Introduction
Nigeria’s new tax law, enacted in 2025, represents a major shift in the country’s tax framework. While the Nigeria Tax Act 2025 (NTA 2025) consolidates several provisions from previous tax laws, it also introduces new rules that significantly affect the real estate and construction industry.
This article highlights key tax reforms under the NTA 2025 and explains their implications for real estate developers, investors, property owners, and construction companies operating in Nigeria.
Implications for Real Estate
Property developers and investors are now required to pay CGT on profits derived from the sale of real estate assets. However, the sale of a personal residential property remains exempt from CGT, offering relief to individual homeowners.
Value Added Tax (VAT) on Real Estate and Construction
The VAT rate remains unchanged at 7.5% under the NTA 2025.
VAT Exemptions
The following transactions are exempt from VAT:
- Rent on residential properties
- Sale of residential properties
- Sale of bare land and land titles, including undeveloped plots and farmland
VAT-able Transactions
Despite the exemptions above, the following are subject to VAT at 7.5%:
- Commercial property transactions
VAT applies to the rent, lease, or sale of commercial properties such as offices, warehouses, shops, filling stations, and similar properties. - Construction and development services
The NTA classifies construction, renovation, and development activities as taxable services. This means developers and construction firms must charge VAT on:- Building and construction contracts
- Project management services
- Engineering and related technical services
- Real estate professional services
VAT is applicable to services such as:- Agency commissions
- Valuation and appraisal fees
- Conveyancing and legal services
- Facility and property management services
Input VAT Recovery
A major relief under the NTA 2025 is that businesses may recover input VAT paid on services and capital assets, provided they are used to make taxable supplies. For developers, this means VAT paid on construction materials and professional services can be recovered, potentially reducing overall project costs.
With holding Tax (WHT)
Withholding Tax continues to apply to construction and property-related transactions:
- WHT applies to construction services, with the possibility of reduced rates for local contractors.
- Businesses renting property are required to deduct 10% WHT from rental payments.
Developers and property owners must properly account for WHT deducted by tenants and reconcile these amounts during annual tax filings.
Incentives Provided Under the NTA 2025
The Act introduces several incentives to support housing development, real estate investment, and local manufacturing:
- Mortgage interest deduction: Individuals who own and occupy their homes may deduct interest paid on mortgage loans from their taxable income.
- Rent relief for individuals: Taxpayers may reduce their taxable income by a prescribed amount in respect of rent paid on personal accommodation.
- REIC distributions: Dividends paid by Real Estate Investment Companies (REICs) to shareholders are exempt from additional withholding tax, preventing double taxation.
- Economic Development Tax Credit: Companies operating in priority sectors such as the manufacture of building and construction materials are eligible for a 5% Economic Development Tax Credit, claimable over five years, to reduce their tax liabilities.
Action Points for Real Estate and Construction Stakeholders
To ensure compliance and optimize tax outcomes under the NTA 2025, industry players should:
- Review and update contracts to ensure VAT and stamp duty treatments align with the new law.
- Maintain detailed records of property acquisition and improvement costs for accurate CGT computation.
- Train finance and accounting teams on digital VAT systems and real-time remittance requirements.
- Implement proper WHT tracking for rental income and tenant deductions.
- Structure financing arrangements to maximize allowable mortgage interest deductions for residential projects.
References
- Nigeria Tax Act 2025 (NTA 2025)
- Companies Income Tax (Consolidation and Reform) Provisions under the Nigeria Tax Act 2025
- Personal Income Tax Provisions consolidated under the Nigeria Tax Act 2025
- Capital Gains Tax Provisions consolidated under the Nigeria Tax Act 2025
- Value Added Tax Provisions consolidated under the Nigeria Tax Act 2025
- Stamp Duties Provisions consolidated under the Nigeria Tax Act 2025
- Federal Inland Revenue Service (FIRS) – Implementation Guidelines and Circulars
- Federal Ministry of Finance – Fiscal Policy Measures and Priority Sector Guidelines
- EY Nigeria – Nigeria Tax Act 2025: Highlights and Implications
- Baker Tilly Nigeria – Nigeria’s 2025 Tax Reform Acts Explained
- Estate Intel – Implications of the Nigeria Tax Act 2025 for the Real Estate Sector
- BusinessDay Nigeria – Commentary on VAT exemptions for real estate
- Ogbemudje & Omozua Legal Practitioners – Overview of the Nigeria Tax Act 2025
- 1st Attorneys – Legal Review of the Nigeria 2025 Tax Reform Acts
- PropertyPro.ng – Nigeria’s 2025 Property Tax Guide
- Aluko & Oyebode – Overview of the Notable Changes Introduced by the New Nigeria Tax Acts, 2025
- Mondaq.com – The Nigeria Tax Reform Act 2025 and How It Affects Businesses