Nigeria's tax administration reflects the country's federal structure, with distinct yet occasionally overlapping responsibilities distributed among federal, state, and local governments.[1] This structure seeks to balance revenue generation with administrative efficiency while minimizing duplication. Under the structure, revenue is shared across the three tiers of government based on a defined formula.

The federal government collects broad-based taxes like Company Income Tax (CIT), Value Added Tax (VAT), Petroleum Profits Tax (PPT), Personal Income Tax (PIT). States generate revenue primarily through Personal Income Tax (PIT) on their residents and other levies, while local governments rely on various taxes, fees and levies.

Furthermore, Nigeria has established Double Taxation Agreements (DTAs) with key trading partners, including the United Kingdom, Belgium, Pakistan, Romania, France, the Netherlands, Canada, Philippines, Italy (Air and Shipping only), Czech Republic, Slovakia, Singapore, Spain, Sweden, China and South Africa.[2] In addition, Nigeria has signed DTAs with Mauritius, South Korea, the United Arab Emirates, and Qatar. However, these treaties are yet to be ratified by the National Assembly as required under the Constitution. 

On June 26, 2025, President Bola Ahmed Tinubu signed four new tax reform bills into law.[3] These laws—the Nigeria Tax Act, the Nigeria Tax Administration Act, the Nigeria Revenue Service Act, and the Joint Revenue Board Act (the Acts) aim to drive economic growth, increase government revenue, improve the business environment, and enhance tax administration and autonomy across all levels of government. The new system is expected to come into effect in 2026. This means the current tax laws and agencies remain fully in force for now.

This guide provides an overview of the current Nigerian tax system, with notes on major anticipated reforms where relevant.

The administration of taxes in Nigeria is currently handled by distinct authorities at the federal and state levels. However, the newly signed Acts have made changes such as renaming key bodies and redefining their powers and relationships.

a. From FIRS to the Nigeria Revenue Service (NRS):

Currently, The Federal Government through the Federal Inland Revenue Service (FIRS) administers several critical taxes including: Companies Income Tax, Tertiary Education Tax, Personal Income Tax, Capital Gains Tax (on capital gains made by companies), Value Added Tax, Petroleum Profits Tax, Hydrocarbon Tax, Custom Duties and Personal Income Tax (on non-resident earners, Nigerian military personnel (Army, Navy, Air Force), non-civilian police officers, and foreign service officers deriving income from Nigeria.). Under the new Acts, the FIRS has been renamed to the Nigeria Revenue Service (NRS)[4], to adequately reflect its mandate as the primary body to assess, collect, and account for all revenue due to federation.

b. State Internal Revenue Service (SIRS): At the state level, each of Nigeria’s 36 states operates its own State Internal Revenue Service (SIRS). These bodies are currently responsible for collecting state-specific revenues. The Acts grant the State Internal Revenue Service (SIRS) greater autonomy in running their own affairs.

c. The Joint Tax Board and New Frameworks: The Joint Tax Board (JTB) currently plays a vital role in promoting uniformity in tax application across different states, which helps to reduce confusion for businesses that operate in multiple parts of the country. The new laws build on this concept of cooperation by introducing a formal framework for joint audits between different tax authorities. Furthermore, the NRS will be empowered to provide technical and administrative support to State and Local governments to help them collect taxes, but only upon request.

• Direct taxes: Companies’ income tax; Tertiary Education Tax (Development Tax), Personal Income Tax; Capital Gains Tax; Hydrocarbon Tax, Petroleum Profits Tax; miscellaneous taxes.

• Indirect taxes: Value Added Tax; Custom Duties on imports and exports; Excise duties; Stamp duties.

A. Companies Income Tax (CIT):

The taxation of company profits in Nigeria is governed primarily by the Companies Income Tax Act.  It is important to note that this law applies to all companies except those involved in petroleum operations, which are taxed under a separate regime.

A fundamental principle is tax residency. Nigerian-incorporated companies are taxed on their worldwide profits. Foreign companies are taxed only on Nigerian-sourced income, which includes: 

a. Physical Presence: Profits attributable to a fixed base, permanent establishment, or dependent agent in Nigeria.

b. Specific Projects: Income derived from significant one-off contracts in Nigeria for deliveries, installation, or construction.

c. Digital & Remote Services: Revenue from providing digital, technical, management, or consultancy services to Nigerian clients, if the company has a Significant Economic Presence (SEP) in the market.

d. Anti-Avoidance: Profits from transactions with related parties that lack commercial substance and are designed solely to avoid tax.

Note: A foreign company is deemed to have an SEP if it:

a. Earns an annual gross turnover of at least ₦25 million (or its equivalent in foreign currency) from providing digital services to Nigerian customers.

b. Uses a Nigerian domain name (e.g., .ng) or has a website registered in the country.

c. Purposefully targets the Nigerian market by customizing its digital platform for Nigerian users, displaying prices in Naira, or offering Naira payment options.

However, the law provides specific exceptions from these SEP rules. A foreign company will not be considered to have an SEP if it is covered by an international multilateral tax agreement or if the payments are made to its employees under an employment contract or for teaching services.

Note further that the system allows for the deduction of most legitimate business expenses incurred to generate taxable profits.  It is important to note that the new Nigeria Tax Act, 2025 has introduced significant refinements to these rules.

Key provisions now include:

• Interest Deductions: The cap on interest deductions has been expanded beyond foreign loans to now include all connected-party arrangements.

  
  

• Transfer Pricing: Strict compliance with transfer pricing regulations on cross-border transactions remains a critical requirement.

  
  

• Capital Expenditure: Capital expenditure is recovered through a system of capital allowances (not depreciation), with new conditions governing their eligibility and claimable rates.

  
  

• Tax Rates & Key Provisions

Nigeria's current CIT system applies a progressive rate based on a company’s annual gross turnover:

• 0% for small companies with an annual turnover of ₦25 million or less.

  
  

• 20% for medium-sized companies with a turnover above ₦25 million but below ₦100 million.

  
  

• 30% for large companies with a turnover of ₦100 million and above.

The new tax Acts significantly raised the threshold for small companies. A small company is now one with an annual gross turnover of ₦100 million and below (increased from ₦25 million) and with total fixed assets not exceeding ₦250 million. These small companies will be fully exempt from paying Companies Income Tax, Capital Gains Tax, and the newly introduced Development Levy.

· Key Anti-Avoidance & Minimum Tax Rules

The new Acts introduce significant measures that impact international investment structures:

• Minimum Effective Tax Rate (ETR): Nigerian companies belonging to large multinational groups (global turnover ≥ €750 million) or with a turnover ≥ ₦50 billion will be subject to a minimum 15% effective tax rate. Crucially, if the group's subsidiaries have paid taxes below this 15% minimum, the Nigerian parent company is obligated to pay a top-up tax. It is important to note that this new rule does not apply to Free Zone companies on their export activities, provided they are not part of a multinational group.

•  Controlled Foreign Company (CFC) Rules: Nigeria will now tax the undistributed profits of foreign subsidiaries controlled by Nigerian companies. 

• Strengthened Rules for Non-Residents: Non-resident companies with a taxable presence will face a higher minimum tax burden, ensuring their total tax payable is no less than the applicable withholding tax rate or 4% of their Nigerian-sourced income, whichever is higher.

• Tax Incentives & Free Zone Revisions

Nigeria is shifting its incentive model from tax holidays to rewarding capital investment:

• Replaced Incentive: The current Pioneer Status Incentive (a tax holiday for up to five years) will be replaced by the Economic Development Incentive (EDI).

  
  

• New Model: The EDI provides an annual 5% tax credit on qualifying capital expenditure for companies in designated sectors like manufacturing and renewable energy, phasing out the benefit for mature sectors like e-commerce and telecommunications.

  
  

• Free Zone Changes: While Free Zones still enjoy exemptions on exports, a major change occurs if over 25% of sales are made to the Nigerian market, in which case exemptions are applied proportionally. Furthermore, full tax exemptions for Free Zones will end entirely on January 1, 2028, for any entities selling to the Nigerian market.

B. Personal Income Tax (PIT)

The legal basis for Personal Income Tax (PIT) in Nigeria is primarily the Personal Income Tax Act (PITA), Cap P8, LFN 2004, The administration of PIT on employment income is governed by the Pay-As-You-Earn (PAYE) Scheme. This scheme designates employers as agents of the tax authorities, responsible for deducting taxes from their employees' salaries, allowances, and benefits-in-kind and remitting them to the relevant state tax authority.

The new Acts introduce significant changes such as creating a more progressive tax structure and providing much-needed clarity on critical definitions.

• New Tax Brackets and Rates:

The Acts introduce a higher tax-free threshold. Individuals earning ₦800,000 or less per annum will be exempt from income tax. For those earning above this threshold, the tax rates will be increased on a progressive scale, with the top marginal rate rising to 25% for high-income earners.

• Clear Definition of Residence:

A fundamental change is the new statutory definition of a "resident individual," based on an individual's substantial economic and immediate family ties to Nigeria.

• Crucially, the worldwide income of a person meeting this new residency test will be subject to Nigerian PIT.

  
  

• For foreign workers (expatriates), the new rule is clear: their employment income is now taxable in Nigeria only if they are resident in Nigeria under this new definition, or if they perform their employment duties in Nigeria and are not subject to tax on that income in their country of residence.

C. Value Added Tax (VAT)

The legal framework for Value Added Tax (VAT) in Nigeria is established by the VAT Act, Cap V1, LFN 2004. Under the new Nigeria Tax Act (NTA). The standard VAT rate remains 7.5%, applicable on the supply of all goods and services within Nigeria, except those explicitly classified as exempt or zero-rated.

Key Reforms under the New Act

• Full Input VAT Recovery: In a major change, businesses can now recover input VAT on all purchases, including services and capital assets (e.g., equipment), provided they are used for making taxable supplies. This eliminates the previous hidden tax cost on investments and is particularly beneficial for service-based and capital-intensive industries.

  
  

• Expanded Zero-Rating: The list of zero-rated items has been expanded to include essential goods and services like basic food, medical products, educational materials, and electricity. Businesses supplying these zero-rated items are entitled to a full refund of their input VAT.

  
  

• Mandatory E-Invoicing and Fiscalisation: Businesses are now required to implement the electronic invoicing system deployed by the tax authority. This system allows for the real-time tracking of transactions, ensuring that VAT is accurately reported and remitted.

D. Withholding Tax (WHT)

The Nigerian tax system operates a withholding tax (WHT) mechanism, which places a legal obligation on the payer to deduct income tax at source from certain types of payments (e.g., contracts, professional fees, royalties, dividends) due to a recipient.

Specifically, when a payment subject to WHT is due to another party, the payer must deduct the tax at the applicable rate and ensure it is remitted to the relevant tax authority. 

Furthermore, the remittance must be made in the currency of the original transaction. The specific payment channel depends on the recipient and the currency.

The recipient's legal status determines where the WHT is paid:

• Payments to Companies: WHT is remitted to the federal tax authority (FIRS, soon to be NRS).

  
  

• Payments to Individuals or Partnerships: WHT is remitted to the State Internal Revenue Service (SIRS) of the state where the recipient is tax-resident.

E. Capital Gains Tax (CGT)

The governing legislation for CGT is the Capital Gains Tax Act. The new Acts introduce certain changes to the Capital Gains Tax (CGT).

A primary change is a substantial increase in the CGT rate for companies. The rate has been raised from 10% to 30%, effectively aligning it with the standard Companies Income Tax rate. This strategic move eliminates a significant tax arbitrage opportunity, where companies could previously structure disposals to characterize income as capital gains rather than trading income. For individuals, capital gains will no longer be taxed at a flat rate. Instead, they will be added to the individual's total annual income and taxed at their applicable progressive Personal Income Tax rate.

The Acts further 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 NGN150million (from NGN 100 million) in any 12 consecutive months, provided that the gains do not exceed NGN10million.

F. Development Levy

The new Acts abolish several existing levies and replace them with a consolidated Development Levy. The abolished levies include the Tertiary Education Tax (TET), the Information Technology Levy, the National Agency for Science and Engineering Infrastructure (NASENI) levy, and the Police Trust Fund (PTF) levy. The revenue generated from this single levy will be directed toward funding critical national priorities such as tertiary education, student loan schemes, national defense, and investments in science, technology, and cybersecurity. All Nigerian companies, except those qualifying as small companies (with turnover below ₦100 million and assets below ₦250 million), will be required to pay this levy at a rate of 4% of their assessable profits.

In addition, there are other sector-specific taxes. For instance, the upstream oil and gas sector is subject to a separate tax regime under the Petroleum Profits Tax Act. Furthermore, Stamp Duties are a significant procedural levy imposed on a wide range of legal and financial documents. Compliance here is not optional, as stamped documents are often required for enforceability in transactions and in court.

Nigeria operates a self-assessment tax system, placing the responsibility on businesses to accurately calculate their liability, file returns, and make payments by strict deadlines. The Federal Inland Revenue Service (FIRS) and state tax authorities mandate electronic filing through their online portals.

The new legal framework introduces significantly stricter compliance obligations and enforcement measures. Companies are mandated to disclosure tax arrangements that could provide a tax advantage to the authorities and failure to disclose carries severe penalties. Secondly, the new "Force of Attraction" and Controlled Foreign Company (CFC) rules grant authorities much broader powers to assess taxes. This makes meticulous documentation and strict adherence to transfer pricing regulations essential to avoid punitive assessments during audits.

Finally, enforcement is strict. Penalties for non-compliance are severe, including fixed fines for late filing, failure to remit tax, and interest on late payments. Tax authorities actively conduct audits and will issue additional assessments with penalties for any underpayment discovered.

Nigeria's comprehensive tax overhaul presents a complex but positive signal for strategic foreign investment. The government is making a calculated trade-off: replacing narrower incentives with a broader, more transparent, and internationally aligned system. That said, the ultimate success of this framework will hinge on its consistent and predictable implementation. 

[1] See CONSTITUTION OF THE FEDERAL REPUBLIC OF NIGERIA 1999 (as amended).

[2] Tax Treaties, FED. INLAND REVENUE SERV., https://www.firs.gov.ng/tax-treaties/  (last visited August 23, 2025). 

[3] Nigeria Tax Act, 2025 (Nig.), https://www.nipc.gov.ng/wp-content/uploads/2025/07/Nigeria-Tax-Act-2025-pdf.

[4] Emmanuel Kwada, Senate Approves Renaming FIRS to Nigeria Revenue Service, Passes Tax Reforms, 2025, https://tgnews.com.ng/senate-approves-renaming-firs-to-nigeria-revenue-service-passes-tax-reforms/