Nigeria Reforms Tax Laws for 2026, Rewrites Rules for MNEs

Nigeria introduced new tax laws that will take effect from January 1, 2026. The new tax framework departs significantly from the current one for multinational enterprises. Some of the provisions follow the standard OECD model, while others borrow incorporated models that depart from the norm. The standard Organisation for Economic Cooperation and Development principle is to limit taxation to the level of economic activities that occur within a country’s economic zone.

The new laws define an MNE as a company operating in more than one jurisdiction. Thus, some provisions of the law that hitherto only applied to foreign companies will now apply to local companies with an international footprint. This article analyses the provisions of the law as it relates to MNEs.

Exposure to Nigeria Tax

The law expands the types of MNE transactions that will be subject to taxation. Some of these are as follows:

Expanded tax nexus. The Nigeria Tax Act (NTA) broadens the scenarios in which nonresident companies will be taxed. Taxation will expand beyond just companies with a permanent establishment or significant economic presence (SEP) in Nigeria. SEP covers activities of companies deriving income from Nigeria through digital platform but without any form of physical presence in the country.

Income from services. Foreign companies (even those without any presence in Nigeria) will be subject to taxation on payments received for services provided to persons resident in Nigeria as well as nonresidents with a PE in Nigeria. NTA §17(3)(b).

Similarly, foreign insurance companies will pay tax on premiums received from Nigeria. NTA §17(3)(c).

Income from goods. The law also assesses tax on profit earned from the direct supply of goods by foreign companies with PE to residents of Nigeria. The profit will be attributed to the PE of the supplier. NTA §17(5)(c).

Gains on dispositions of shares. Nigeria residents will pay tax on gains derived from the disposal of shares of foreign companies. NTA, §46(g).

Gains derived from the disposal of shares of a foreign company. Such gains are taxed if more than 50% of the value of the shares is in respect of underlying interests or immovable chargeable assets in Nigeria. NTA §46(f). Similarly, if the disposal of shares of a foreign company leads to a change in the ownership structure of a company in Nigeria or interest in any chargeable asset in Nigeria, the gain is subject to taxation. NTA, §47.

Gains on dispositions of trade or business. Nonresidents will pay tax on gains derived from the disposal of any trade, business, profession, or vocation carried on in Nigeria and assets located therein. NTA, §17(2).

Permanent establishment. The law broadened the definition of a PE to include foreign companies with a place of management in Nigeria. NTA §17(9). This change adopts the conditions set out in the standard double tax treaty for the creation of a taxable presence. Attributable profits of foreign companies with a place of management in Nigeria are subject to taxation.

Minimum Profit Margin

The law sets a minimum profit margin where nonresident companies with PEs or SEPs in Nigeria will be subject to taxation at a profit margin not below that of the nonresident company. NTA §17(6), (7). The PE or SEP is also deemed to have the same credit rating as that of the nonresident company. NTA, §17(5) (a).

The law only permits a deduction for expenses incurred to produce attributable taxable profits. NTA, §17(5)(d). Expenses incurred by connected parties on such items as royalties, fees, or similar payments are not deductible. NTA, §17(5)(e).

Minimum Tax

The law incorporates the provisions of Pillar Two of the Organisation for Economic Cooperation and Development’s BEPS model for MNEs. NTA, §6(3), §57(1), (2). For other nonresident companies, minimum tax is the higher of tax suffered at source or 4% of gross revenue derived from Nigeria. NTA, §17(8).

Tax Avoidance Mitigation

The laws introduced the Controlled Foreign Companies rule. NTA, §6(2). The tax authority may include a proportion of profits of a foreign (nonresident) company controlled by a Nigerian company in the taxable income of the latter if adding the profit will not affect the operations of the foreign company.

1. Double Taxation Relief
Some of the new tax provisions may lead to double taxation. To ameliorate the impact, MNEs are permitted to claim double tax relief irrespective of the existence of a double tax agreement with the host country. NTA, §120, §121(2). This relief is not applicable to MNEs complying with the global minimum tax rules. NTA, §120(8).

2. Recoverable Input VAT
The tax laws have advanced Nigeria’s value-added tax system. Taxpayers can claim all input VAT incurred from output VAT. NTA, §156(5). The law also provides for a refund of VAT within 30 days by cash or as set off against any other tax liability. Nigeria Tax Administration Act (NTAA), §56.

3. Repeal of Major Tax Incentives
Nigeria has repealed the provisions of the law granting tax holidays and the fiscal and monetary incentives available to enterprises that are operating in free trade or export processing zones. NTA, §197(2), (3). This may have some impact on foreign direct investment.

4. Tightening Compliance Requirements
All taxpayers are required to obtain a Tax Identification Number (TIN) (NTAA, §6(1)) and banks are required to ensure that the TIN is provided. NTAA, §8(2). The Nigeria tax authority can appoint banks to recover assessed tax on taxpayers. NTAA, §60(1).

5. Creation of Nigeria Revenue Service
Nigeria has created the NRS to “administer all revenues accruing to the Government.” Nigeria Revenue Service Establishment Act (NRSEA), §4(1)(c). These include all types of taxes payable to the federal government of Nigeria, including import duties.

Takeaways

The new tax law is a watershed moment for tax administration in Nigeria. Nigeria has carved out a niche in the way it wants to assess income tax from economic activities.

The new system is unique because it adopts different, and sometimes conflicting, tax principles. The underlying motive appears to be to shore up tax revenue without much regard to equity in respect of taxable activities carried out within its economic zone. For instance, subjecting income earned by a non-resident company for services provided and consumed within its jurisdiction without any form of contact with Nigeria is overstretching.

It is likely that some of the principles or provisions of the law will be challenged and amended in due course. How the full implementation of the law will play on returns on foreign investment will be interesting to watch.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Tayo Ogungbenro and Ngozi Asim-Ita are partner and senior manager, respectively, in Tax, Regulatory and People Services of KPMG Advisory Services in Nigeria. The opinions expressed in this article are personal.

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