A NEW DAWN IN NIGERIAN TAX LAW: KEY HIGHLIGHTS AND LEGAL IMPLICATIONS OF THE 2025 TAX REFORMS

On June 26, 2025, Nigeria entered a historic era of fiscal restructuring as President Bola Ahmed Tinubu signed four new legislations into law. These sweeping changes, collectively known as Nigeria’s 2025 tax reforms, signal a shift in how the country handles revenue generation, business taxation, and regulatory accountability. Effective January 1, 2026, the reforms aim to ease pressure on small businesses and low-income earners while enforcing compliance on high-net-worth individuals and corporate entities. For the first time in many years, Nigeria’s tax system is undergoing a complete reform aimed at streamlining tax administration, closing loopholes, and enhancing enforcement across various sectors. For individuals, entrepreneurs, and multinational investors, these new rules bring both fresh opportunities and new compliance obligations. This article dives into Nigeria’s 2025 tax reforms, examining the legal implications, strategic impact, and what businesses must do now to prepare for the sweeping changes ahead.

 

INTRODUCING NIGERIA’S FOUR NEW TAX ACTS

1. Nigeria Tax Act 2025:

The Nigerian Tax Act introduces a progressive tax framework designed to promote equity within Nigeria’s fiscal landscape. Under the new regime, individuals earning ₦800,000 or less per annum (approximately ₦66,667 per month) are exempt from income tax. Small companies with an annual turnover under ₦50 million and fixed assets valued below ₦250 million will also qualify for exemption. This change aims to alleviate the tax burden on low-income earners and small businesses, thereby fostering economic growth and inclusiveness.

2. Nigeria Tax Administration Act 2025:

The Act establishes a more transparent and user-friendly tax administration system. It simplifies the filing process, enforces fixed timelines for assessments and audits, and strengthens dispute resolution procedures. Significantly, the Act limits the discretionary powers of tax authorities, mandating greater procedural fairness and access to independent administrative review.

3. Nigeria Revenue Service (Establishment) Act 2025:

The Nigeria Revenue Service (NRS) replaces the Federal Inland Revenue Service (FIRS), thereby establishing it as a consolidated revenue-collection authority. Its mandate is to centralize revenue collection, enhance coordination, improve efficiency, and create a more digitized and integrated tax database. The Service is given stronger powers, a modern structure, and the ability to handle taxation in a more efficient and coordinated way.

4. Joint Revenue Board (Establishment) Act 2025:

To address the perennial challenge of multiple taxation and inter-agency conflicts, this Act creates a Joint Revenue Board with membership from both federal and state tax authorities. The Board is tasked with harmonizing tax collection mechanisms, promoting uniform policy implementation, and fostering collaborative enforcement efforts between tiers of government.

HOW DO NIGERIA’S 2026 TAX REFORMS IMPACT INDIVIDUALS AND BUSINESSES?

1. Tax Exemption for Low-Income Earners: Individuals earning ₦800,000 or less annually are now fully exempt from personal income tax. The full tax rates are:

• First ₦800,000 at 0%,
• Next ₦2,200,000 at 15%,
• Next ₦9,000,000 at 18%,
• Next ₦13,000,000 at 21%,
• Next ₦25,000,000 at 23%
• Above ₦50,000,000 at 25%

Therefore, someone earning ₦66,666 monthly, which translates to ₦800,000 annually, is entitled to full tax relief. However, a person earning ₦3 million annually will fall into the second tax band; such a person will pay no tax on the first ₦800,000 and 15% on the next ₦2.2 million, totaling ₦330,000 in income tax.

2. Income and Employment Taxation: Employment income is deemed derived from Nigeria if the individual is a resident or if the work is performed in Nigeria, and the remuneration is paid or borne by a Nigerian entity. Hence, remote workers residing in Nigeria are taxed, regardless of whether their employers are based overseas. Thus, a Nigerian graphic designer working remotely for a Canadian startup will pay income tax in Nigeria because their residence establishes tax jurisdiction under the Nigerian Tax Act.

3. Expanded Tax Exemption for Small Companies: Small companies with turnovers not exceeding ₦50 million and fixed assets below ₦250 million are now exempt from Company Income Tax (CIT), Capital Gains Tax (CGT), and the newly introduced Development Levy. This relieves pressure on micro and small enterprises, incentivizing formalization and compliance.

4. Minimum Effective Tax Rate (ETR): This applies to Nigerian companies that have subsidiaries in other countries outside Nigeria. Where the income tax paid by a non-resident company which is a subsidiary of a Nigerian company or a member of a multinational group of a Nigerian company in any year yields less than the minimum effective tax rate of 15%, the Nigerian parent company shall pay an amount to make that non-resident subsidiary’s income tax equal to the minimum effective tax rate. Therefore, the Nigerian parent company of a foreign subsidiary must recompute and top up the subsidiary’s taxes if its effective rate falls below 15%.

5. Value Added Tax (VAT) Rate and Obligations for the Digital Economy: The standard Value Added Tax (VAT) rate remains at 5%. However, there is a new obligation on non-resident digital service providers to register for Value Added Tax in Nigeria, include Value Added Tax in invoices, and remit it to the Nigerian Revenue Service. Digital platforms importing goods into Nigeria must also collect and remit Value Added Tax. Hence, an e-commerce platform based in Dubai selling to Nigerians must include 7.5% VAT on its checkout page and remit the amount.

6. Tax Exemptions on Essential Goods and Services: Essential items such as healthcare services, basic food items, school fees, pharmaceuticals, and electricity are now exempt from Value Added Tax.

7. Development Levy Rate and Exemptions: A new development levy of 4% has been introduced to fund national development institutions such as TETFund and the Student Education Loan Fund. This levy on assessable profits does not apply to small companies and non-resident companies.

8. Free Zone Tax Benefits Now Restricted: Currently, Free Zone companies, particularly those engaged in the export of products such as textiles, electronics, cement, food and beverages, and oil-related products, enjoy full exemption from taxation on profits derived from such exports and supplies. However, from 2028, this exemption will cease to apply, and Free Zone companies will become subject to tax on all profits earned, irrespective of their export status. Notably, the President in office as of 2028 retains the discretion to extend the exemption period, but only for a maximum of 10 additional years from the date the extension is granted.

9. Tax on Transport and International Logistics: Foreign air and sea carriers are required to pay tax on profits derived from the shipment of goods and passengers from Nigeria. A minimum tax of 2% of gross revenue is payable monthly, excluding trans-shipments. For example, a French cargo airline flying goods from Lagos to Paris will pay tax on revenue earned from that shipment.

10. New Investment Incentives: The Economic Development Incentive (EDI) replaces the Pioneer Status Scheme. Companies investing in agriculture, manufacturing, clean energy, and other sectors may be eligible for tax holidays and duty exemptions. Eligible companies can now enjoy a tax credit of up to $5,000 annually for five years on qualifying capital expenditures.

11. Petroleum Industry Tax Obligations: A hydrocarbon tax of 30% is imposed on selected mining leases and 15% for other operations. The Nigerian Tax Act also stipulates a general tax rate of 85% on chargeable profits. Early-stage companies with unamortised capital expenditure enjoy a reduced rate of 75% for up to five years. Production sharing contract (PSC) tax is pegged at 50% of chargeable profits.

12. Establishment of Tax Ombuds Office: Businesses now have a formal channel to report tax-related grievances through an independent Ombudsman, improving taxpayer rights and dispute resolution.

13. Higher Penalties for Non-Compliance: Significant penalties now apply for failing to register for tax: late filings (₦50,000 for failing to register in the first month; ₦25,000 for each subsequent month), engaging unregistered contractors (₦5 million fine), failure to file returns (₦100,000 for the first month, ₦50,000 monthly thereafter), failure to keep records (₦10,000 for persons other than companies and ₦50,000 for companies) and other penalties. Essentially, transparency is now legally required to avoid penalties.

HOW BUSINESSES SHOULD RESPOND TO NIGERIA’S 2026 TAX REFORMS

At Starr Attorneys, we urge early compliance planning to avoid regulatory sanctions and leverage available reliefs. In light of the 2026 reforms, we advise businesses to take the following strategic steps:

• Ensure all internal systems are upgraded to accommodate new reporting formats, exemptions, and levies.
• Conduct tailored sessions for finance and compliance teams to understand procedural changes and avoid costly errors.
• Engage Professionals to Audit Liabilities Under the New Acts;
• Evaluate whether the current corporate structure still offers the most tax-efficient setup under the new laws.
• Monitor Value Added Tax and Development Levy Implications and adjust pricing models to reflect exemptions and new levies without harming competitiveness;
• Strengthen Record-Keeping and Documentation and;
• Follow official releases from the Nigeria Revenue Service and the Joint Revenue Board to keep up with sector-specific directives.

CONCLUSION: ADAPTING EARLY TO NIGERIA’S 2025 TAX REFORMS

The enactment of the four new tax and fiscal laws marks a pivotal restructuring of Nigeria’s tax landscape. For businesses, these reforms present both opportunities and risks. Businesses that adapt early to Nigeria’s 2025 tax reforms will not only avoid regulatory penalties but also unlock opportunities for sustainable growth, stronger investor confidence, and long-term tax efficiency. Starr Attorneys stands ready to guide companies through this transition, helping them implement actionable compliance frameworks tailored to their unique operational realities.

Written by: Glory Nzere
Legal Associate
Starr Attorneys.

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