INTRODUCTION
Tax compliance is a critical responsibility for every business operating in Nigeria; therefore, understanding the types of taxes applicable to each business is essential for business growth and legal compliance.
Nigeria’s 2025 Tax Reform introduced 4 (Four) distinct but interlinked pieces of legislation, each designed to modernize and simplify the country’s tax framework as well as expand the tax base.
The tax reforms, collectively known as the Nigeria Tax Reform Act 2025, comprises of the Nigeria Tax Act, Nigeria Revenue Service (Establishment) Act, Nigeria Tax Administration Act, and the Joint Revenue Board (Establishment) Act. This article outlines their major amendments and the implications for businesses in Nigeria.
The Key Provisions of these Laws Businesses Should Know are:
- Personal Income Tax (PIT): Personal Income Tax applies to individuals, sole proprietors, and partnerships. Personal income Tax is administered by the State Internal Revenue Service, and the rate system ranges from 7% to 24% depending on the income bracket. The Act changes the income brackets and applicable tax rates for each bracket. Individuals earning ₦800,000.00 (Eight Hundred Thousand Naira) or less per annum will now be exempt from tax on their income and gains. The Act also increases the tax exemption threshold for compensation for loss of employment or injury from ₦10,000,000.00(Ten Million Naira) to ₦50,000,000.00 (Fifty Million Naira).
- Introduction of Economic Development Incentive: The Act replaces the “pioneer” tax holiday incentive with an “Economic Development Incentive”. This incentive introduces a tax credit of 5% per annum for 5 years on qualifying capital expenditure purchased by eligible companies that work in sectors like manufacturing, mining, and renewable energy within 5 years, effective from the production date. If a company has unused tax credits or qualifying capital expenses, it can carry them for another 5 years. Any credits still unused after this timeline will expire. This fundamental shift rewards tangible investments in priority sectors rather than simply granting time-based exemptions.
- VAT at Zero Rate on Essential Goods and Services: VAT is a consumption tax paid when goods are purchased and services rendered. It is a multi-stage tax borne by the final consumer at the point of sale and not from business profit. The current VAT in Nigeria is 7.5% and all goods and services are taxable except those specifically exempted by the VAT Act. The NTA expands the list of Zero-rated items to include essential goods and services. They are:
- Small businesses with 25 million or less annual turnover
- Basic food items
- Exported goods and services
- Rent on residential property
- Medical and pharmaceutical products
- Educational materials.
The impact of this is that Businesses selling these goods and services can recover their VAT costs despite the Zero Rate, which was previously not possible by law.
- The Establishment of the Office of the Tax Ombud through the Joint Revenue Board of Nigeria (Establishment) Act: The Tax Ombud’s Office is empowered to receive and investigate complaints against tax authorities, act as an impartial arbiter in disputes related to it, and promote awareness about taxpayer rights and obligations. It also has the authority to make recommendations to tax and governmental authorities and, in some cases, initiate legal proceedings on behalf of taxpayers. This represents a groundbreaking step toward accountability and public trust in Nigeria’s revenue system.
- The Nigeria Revenue Service (Establishment) Act replaces the Federal Inland Revenue Service (FIRS) with the newly created Nigeria Revenue Service (NRS), which now has broader powers to oversee and enforce revenue collection. The NRS is tasked with the crucial role of streamlining operations and improving efficiency in tax administration.
- Company Income Tax(CIT): Company Income Tax applies to Limited Liability Companies and is administered by the Nigeria Revenue Service. A global minimum tax rate of 15% for multinational firms has been introduced, aligning with the OECD’s Pillar II Framework. The rates are tiered based on a company’s gross turnover.
This will allow more enterprises to benefit from tax exemptions. Small companies are fully exempt from Company Income Tax (CIT), while medium and large companies remain subject to a 30% on their declared profits as reported in their audited financial statements alongside 4% Development Levy on assessable profits which replaces mulitple levies including Tertiary Education Trust Fund (TET), IT levy, National Agency for Science and Engineering Infrastructure (NASENI) and Police Trust Fund Contributions. Previously, there was a “medium company” category with a 20% tax rate, but this category has been removed to simplify the system.
Exemption threshold for small companies has been raised. Small companies are now defined as those with an annual turnover of ₦100,000,000(One Hundred Million Naira) or Less and total fixed assets not exceeding ₦250,000,000(Two Hundred and Fifty Million Naira) and are now fully exempt from Company Income Tax, Capital Gains Tax and the new Development Levy.
This exemption frees up cash flow for small businesses allowing more room to invest in employee benefits and strategic recruitment. It also presents an opportunity to improve workforce retention and growth initiatives.
- Capital Gains Tax (CGT): Capital Gains Tax is a tax on the profits (gains) realized from the disposal of chargeable assets and has been increased from 10% to 30% aligning it with the standard Companies Income Tax rate and, in some cases, rates could climb as high as 85% depending on the relevant fiscal regime.
This policy not only eliminates the gap between capital and trading income but also ensures that disposals of upstream petroleum assets are taxed at par with other forms of corporate profit, making CGT a key factor in upstream restructuring. Given that the NTA now requires that capital gains be taxed at the same rate as the company’s profits, the effective CGT rate for companies still operating under the Petroleum Profit Tax Act (PPTA) fiscal regime could go as high as 85%. This represents a fundamental shift in how gains on asset disposals are taxed.
The scope has expanded to include indirect transfer of shares in Nigerian companies and disposal of digital or virtual assets like cryptocurrency. The NTA introduces CGT on indirect transfers of shares in Nigerian companies so that where shares are disposed of in intermediary holding companies offshore, a Nigeria CGT is triggered (subject to treaty exemptions). Also, the tax exemption threshold for the sale of shares in Nigerian companies has been increased to ₦150,000,000 (One Hundred and Fifty Million Naira) (from ₦100,000,000 (One Hundred Million Naira) in any 12 consecutive months, provided that the gains do not exceed ₦10,000,000 (Ten Million Naira).
- Effective Tax Rate: The NTA introduces a minimum Effective Tax Rate (ETR) of 15%, in line with global tax reforms. This applies to multinational group entities with a consolidated global turnover of at least €750,000,000 (Seven Hundred and Fifty Million Pounds) or Nigerian companies with a turnover exceeding ₦50,000,000,000 (Fifty Billion Naira). Where a foreign subsidiary pays tax at a rate below this threshold, the Nigerian parent is liable to pay the top-up tax.
To discourage tax base erosion, the Act incorporates Controlled Foreign Company (CFC) rules, bringing undistributed passive income of low-taxed foreign affiliates into Nigeria’s tax net.
- Digital Identity and Compliance: The Nigeria Tax Administration Act mandates the issuance and use of a Taxpayer Identification Number (TIN) for every taxable person. This TIN must be linked to all tax transactions and financial activities, reinforcing the integrity of taxpayer records. Non-resident businesses and digital service providers deriving income from Nigeria must also register and obtain a TIN.
To support transparency in the digital economy, Virtual Asset Service Providers (VASPs), including crypto exchanges and financial institutions, are required to report significant transactions. Banks must provide quarterly returns on customer data and cumulative inflows or outflows exceeding ₦25 million (for individuals) and ₦100 million (for companies).
The law also introduces a mandatory disclosure regime for tax planning arrangements, especially those structured primarily to obtain a tax advantage.
- Deduction for Research and Development: The deduction to be allowed under NTA has now been adjusted to 5% of a company’s turnover for the year. The implication is that companies now have a broader base of 5% of turnover, as opposed to total profits, from which they can commit funds to research and development activities. The NTA also provides that where a company that has enjoyed this deduction transfers or sells the outcome of the research and development to another person, the proceeds from the sale or transfer shall be taxable.
- Tax Incentives: The Act introduces several tax incentives, such as Income generated by companies engaged in agricultural businesses, including crop production, livestock, aquaculture, forestry, dairy, cocoa processing and manufacturing of animal feeds will be exempt from income tax for the first five (5) years from commencement of business.
In conclusion, Nigeria’s new tax regime marks a significant turning point in fiscal governance. It simplifies compliance, strengthens taxpayer protections, and introduces targeted incentives that could reshape the economic landscape. For households, the relief is immediate and tangible. For businesses, the rules are clearer, albeit with greater scrutiny. It is important for every business owner or individual to keep proper records of all transactions, separate personal and business accounts, and be able to explain deposits in order to avoid over-assessment and deductions which may affect their businesses.
References:
- Nigeria’s 2025 Tax Reform Acts Explained: Key Changes, Business Impacts, and Compliance Strategies; Bakertilly.com
- Updates to the Nigeria Tax Act (NTA), 2025; KPMG.com
- Nigeria’s New Tax Laws: A Paradigm Shift in the Right Direction; Afriwise.com
- The Nigeria Tax Reform Act 2025 And How It Affects Businesses; Mondaq.com
- Nigeria’s 2025 Tax Reform Acts: Key Tax Changes; Seamlesshr.com
- Capital Gains Tax under the Nigeria Tax Act 2025; ng.anderson.com