Nigeria

The Nigerian Tax Reform Act - Changes to expect for Individuals, Family Businesses and SMEs

The Nigeria Tax Reform Act, effective 1 January 2026, introduces sweeping changes that significantly impact individuals and owner-managed family businesses. With clearer definitions of residency and a shift to global income taxation, Nigerian residents are now liable for tax on worldwide income, while non-residents are taxed only on Nigerian-sourced income. Residency is determined by domicile, habitual abode, family and economic ties, or presence in Nigeria for at least 183 days. The Act also expands the definition of a Nigerian company to include foreign-incorporated entities effectively managed or controlled from Nigeria, subjecting them to tax on global income. These changes, alongside new rules on indirect share transfers, offshore trusts, and cross-border asset disposals, reflect a decisive move toward progressive taxation and fiscal transparency, particularly targeting high-net-worth individuals (HNIs) and complex international structures.

The reforms also introduce a more progressive personal income tax regime, increasing the top marginal rate to 25% and replacing the Consolidated Relief Allowance with a capped Rent Relief. Capital gains tax rates have risen to 30% for companies and now align with personal income tax rates for individuals. The scope of chargeable income has broadened to include digital assets, derivatives, and alternative income streams. Exemptions remain for reinvested proceeds and low-value disposals. These changes, coupled with stricter compliance and documentation requirements, signal a shift toward equitable taxation and increased scrutiny of wealth and income sources, requiring individuals and family businesses to reassess their tax exposure and planning strategies.

Exempt income  

The Act retains the exemption of income earned from federal government bonds and extends the exemption to state bonds. The exemption does not extend to corporate bonds. Dividend received from wholly export oriented businesses are exempt as well as foreign earned dividends, rent, interest and royalty repatriated into Nigeria. The profits of export-oriented companies are also exempt if the export proceeds are repatriated through official channels. Profits of a company engaged in sporting activities are exempt from tax. Interest accruing on foreign currency domiciliary accounts are no longer exempt.  

A welcome addition is that the wages and salaries of Military Officers are exempt under the NTA. For other professions, the amendments are the reverse. Previously PITA exempted income earned from abroad by an author, sportsman, playwright, musician, artist if they were repatriated to Nigeria in foreign currency domiciliary accounts.   The NTA no longer includes this exemption so that authors, sportsmen, musicians and other creatives who are resident persons in Nigeria must pay tax on their worldwide income.  

Deductions and Reliefs 

The Act removes the Consolidated Relief Allowance, which can amount to 21% of an individual's income, and replaces it with a rent relief for eligible taxpayers, set at 20% of the annual rent paid subject to a maximum of N500,000. 

Other reliefs under PITA have been retained as eligible deductions. These include the deduction of life insurance premiums, mortgage interest on an owner-occupied house, National Housing Fund and pension contributions.  Deductions are subject to submitting documentary evidence.  This change increases the tax burden on HNWIs by removing significant tax relief (CRA) previously enjoyed. Individuals who are considered high networth will see their effective tax rates increase with the reduced rent relief.  

Valuation of accommodation benefits and work tools   

The Tax Act introduces new rules for taxing benefits in kind, particularly housing and work-related tools. Section 14(6) caps the taxable value of housing benefits at 20% of an individual’s gross income. This is particularly beneficial for individuals who may receive accommodation benefits which exceed 20% of their gross income in value, thus shielding a substantial portion from tax. 

Additionally, Section 14(3) expands tax exemptions to include work tools and specialised equipment necessary for certain jobs. This measure benefits employees in the technical and industrial sectors. However, there may be challenges in consistently applying the housing benefit cap and verifying which tools qualify for exemptions across diverse industries.

Increase in the tax exemption threshold for compensation for loss of employment 

Section 50(1) of the NTA revises the exemption threshold for compensation for loss of office, increasing it from ₦10 million to ₦50 million. This means that compensation up to ₦50 million will now be exempt from tax. The exemption also extends to compensation for any wrong or injury suffered as a result of libel, slander, or enticement. Any amount exceeding the ₦50 million threshold will be subject to personal income tax, effectively at 25%. 

Broader coverage for Trusts and Estates 

The NTA introduces a new section that taxes the income from trusts, estates, and family settlements based on the residence of the persons involved. Resident persons are taxed on their worldwide income while nonresident persons are taxed on income sourced from Nigeria, brought into or received in Nigeria.  In the case of a revocable trust or one where a settlor continues to control and manage assets of the trust, the worldwide income of the trust will be taxed in Nigeria if the settlor is resident in Nigeria.  A foreign trust which qualifies as a nonresident person will only be taxed on Nigerian sourced income or those received or brought into Nigeria.  

The estate of deceased individuals will also be taxed based on the residence of the persons involved. Income and relief will be proportionately apportioned to beneficiaries as required with credits available to avoid double taxation. Exemptions still exist for foreign dividends, interest, rent and royalty repatriated to government approved channels.  

Trustees and executors are responsible for tax compliance and must prepare accounts until final distribution. The permutations as it relates to trusts, estates and settlements are far and varied as such a detailed review will be required for all persons involved including executors and corporate entities acting as nominees or trustees. 

Principal private residences  

The Act introduces limits on exemptions for principal private residence, personal chattels, and motor vehicles. Capital gains from the disposal of a principal private residence are exempt only if the property is a dwelling house with up to one acre of adjoining non-commercial land. The exemption is limited to once in an individual’s lifetime, and if the property is partly used for business or only partially disposed of, the gain must be apportioned - only the residential portion qualifies for exemption. 

By contrast, Section 37 of the CGT Act provided a more generous and open-ended exemption. It allowed repeated claims, had no lifetime restriction, and permitted larger land areas if deemed necessary for the enjoyment of the residence. However, it lacked clarity on how to handle partial business use or partial disposals. 

Ultimately, the tax reform is designed to make the system more equitable, targeting larger estates and preventing people from claiming the exemption repeatedly. This may affect HNIs with frequent asset disposals or luxury asset holdings. 

Deemed distributions from closed companies  

Dividends are now taxed more comprehensively, including deemed distributions which can now be taxed in the hands of shareholders in closely held Nigerian companies i.e. companies controlled by no more than five shareholders. The tax authorities can deem the distributions where they opine that such profits could have been distributed without detriment to the business. The NTA states that the tax authorities must do this no later than three years after receipt of the duly audited accounts of the company for that period.  

Family businesses and startup companies could very well be exposed to this and must relook their dividend policies and board resolutions to ensure proper documentation that supports business decisions taken. e.g. reinvestment plans or shareholder loans.  

Franked investment income remains exempt from further tax, but with stricter definitions.  

Taxation of virtual assets 

The NTA establishes a comprehensive regime for the taxation of virtual assets, treating profits and gains from their disposal as taxable income and providing rules for their valuation and location. "Digital assets" means digital representation of value that can be digitally exchanged, including crypto assets, utility tokens, security tokens, non- fungible tokens (NFT), such other similar digital representation. The Act recognises profits or gains from transactions in digital or virtual assets as taxable income for individuals and companies. Losses from digital asset transactions can only offset gains from similar transactions.  

The NTA provides specific rules on the valuation of the assets, where there are non-monetary considerations and the location of the assets as follows: 

•  Market Value Principle: For the purposes of computing chargeable gains, the market value of a virtual asset is the price it might reasonably be expected to fetch on a sale conducted at arm’s length or in the open market [(Section 45(1))] 

• Non-Monetary Consideration: Where a virtual asset is disposed of for non-monetary consideration, the value is deemed to be the market value of the asset on the date of disposal [(Section 36(2)(b))]. 

• Location of Assets: Virtual assets are deemed to be located in Nigeria if the person who holds direct or indirect beneficial ownership, control, or interest over the right or property is resident in Nigeria or has a permanent establishment in Nigeria to which the property is connected [(Section 46(n))]. 

• Indirect Transfers: Gains from the disposal of shares by a non-resident are taxable if the disposal results in a change in the ownership structure of a Nigerian company or of ownership of, or title in, any asset located in Nigeria, including virtual assets [(Section 47)]. 

 Individuals with complex investment portfolios including offshore or digital assets may face increased tax liabilities and reporting obligations. The unique characteristics of virtual assets—volatility, anonymity, cross-border mobility, and evolving regulatory status—pose significant challenges for both taxpayers and tax authorities. Addressing these challenges will require ongoing regulatory development, taxpayer education, and investment in enforcement capabilities to ensure effective taxation of virtual assets in Nigeria. 

Tax exemption on personal effects not exceeding ₦5 million 

According to Section 32 of the NTA, gains from the disposal of personal chattels (tangible movable property) are exempt from CGT only if the transaction value does not exceed ₦5 million or three times the annual national minimum wage, whichever is higher. This marks a clear shift from Section 38 of the CGT Act, which provided a threshold of ₦1,000 for personal and domestic effects. 

This benefits Individuals by allowing tax-free disposal of assets below the new threshold, such as luxury goods. 

Anti-Avoidance and Disclosure rules 

Transfer pricing is reinforced with stricter arm’s length requirements. Tax authorities have broader powers to disregard or recharacterise artificial transactions. Undistributed profits in closely held companies may be taxed as if distributed. Aggressive tax planning strategies, particularly those involving family trusts or offshore entities, will now need to be disclosed and may face increased scrutiny. 
Increased Compliance and Reporting 

Mandatory documentation is required for all deductions and exemptions. Presumptive taxation is introduced for individuals with inadequate records. Fiscalisation requires electronic invoicing and real-time reporting for VAT and income tax, compelling high-net-worth individuals to maintain thorough documentation and potentially invest in tax technology and advisory services. 

Increase in threshold for small businesses  

The new tax laws increase the threshold for small companies and businesses and define them as those with an annual turnover of ₦50 million and below, with total fixed assets not exceeding ₦250 million.  Small companies are exempt from Companies Income Tax, the newly introduced development levy, and withholding taxes (manufacturers already benefit from this under the 2024 Withholding Tax Regulations)  

Supply threshold for registration and filing of VAT returns  

In addition to the benefit identified earlier, small businesses (except for companies engaged in petroleum operations) are not required to file VAT returns, until they exceed the thresholds. However, they can voluntarily opt in to comply with VAT requirements. 

Additional deductions on net employment and wage increase   

The NTA introduces targeted tax incentives to encourage companies to increase staff remuneration and expand employment. Specifically, the Act provides for an additional deduction of 50% of certain employment-related costs incurred by companies, subject to defined conditions and timeframes tabled below.  

By allowing an additional deduction on qualifying costs, the Act aims to promote job creation, improve employee welfare, and support economic growth, while ensuring that the benefits are targeted at genuine net employment increases and wage enhancements for lower-income earners. 

Tax Appeal Tribunal (TAT) upholds the six-year limitation period for the issuance of tax assessments by authorities and rules that tax authorities can delegate tax investigation functions to third parties

Lafarge Africa Plc (‘Lafarge‘ or ’the Company‘) was subjected to a tax investigation by the Ogun State Internal Revenue Service (OGIRS) spanning 2010 to 2014. OGIRS issued separate assessments at different times between 2019 and 2020. In January 2021, OGIRS issued another revised assessment, asserting its connection to the previous estimated income.

The Company appealed to the TAT, contending that OGIRS had violated the terms of the settlement agreement established after the 2020 assessment. Furthermore, the company challenged the 2021 assessment, arguing that it exceeded the prescribed six-year limitation period specified in section 55 of the Personal Income Tax Act (PITA). In addition to these objections, the company asserted that OGIRS had unlawfully delegated its responsibilities to a private entity, thereby rendering the assessment invalid.

The TAT ruled that the law imposed a six-year limitation period for the issuance of assessments against a taxpayer after the expiration of the relevant year of assessment, except where the taxpayer had committed fraud, wilful default, or neglect. There was no binding agreement between the Company and the tax authority to restrict the tax authority from issuing additional or revised assessments. There is no statutory restriction on the delegation of the power of tax investigation.

TAT rules that an employer who defaults in its agency role to the government is liable to penalty and interest

In 2017, the Lagos State Internal Revenue Service (LIRS) audited a Nigerian company (NigCo) for the 2011 - 2016 Years of Assessment. The LIRS assessed the company to outstanding pay-as-you-earn (PAYE), withholding tax (WHT), development levy, and business premises levy liabilities plus penalty and interest. NigCo objected to the assessment, and the matter was eventually taken to the TAT.

The TAT ruled that NigCo did not comply with the relevant provisions of the PITA and the Regulations in delivering its agency responsibilities; consequently, NigCo is liable to the tax liability (including penalty and interest) assessed by the LIRS.

This judgement re-emphasises the agency role of employers and the consequences of non-compliance with tax laws, which could be business disruptions and liabilities as high as the unpaid tax plus 31%.

State tax authorities impose fines of 5 million Nigerian naira (NGN) per month for failure to verify Tax Clearance Certificates (TCCs)

Section 85(2) of PITA requires ministries, agencies, and banks to verify the TCC of individuals on specific transactions. These transactions include application for foreign exchange, government loans, and election into public office, amongst others, as specified in the Act. PITA imposes a non-compliance fine of NGN 5 million or imprisonment for three years or both, upon conviction.

Further to this requirement, several state tax authorities have started demanding certain taxpayers (especially banks) to pay the non-compliance fine of NGN 5 million from 2005 and within seven days of receipt of the assessment. Also, the tax authorities take the view that the NGN 5 million fine is on a monthly basis.

The LIRS issues Public Notices on capital gains tax (CGT) and personal income tax (PIT) on the sale of securities

The LIRS has issued Public Notices pursuant to recent tax law changes, highlighting compliance requirements from taxpayers and other relevant parties resident in the state.

The relevant tax law changes include:

• The Capital Gains Tax Act historically exempted gains on the disposal of Nigerian government securities, stocks, and shares from CGT. The Finance Act 2021 has amended the CGT Act to introduce CGT on the disposal of shares, subject to certain conditions.
• The Minister of Finance (MoF) issued a Notice effective from 2 January 2012 exempting interest and other income earned from government, corporate, and supranational bonds from PIT. The MoF Notice highlighted that the exemption was for a period of ten years (i.e. until 1 January 2022), except for Federal Government bonds, which will continue to be exempt. The ten-year period has now lapsed, and the LIRS communicated that the exemptions have expired.

The LIRS launches Service Charter

On 28 July 2021, the LIRS released a Service Charter highlighting the LIRS’s mode of operations and services to be provided to taxpayers and other stakeholders. The Charter also underscores the rights, obligations, and expectations of the LIRS and its stakeholders, with the aim of enhancing effective customer-friendly service delivery. The Charter is designed to serve as a guide regarding the general administration of taxes by the LIRS and is expected to boost trust and accountability between the LIRS and its stakeholders, especially taxpayers.

Expatriates to obtain Nigeria’s National Identity Number (NIN)

Section 16 of the NIMC Act defines registrable persons to include Nigerian citizens, permanent residents, and foreigners who are legally resident in the country for a period of two years or more. Below are the list of requirements for expatriates to obtain a NIN:

• International passport.
• Residence permit (CERPAC form/card).
• Bank Verification Number (BVN).