, please get in touch.