New Nigerian tax act expands taxation of foreign income

The recently enacted Nigeria Tax Act (NTA) represents a sweeping overhaul of the country’s tax framework, repealing and replacing major tax laws including the Companies Income Tax Act, Personal Income Tax Act, Petroleum Profits Tax Act, Value Added Tax Act, Capital Gains Tax Act, and Stamp Duties Act.

The unified legislation is designed to simplify compliance, align Nigeria with global tax standards, and broaden the scope of taxable income, including foreign earnings.

Under the new law, the worldwide income of Nigerian tax residents is now fully taxable in Nigeria. Individuals who meet the residency threshold—183 cumulative days within a 12-month period—are liable to pay tax on all income earned domestically or abroad, regardless of whether it is remitted to Nigeria.

Experts note that this could affect diaspora Nigerians, long-term business travelers, or remote workers, potentially subjecting their foreign salaries, pensions, and investment returns to local taxation.

The NTA also introduces rules targeting offshore profits through Controlled Foreign Company (CFC) provisions. Profits held abroad by foreign companies controlled by Nigerian entities, if not distributed but could have been without harming operations, are now deemed distributed and taxable in Nigeria.

This measure aims to prevent the deferral of tax obligations by keeping profits offshore.

In addition, the Act implements a Minimum Effective Tax Rate (METR) of 15 percent, ensuring that multinational subsidiaries paying lower foreign taxes do not erode Nigeria’s tax base.

When a foreign subsidiary of a Nigerian company or a multinational group pays tax below this threshold, the Nigerian parent is required to pay a top-up tax to meet the 15 percent effective rate, thereby guaranteeing fair taxation on global profits.

The Capital Gains Tax regime has also been expanded to cover indirect transfers of shares in foreign entities.

Gains from the disposal of shares deriving more than half their value from Nigerian assets are now taxable in Nigeria, even if the sale occurs abroad.

This closes previous loopholes where offshore holding companies could sell shares of Nigerian subsidiaries without triggering local capital gains tax.

Finally, the NTA extends Nigerian tax jurisdiction to foreign-incorporated companies whose central management and control, or Place of Effective Management (POEM), is exercised within Nigeria.

Such companies are considered Nigerian tax residents and are liable to pay tax on worldwide income, preventing firms from avoiding local taxation through offshore registration while being effectively managed from within the country.

Together, these provisions reflect Nigeria’s alignment with global tax principles, including OECD’s Base Erosion and Profit Shifting (BEPS) framework, and underscore the government’s commitment to curbing tax avoidance, expanding revenue, and ensuring equitable taxation of both domestic and foreign income.