Understanding the Nigeria Tax Act (NTA), 2025 — A Practical Guide for Businesses and Practitioners

The passage of a single, consolidated tax code is one of the most consequential fiscal developments Nigeria has seen in recent years. The Nigeria Tax Act (NTA), 2025 brings together many disparate provisions, clarifies ambiguous language, and introduces new rules that reshape how companies, non-resident persons, small businesses and individuals are taxed. This post breaks the Act into digestible parts, explains the practical impact on taxpayers, highlights the highest-risk compliance areas, and offers pragmatic steps businesses should take now to reduce tax risk and optimise opportunities under the new regime.

1 — Big picture: What the consolidation means

At its core, the Nigeria Tax Act (NTA), 2025 consolidates and replaces a number of previous tax statutes and aims to simplify the tax landscape by reducing overlapping provisions, eliminating low-yield “nuisance” taxes and focusing collection and compliance on broad-based revenues. The stated policy objectives are: enhance revenue generation, simplify compliance, harmonise tax administration across tiers of government, and align Nigeria with selected international tax norms (notably BEPS Pillar 2 style minimum tax concepts). The consolidation is intended to improve transparency and reduce legal conflicts that resulted from multiple, inconsistent statutes.

2 — Immediate, high-impact changes you must know

Below are the most immediately material changes introduced by the Nigeria Tax Act (NTA), 2025 and why they matter to operational and compliance teams.

A. Digital assets and taxable receipts

The Act explicitly taxes prizes, winnings, honoraria, grants and — importantly — profits or gains from transactions in digital or virtual assets. Losses from digital asset transactions are only deductible against profits derived from a digital assets business (i.e., narrow offset rules). The policy realistically recognises that taxing digital value introduces valuation and tracing challenges for the revenue service. Practically, companies and individuals dealing in crypto, tokens or other digital property must reassess how they track cost bases, gains and losses and how they report transactions.

B. Broader interest, dividend and royalty definitions

Interest now includes penal interest, foreign exchange differences on securities and payments relating to derivatives. Dividends for liquidating companies now include distributions of a capital nature. The Act introduces a wide definition of “royalty” covering payments for the use of any property or rights.

Why this matters: these widened definitions will expand withholding tax exposures and could affect cross-border treaty analysis. Contracts and intercompany agreements should be reviewed to assess tax withholding triggers and the proper classification of payments.

C. Controlled Foreign Corporation (CFC) rules and top-up tax (minimum ETR)

Two headline international tax changes:

1. CFC rules. Where a foreign subsidiary of a Nigerian parent retains profits that could have been distributed without harming operations, those profits may be deemed distributed and taxed in Nigeria. This weakens the classical deferral advantage and will require multinationals to rethink offshore trading structures.

2. Minimum Effective Tax Rate (ETR) / top-up tax. In line with the OECD Pillar 2 approach, the NTA introduces a top-up tax to ensure a minimum ETR of 15% for certain groups and entities. If foreign affiliates are taxed below 15% in a jurisdiction, the Nigerian parent can be required to pay the shortfall. The 15% ETR also applies within Nigeria to some large taxpayers (with thresholds and carve-outs).

D. Non-resident persons: stricter nexus and limited deductions

For non-resident companies (NRPs), only expenses incurred specifically in producing profits attributable to their permanent establishment in Nigeria will be deductible. Royalty and similar payments tied to rights are generally not deductible. Where NRPs cannot substantiate profits, the revenue service may apply a margin or impose a minimum tax (not less than withholding tax), with a floor of 4% of total income when no withholding income exists. This tightens the margin of error for non-residents operating in Nigeria.

3 — Deductibility, foreign exchange and VAT traps

The Act revises the deductibility rules and tightens the conditions under which expenses are allowed.

“Wholly and exclusively” becomes the standard

Section 20 sets out that deductible expenses must be “wholly and exclusively incurred in the production of income.” The older, softer tests of “reasonably” and “necessarily” have been dropped. This change reduces some subjectivity but also means companies must be ruthless about documentation proving the business purpose of each expense.

Practical checklist:

• Ensure invoices and supporting documentation explicitly tie costs to revenue-generating activities.

• Revisit allocation methodologies for shared costs (e.g., HQ charges) to ensure they meet the “wholly and exclusively” test.

Forex conversions — official rate limitation

Expenses incurred in foreign currency are deductible only to the naira equivalent at the official CBN rate for the period. In a market where reported official and market (parallel) rates diverge, this may create unrecoverable differences for taxpayers who had to buy forex at higher rates to run operations.

Risk mitigation:

• Maintain ledger entries showing conversion dates and proof of the actual source of foreign exchange.

• Engage with treasury and finance to forecast forex exposures and consider hedging strategies where commercially sensible.

VAT and deductibility linkage

Section 21 contains a sharp caveat: expenses on which VAT was not charged (where VAT should have been) will be denied as tax deductions. This provision transfers some due diligence risk upstream: if your suppliers fail to charge VAT correctly, your tax deduction may be denied later.

Operational consequence:

• Strengthen vendor due diligence and require valid VAT invoices as a condition for payments.

• Implement procurement checks to block payments lacking tax documentation.

4 — Capital allowances, chargeable gains and rent relief

Capital allowances and proration

The regime narrows capital allowances: initial allowances are eliminated, and only straight-line allowances apply. Capital allowances are prorated only where non-taxable income is 10% or more of total income. This change alters the timing and magnitude of relief for asset investments.

Chargeable gains broadened

The Act expands the class of “chargeable assets” — including shares, options, intangible property and digital assets. Notably, gains from selling shares in Nigerian companies may be exempt under certain thresholds (e.g., sale proceeds below ₦150 million and gains not exceeding ₦10 million within a 12-month span), and reinvestment reliefs are available if proceeds are reinvested in the same assessment year. This requires advisers to carefully map disposals, thresholds and reinvestment timing.

Rent relief replaces the Consolidated Relief Allowance (CRA)

The CRA has been eliminated and replaced with a rent relief equal to 20% of annual rent paid, capped at ₦500,000. This is a narrower, targeted relief that will benefit renters but exclude homeowners. There are administrative questions about the basis for computing annual rent when payments are irregular and what proof will be accepted by tax authorities.

5 — Rates, thresholds and the development levy

Company and individual rates

The Act confirms a 0% tax for qualifying small companies (turnover ≤ ₦100m and fixed assets ≤ ₦250m) and retains a headline 30% tax for large companies, with a potential presidential order that could reduce the rate to 25% at a future date. Individual tax bands have been restructured to create a more progressive schedule and a tax-exempt threshold of ₦800,000.

Effective Tax Rate (ETR) rules for large companies

A 15% ETR applies to companies with turnover above certain thresholds (including groups with MNE aggregate turnover ≥ €750m), aligning with international Pillar 2 thinking. The ETR definition uses audited financial statements adjustments, excluding franked investment income and unrealised gains/losses. This will require audited financials to be reconciled to taxable positions on a line-by-line basis to compute ETR adjustments.

Development Levy (DL)

A flat 4% development levy on assessable profits replaces multiple earlier earmarked levies (like Tertiary Education Tax). The DL broadens the base of entities liable, meaning companies that were formerly exempt from particular levies could now be within scope. For many businesses, this will increase effective tax costs and complicate cash flow forecasting.

6 — Incentives restructured: EDI replaces PSI

One of the most structural changes is the migration from Pioneer Status Incentives (PSI) to a targeted Economic Development Incentive (EDI) regime with distinct characteristics:

• Eligibility is driven by defined priority sectors and minimum Qualifying Capital Expenditure (QCE) thresholds by sector.

• EDI provides an Economic Development Tax Credit (EDTC) of 5% per annum on qualifying capital expenditure for the priority period — a much narrower benefit than the historic full tax holiday that PSI offered.

• There is an application, inspection and certification process (with the Industrial Inspectorate Department playing a role) and fees scaled relative to QCE. There is also a one-time five-year extension mechanism under strict reinvestment conditions.

Practical considerations:

• The EDI is more targeted and performance-oriented; companies should build a clear investment and compliance plan to secure and retain EDTC benefits.

• Because the EDTC is a credit (not an exemption), cashflow timing of benefits differs from the historic PSI holiday — scenario analysis is essential to understand net present value.

7 — VAT fiscalisation and e-invoicing: technology is now a compliance instrument

The NTA mandates fiscalisation tools and allows the National Revenue Service (NRS) to deploy electronic fiscal systems (EFS), which may include e-invoicing and electronic data transfer requirements. This is a material compliance shift:

• Businesses must be ready to integrate their ERPs and point-of-sale systems with NRS’ EFS.

• Cybersecurity, data protection and the cost of system upgrades are legitimate concerns — especially for SMEs who may lack robust IT stacks.

8 — Transitional, administrative and anti-avoidance provisions

The Act contains numerous transitional and anti-avoidance measures:

• Double-dipping prohibitions (companies receiving EDTC cannot access identical incentives under other laws).

• Transfer mechanics for tax attributes (unutilised capital allowances and losses can be transferred in a merger situation to the surviving entity).

• Sunset clauses for incentives which impose expiry dates for sector eligibility, adding predictability but requiring investors to time their applications carefully.

A key administrative ask from commentators is for a longer transition window than the three months commonly used by the administration. Many businesses and software systems require longer lead times to adapt — a one-year implementation period is suggested to ease disruption.

9 — Risks for foreign portfolio companies and cross-border actors

Foreign portfolio investors, multinationals and non-residents face particular risks under the Nigeria Tax Act (NTA), 2025:

1. CFC and ETR exposure — retained offshore profits can be taxed at the parent level; top-up tax can increase aggregate tax burdens.

2. Withholding tax and classification issues — broader definitions of interest/dividend/royalty increase the risk that payments to non-residents will attract withholding at source.

3. Profit attribution uncertainties — the stricter deduction rules for NRPs and the reliance on audited statements (or comparable company margins where statements are absent) can create unpredictability in assessment.

4. Stamp duty on loan capital — loans extending beyond 12 months attract ad valorem duties, raising financing costs for foreign-funded projects.

Mitigation steps:

• Reassess transfer pricing policies and dividend repatriation plans.

• Ensure that financing instruments are structured with stamp duty costs in mind (e.g., short-term facilities vs long-term).

• Track global ETRs and model top-up liabilities under different scenarios.

10 — How businesses should prepare: a practical roadmap

The breadth of change in the Nigeria Tax Act (NTA), 2025 means proactive preparation is essential. Below is a focused roadmap for immediate actions:

1. Legal and tax gap review. Perform a clause-by-clause mapping of current practices and filings against the new Act to identify exposures (e.g., VAT documentation gaps, CFC exposures, ETR calculations).

2. Systems and data readiness. Ensure your ERP, payroll and treasury systems can:

   • Capture digital asset transactions;

   • Produce e-invoices and statutory reporting formats;

   • Generate the reconciliations needed for ETR computations.

3. Contract and payment review. Revisit major contracts, especially those with cross-border payments, to check withholding tax triggers and withholding obligations under the broadened definitions.

4. Transfer pricing and CFC planning. Update transfer pricing documentation and test intercompany pricing against the new CFC and top-up rules.

5. Vendor and procurement controls. Implement mandatory VAT invoice checks and supplier onboarding documentation to protect deductibility.

6. Cashflow modelling. Recalculate tax cashflows with DL and EDTC assumptions, updating forecasts for stamp duties, VAT timing and potential refunds.

7. Engage tax authorities early. Where new certifications (e.g., QCE certificates) are required, begin the application and pre-inspection process early to avoid missed deadlines.

8. Employee training. Train accounting, treasury and legal teams on “wholly and exclusively” documentation standards and e-invoicing requirements.

11 — Policy considerations and closing commentary

The Nigeria Tax Act (NTA), 2025 is a bold attempt to modernise and consolidate tax law. It aligns Nigeria more closely with international norms on anti-profit shifting, brings digital assets into the tax net, and seeks to rationalise incentives. However, the Act also introduces practical frictions: stricter deductibility mechanics tied to official forex rates, a narrower EDI credit regime versus the earlier PSI holidays, new levy burdens and the administrative challenge of fiscalisation.

Success will depend less on the text alone than on implementation: the guidance issued by the NRS, the technical design of e-invoicing/EFS systems, coordination with the Central Bank on forex issues, and a reasonable transition window to allow taxpayers and software vendors to adapt. For businesses, the practical rule is straightforward: treat this as both a compliance upgrade and a strategic inflection point. Systems, documentation and board-level oversight must be strengthened — and tax planning must be revisited through a post-NTA lens.

12 — Final checklist (what to do this quarter)

• Start or complete a tax law gap analysis (CFC, ETR, VAT fiscalisation, DL exposure).

• Fix VAT invoice and procurement controls — require invoices before payment.

• Prepare ETR reporting templates and trial runs using audited financials and tax returns.

• Map capital projects to QCE thresholds and prepare EDI applications where relevant.

• Revisit financing terms for stamp duty exposure.

• Budget for ERP upgrades or middleware to comply with e-invoicing requirements.

Conclusion

The Nigeria Tax Act (NTA), 2025, marks a major turning point in Nigeria’s fiscal policy and tax administration. While it promises simplification by consolidation and alignment with international tax standards, it also creates new compliance obligations and potential costs for many taxpayers. The safe path forward is clarity, documentation and systems readiness — paired with early engagement with tax advisers and timely dialogue with tax authorities where ambiguity exists. Businesses that start preparing now will convert the disruption risk into an operational advantage.

For practical next steps, consider commissioning a focused implementation audit (90-day plan) that maps your top 10 exposures under the Nigeria Tax Act (NTA), 2025 and produces a remediation and systems timeline.