The Implementation Of The Nigeria Tax Act 2025 – Practical Guidance For Businesses

Introduction

The year 2025 marked a pivotal period in Nigeria's regulatory and business landscape, with notable reforms introduced across the insurance, capital markets, and tax sectors. Given that the Nigeria Tax Act 2025 (the "Act") became effective from January 1, 2026, it is important that businesses and inpiduals are aware of the provisions of the Act and how it applies to their businesses.

In our previous newsletters, we examined key provisions of the Act and the compliance obligations of businesses and inpiduals alike. As the implementation of the Act has now commenced, the newsletter builds on our previous newsletters by providing practical insights and guidance which inpiduals and businesses may adopt towards ensuring effective tax planning in 2026.

1. Business Classification and Tax Exposure

The Act classifies companies into two categories –

1. Small companies: These are businesses (excluding businesses providing professional services) with gross annual turnovers not exceeding ₦100 million and fixed assets below ₦250 million. These category of companies are exempt from the payment of Corporate Income Tax (CIT), Capital Gains Tax (CGT), and Development Levy.
2. Large companies: These are businesses with annual turnovers exceeding ₦100 million and fixed assets above ₦250 million. Large companies are subject to payment of Corporate Income Tax (CIT), Capital Gains Tax (CGT), and the Development Levy. However, they may benefit from reduced CIT rate from 30% to 25%, subject to an order issued by the President on the advice of the National Economic Council.

In the light of the business classification under the Act, large companies may assess whether restructuring into smaller entities or special purpose vehicles could unlock the exemptions available to small companies under the Act. This assessment should be considered having regard to the anti-avoidance rules under the Tax Administration Act. To read our previous newsletters on how businesses may restructure for tax efficiency, please click here.

2. Introduction of Development Levy

The introduction of a 4% development levy on the assessable profits of all companies (except small companies and non-resident companies) is a novel introduction of the Act. The Development Levy consolidates multiple taxes such as the Tertiary Education Tax (TET), Information Technology Levy (IT), the National Agency for Science and Engineering Infrastructure (NASENI) levy and the Police Trust Fund (PTF) levy. The harmonization of this development levy helps businesses address the often unclear and multiple levies imposed under previous tax regimes. It also helps ease the burden of computing various levies and interfacing with multiple government agencies.

3. Minimum effective tax rate affecting Multinationals

Where a company with a minimum aggregate turnover of N20 billion or is a member of a multinational group declares tax which is less than 15% of its profits, the tax authorities are empowered to adjust the tax payable to 15% of the company's profits.

4. Capital Gains Tax on indirect transfer of shares

The Act increases the Capital Gains Tax (CGT) rate from 10% to 30% and introduces the payment of CGT on indirect transfer of shares in Nigerian companies. This means that where shares are sold in offshore holding companies, a Nigeria CGT is triggered (subject to treaty exemptions). Also, the tax exemption threshold for the sale of shares in Nigerian companies will be applicable where the disposal is less than NGN150million and the chargeable gains do not exceed NGN10million in any 12 consecutive months. To read our previous newsletters on this issue please click here.

From a practical standpoint, multinational and investment holding groups should carefully review their offshore structures. Where required, shifting asset ownership to Nigeria or a restructuring may be necessary to reduce exposure under the new tax rules.

5. Introduction of Economic Development Incentive

The Act replaces the pioneer status 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 in designated priority sectors (electrical equipment, electronics, renewable energy, music production etc.) If a company has unused tax credits or qualifying capital expenses, it can carry them forward for another 5 years. However, any tax credits still unused after this timeline will expire.

Businesses that plan to invest in these sectors may consider channeling their funding through eligible entities or joint ventures to maximize access to tax credits. It is equally important to conduct due diligence on the entities and maintain proper supporting documentation. This is essential not only to claim the credits but also to safeguard such businesses during regulatory reviews.

6. Progressive Personal Income Tax (PIT) regime

The Act changes the income brackets and applicable tax rates for each bracket. Inpiduals earning NGN800,000 or less per annum are exempt from tax on their income and gains, while higher income earners will be taxed at a higher rate up to 25%. The Act also increases the tax exemption threshold for compensation for loss of employment or injury from NGN10million to NGN50million.

Accordingly, companies and inpiduals alike should consider the personal income tax rates when negotiating fees, salaries or other income which is subject to personal income tax.

7. Exemption from Value Added Tax

The Act provides a comprehensive list of items and supplies that are exempted from Value Added Tax (VAT) or chargeable to VAT at 0%. These items include oil and gas exports, baby products, land etc. Businesses engaged in the production or supply of these products should realign their fees to exclude this tax as it is no longer applicable to the nature of their business operations.

8. Compliance and Banking Integration

The Act makes a Tax Identification Number (TIN) mandatory for all taxable persons. Banks and other financial institutions are now required to verify TINs before opening or maintaining accounts, and failure to comply could restrict access to banking services.

Businesses must immediately verify that all group entities, directors, and beneficial owners are properly registered with the Nigeria Revenue Service. A compliance audit at this stage will prevent operational disruptions and reputational risks once enforcement begins.

Conclusion

The Tax Act is a major step by the Nigerian government towards achieving a unified and transparent tax system. As the tax authorities begin to implement its provisions, the effect of the Act will be better appreciated. It is important that both local and foreign companies operating in Nigeria carry out a comprehensive review of their tax strategies and processes to ensure compliance.

The content of this newsletter is, however, not exhaustive and should not be taken as legal or financial advice. Businesses and inpiduals are encouraged to seek tailored professional guidance to understand the specific impact on their operations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.