🗂️ Navigating the Nigeria Tax Act (NTA) 2025: Key Changes & What They Mean for Your Business

by Damilola Oludumila | O.I.D. Legal Consult

By repealing outdated tax laws, the NTA aims to simplify compliance, enhance transparency, and modernize the country’s tax system. This reform seeks to reduce the number of taxes to a single-digit figure, eliminate low-yield “nuisance” taxes, and focus on high-revenue, broad-based taxes that are easier to administer. At O.I.D. Legal Consult, we are committed to guiding businesses and shareholders through these changes, ensuring compliance and protecting their rights in an evolving corporate landscape.

Objectives of the Nigeria Tax Act 2025

The NTA’s primary goal is to create a cohesive tax system that:

• Enhances revenue generation for the government.

• Simplifies compliance for taxpayers.

• Eliminates overlapping or ambiguous provisions.

• Addresses regional disparities in tax administration.

• Promotes fairness by reducing the burden on small businesses and low-income earners.

By consolidating taxes and harmonizing processes across government levels, the NTA ensures a sustainable, efficient, and transparent tax regime. However, the reform has sparked discussions about its economic and social impacts, particularly for businesses navigating the new provisions.

Key Changes in the Nigeria Tax Act 2025

The NTA introduces several significant updates to Nigeria’s tax landscape. Below are the most notable changes and their implications for businesses:

1. Expanded Scope of Income Tax

   The NTA imposes income tax on profits or gains from companies, individuals, trustees, and estates. It now explicitly includes:

   • Prizes, winnings, honoraria, grants, and profits from digital or virtual asset transactions.

   • Losses from digital assets are deductible only against profits from similar transactions.

     Implication: The taxation of digital assets introduces valuation and tracking challenges due to market volatility and anonymity in ownership. Businesses dealing in digital assets should prepare for enhanced reporting requirements and seek international coordination to ensure compliance.

     
     

2. Broader Definition of Interest

   Interest now includes penal interest, foreign exchange differences related to securities, and payments for derivatives.

   Implication: Companies must reassess financial agreements to account for the expanded tax implications of interest-related transactions.

   
   

3. Redefined Dividends

   For liquidating companies, dividends now include capital distributions, previously excluded under the Companies Income Tax Act (CITA).

   Implication: This change increases the tax burden on shareholders receiving capital distributions during liquidation, requiring careful financial planning.

   
   

4. Introduction of Royalty Definition

   Royalties now cover payments for the use or exploitation of any property.

   Implication: Businesses with royalty agreements must review contracts to ensure compliance with the new tax obligations.

   
   

5. Taxation of Nigerian Companies  

   • Controlled Foreign Corporation (CFC) Rules: Profits retained by foreign subsidiaries that could be distributed without affecting operations are deemed distributed and taxed in Nigeria.

   • Minimum Effective Tax Rate (ETR): Aligned with the OECD’s BEPS Pillar 2, Nigerian parent companies must pay a top-up tax if foreign subsidiaries fall below a 15% ETR.

     Implication: These measures strengthen Nigeria’s ability to tax offshore profits, discouraging profit-shifting to low-tax jurisdictions. Multinational enterprises must align their tax strategies with global standards.

     
     

6. Taxation of Non-Resident Persons (NRPs)

   Only expenses related to producing profits attributable to a permanent establishment in Nigeria are deductible. Royalties and similar payments are non-deductible. If profits cannot be ascertained, the National Revenue Service (NRS) applies a profit margin based on comparable companies, with a minimum tax of 4% of total income or withheld tax, whichever is higher.

   Implication: NRPs must maintain robust financial records to avoid arbitrary tax assessments.

   
   

7. Simplified Tax Deductibility Rules

   Expenses must be “wholly and exclusively” incurred for income production to qualify for deductions, removing the “reasonably” and “necessarily” criteria. Expenses in foreign currencies are deductible only at the Central Bank of Nigeria’s (CBN) official exchange rate.

   Implication: The simplified criteria reduce disputes, but the foreign exchange restriction may penalize businesses sourcing forex at market rates due to CBN supply constraints.

   
   

8. Proration of Capital Allowances

   Capital allowances are prorated only if non-taxable income exceeds 10% of total income. Initial allowances are eliminated, and only straight-line allowances apply.

   Implication: Businesses must adjust their accounting practices to reflect these changes, particularly for assets generating mixed income.

   
   

9. Rent Relief Introduction

   The Consolidated Relief Allowance (CRA) is replaced with a rent relief of 20% of annual rent, capped at ₦500,000. Only tenants, not homeowners, can claim this relief.

   Implication: The cap may not reflect Nigeria’s high rental costs, particularly in urban areas like Lagos and Abuja, limiting its effectiveness for many taxpayers.

   
   

10. Chargeable Gains and Assets

    Chargeable assets include shares, digital assets, intangible property, and foreign currencies. Exemptions apply for share sales under ₦150 million with gains not exceeding ₦10 million, regulated securities lending transactions, or reinvested proceeds in Nigerian company shares.

    Implication: Investors must track share transactions carefully to maximize exemptions and avoid unexpected tax liabilities.

    
    

11. Corporate Tax Rates

    Small companies (turnover ≤ ₦100 million, fixed assets ≤ ₦250 million) are taxed at 0%, while large companies face a 30% rate, potentially reducible to 25% by presidential order.

    Implication: Small businesses benefit significantly, but large companies must monitor potential rate reductions.

    
    

12. Effective Tax Rate (ETR)

    A 15% ETR applies to companies with turnover exceeding ₦50 billion or those in multinational groups with €750 million aggregate turnover.

    Implication: Large multinationals must ensure compliance with global tax standards, increasing administrative burdens.

    
    

13. Individual Tax Rates

    A tax-exempt threshold of ₦800,000 is introduced, with progressive rates from 0% to 25% for higher earners.

    Implication: This progressive structure provides relief for low-income earners while increasing contributions from high earners.

    
    

14. Development Levy

    A 4% levy on assessable profits replaces multiple taxes (e.g., Tertiary Education Tax, NITDA Levy) for companies other than small or non-resident entities.

    Implication: Companies previously exempt from specific levies may face increased tax burdens.

    
    

15. Free Trade Zone Taxation

    Entities in Export Processing Zones (EPZs) are tax-exempt if sales are primarily export-driven and less than 25% of sales are to Nigeria’s customs territory. From 2028, all sales to the customs territory will be taxable.

    Implication: EPZ businesses must plan for future tax liabilities as exemptions phase out.

    
    

16. Expanded Input VAT Recovery

    VAT on services and fixed assets used for taxable supplies is now recoverable.

    Implication: This broadens tax relief for businesses, improving cash flow.

    
    

17. VAT Fiscalisation

    Taxable persons must adopt electronic fiscal systems (e.g., e-invoicing) for VAT compliance.

    Implication: While enhancing compliance, this may burden SMEs with high implementation costs unless flexible systems are provided.

    
    

18. Stamp Duty Obligations

    Transferees or beneficiaries must stamp instruments and pay duties within 30 days. Loan capital (e.g., debentures) exceeding 12 months is subject to ad valorem tax.

    Implication: Clearer responsibilities reduce disputes, but businesses must budget for stamp duties on long-term loans.

    
    

19. Fossil Fuel Surcharge

    A 5% surcharge applies to fossil fuel products, excluding clean energy products and household fuels.

    Implication: Energy companies must factor this into pricing strategies.

    
    

20. Tax Incentives  

    • Five-year tax exemptions for agricultural businesses (e.g., crop production, aquaculture).

    • 50% additional deductions for wage increases or new hires in 2023–2025, subject to conditions.

    • 5% deduction of turnover for research and development (previously 10% of profits).

    • Economic Development Incentive (EDI): Replaces the Pioneer Status Incentive (PSI) with a 5% tax credit on qualifying capital expenditure (QCE) for priority sectors, capped at a 10-year period.

      Implication: The EDI’s targeted approach encourages investment but may be less attractive than the PSI’s full tax holiday.

      
      

Commentary and Recommendations

The NTA’s consolidation of tax laws is a bold move toward a more efficient and transparent tax system.

Key benefits include:

• Elimination of Minimum Tax: Loss-making companies are no longer penalized, supporting business recovery.

• Broadened Tax Base: Inclusion of digital assets and royalties ensures modern economic activities are taxed.

• Alignment with Global Standards: CFC rules and ETR align with OECD’s BEPS framework, enhancing Nigeria’s global tax credibility.

However, challenges remain:

• Forex Restrictions: Limiting deductions to CBN’s official exchange rate may penalize businesses facing forex shortages. We recommend stricter reporting instead of restrictive deductions.

• VAT Non-Deductibility: Denying deductions for expenses where VAT was not charged unfairly burdens compliant businesses. Suppliers should bear penalties for non-compliance.

• Development Levy Scope: Applying the levy to previously exempt sectors increases costs. Targeted exemptions should be reconsidered.

• Rent Relief Limitations: The ₦500,000 cap is misaligned with Nigeria’s high rental costs. A higher cap or regional adjustments would better reflect economic realities.

• VAT Fiscalisation Costs: SMEs may struggle with electronic fiscal system costs. Tax authorities should provide affordable, scalable solutions.

• Low EDI Tax Credit: The 5% credit may not incentivize large investments. A reduced corporate tax rate (20–25%) for priority sectors could boost investment.

• Transition Period: A three-month transition window is insufficient. We propose a one-year transition (starting January 2026) to allow businesses to adapt systems and ensure compliance.

How O.I.D. Legal Consult Can Help

At O.I.D. Legal Consult, we assist shareholders in enforcing their rights, resolving disputes, and navigating complex corporate issues, including compliance with the Nigeria Tax Act 2025. Our expert team provides:

• Tax Compliance Support: Tailored advice to ensure adherence to NTA provisions.

• Shareholder Advocacy: Protecting shareholder interests in tax-related disputes or corporate restructuring.

• Strategic Guidance: Helping businesses optimize tax incentives and navigate regulatory changes.

 Contact us: oidlegalconsult@outlook.com

 Visit us: www.oidlegalconsult.com  

Conclusion: The Nigeria Tax Act 2025 is a significant step toward modernizing Nigeria’s tax system, offering opportunities for simplified compliance and enhanced revenue generation. However, its success depends on effective implementation, fair enforcement, and addressing potential challenges. By partnering with O.I.D. Legal Consult, businesses and shareholders can confidently navigate these changes, ensuring compliance and maximizing opportunities in Nigeria’s evolving tax landscape.

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