The Tax Reform Act: What It Means for Nigerian Startups

Nigeria is currently undergoing significant regulatory reforms across its financial landscape. Following the recent enactment of the Investments and Securities Act, 2025, the country has now introduced sweeping changes to its tax framework.

On June 25, 2025, President Bola Ahmed Tinubu signed into law four key tax reform bills, marking a major step toward restructuring Nigeria’s tax system.

In this article, we break down the most relevant changes and what they mean, particularly for startups and emerging businesses operating in Nigeria.

The Tax Reform Acts

These Acts represent a comprehensive overhaul of Nigeria’s tax landscape, with the goal of driving economic growth, boosting revenue generation, enhancing the ease of doing business, and strengthening tax administration across all levels of government.

The newly enacted laws are:

• The Nigeria Tax Act
• The Nigeria Tax Administration Act
• The Nigeria Revenue Service Act
• The Joint Revenue Service Board Act

Key Regulatory Changes Introduced by the Acts

Consolidation of Tax Laws

Previously, each type of tax in Nigeria was governed by a separate piece of legislation. For example, the Capital Gains Tax Act, the Companies Income Tax Act, and the Value Added Tax Act all existed independently. However, the Nigerian Tax Act now repeals these individual laws and consolidates them into a single, unified legislation. This new Act also introduces amendments to related legislation, including the Cybercrime (Prohibition, Prevention, etc.) Act and the Nigerian Start-up Act. By bringing all tax-related laws under one legal framework, the reform aims to create a more coherent and streamlined tax system, reduce legal fragmentation, and enhance regulatory clarity for businesses, especially startups and small businesses navigating tax obligations.‍

New Tax Treatment for Limited Liability Partnerships (LLPs)

Under the new tax framework, Limited Liability Partnerships (LLPs) are now treated as tax-transparent entities. This means that all profits earned by an LLP are deemed to be distributed and are therefore taxable directly in the hands of the individual partners, in proportion to their ownership interests. The LLP itself is not taxed as a separate entity. Instead, each partner is assessed on their share of the profits, regardless of whether or not those profits are actually distributed. This approach avoids double taxation and aligns with international tax standards for partnership structures.

Taxation of Corporate Joint Ventures and Partnerships

There is now clarity on the tax treatment of joint ventures, partnerships, or similar arrangements between two or more companies operating in Nigeria. Under the new Acts, any income or profit arising from such arrangements will be treated as a distinct source of income, and each participating company will be individually assessed and taxed on its share of the profits. Importantly, this provision does not apply to partnerships operating in the petroleum sector, which are expressly excluded from this rule.

Personal Income Tax

Personal Income Tax (PIT) now applies to the worldwide income of any individual who qualifies as a Nigerian resident, regardless of where the income is earned or whether it is received in Nigeria. Additionally, individuals earning N800,000 or less per annum will be exempted from paying personal income tax while individuals earning higher incomes will be taxed at higher rates up to 25%.

Refined Rules for Taxation of Employment Income

The new Income Tax Act introduces detailed rules to determine when employment income is considered to be derived from Nigeria and therefore subject to tax. Under the Act, employment income is taxable in Nigeria if the employee is a resident of Nigeria, if the employment duties are wholly or partly performed in Nigeria, and the remuneration is:

1. Paid by or on behalf of a Nigerian resident employer,
2. Borne by a Nigerian fixed base, permanent establishment, or any other form of taxable presence of a non-resident employer, or
3. Not subject to tax in the employee’s country of residence.

However, the law carves out a notable exemption. Employment income will not be taxed in Nigeria where the employer is a startup or operates in technology-driven services or the creative arts, and where the income is taxable in the employee’s country of tax residence.

This exemption appears to be a policy step aimed at supporting Nigeria’s startup ecosystem, and encouraging cross-border hiring, in line with the realities of remote and digital work.

Exemption Threshold for Small Companies

The new Tax Act introduces a revised exemption threshold for small companies, providing much-needed relief to early-stage and micro businesses. Under the new rules, small companies are now exempt from paying both the Company Income Tax (CIT) and the newly introduced Development Levy Tax. A small company is now defined as one with an annual gross turnover of ₦100,000,000 or less (up from the previous threshold of ₦25,000,000), and a total fixed assets not exceeding ₦250,000,000. This reform is designed to reduce the tax burden on small businesses, encourage formalization, and support growth and sustainability in the early stages of a company’s lifecycle.

Introduction of Development Levy

A new levy called the Development Levy, aimed at boosting national development through targeted funding allocations, has been introduced. The levy is imposed at a rate of 4% on the assessable profits of Nigerian companies. However, this levy does not apply to small companies (as defined under the Act) and non-resident companies operating without a fixed base in Nigeria. Proceeds from the Development Levy will be allocated to strategic national funds, including the Tertiary Education Trust Fund (TETFund), the National Cybersecurity Fund, and other development-focused initiatives.‍

Retention of the VAT Rate

The new Tax Act retains the existing VAT rate of 7.5%. Nigeria now adopts globally recognised VAT principles that allow for the claim of input VAT on all purchases, including services and fixed assets. Input VAT rates are VAT paid by taxable persons to a supplier on the taxable supply received by the person. Businesses providing services that were previously unable to claim input VAT can now do so, provided that the input VAT is directly related to their supplies that are also subject to VAT.

VAT Exemptions and 0% Rated Supplies

VAT-exempted goods now include: Petroleum products, Baby products, shared passenger road transport services, agricultural machinery, and products and equipment for persons with disabilities. In addition to exemptions, the law introduces a category of taxable supplies charged at a 0% VAT rate, meaning VAT applies but at a zero rate, allowing businesses to still recover input VAT on these supplies. 0% VAT-rated items include: educational books and materials, medical products, poultry and live cattle, agricultural seeds, basic food items, electric vehicles, and electricity.

Tax Exemption on Capital Gains for Startup Investors

The new Act introduces a targeted incentive for investors in Nigeria’s startup ecosystem. Gains arising from the disposal of assets by the following entities are now exempt from Company Income Tax (CIT) and they include Angel investors, Venture capitalists, Private equity funds, Accelerators, and incubators. This exemption applies only where the investment relates to a labelled startup under the Nigeria Startup Act, and the assets have been held for a minimum of 24 months in Nigeria. The provision is designed to encourage long-term investment in innovative startups, reduce the tax burden on exits, and enhance capital inflow into the tech and entrepreneurship sectors.

Increased Capital Gains Tax

The Nigerian Tax Act has increased the capital gains tax from 10% to 30%.

Introduction of a Minimum Effective Tax Rate (ETR) for Large Companies

In alignment with global tax reforms, particularly the OECD's Pillar Two framework, the new Income Tax Act introduces a Minimum Effective Tax Rate (ETR) of 15% for certain large companies operating in Nigeria. This provision applies to Nigerian companies that are members of a multinational group with a global turnover of €750 million or more, or have an annual turnover of ₦50 billion or more. Notably, the minimum ETR does not apply to companies operating in Free Trade Zones, provided their activities involve exports out of Nigeria and they are not part of a multinational group.

Penalties

The Nigerian Tax Administration Act introduces some increased penalties for failure to adhere to the new laws. One of such penalties is failure for a registrable tax person to register, who will be liable to pay N50,000 when the first failure occurs in the first month and N25,000 in the subsequent months. Also, statutory bodies or companies that award contracts to unregistered persons will be liable to an administrative penalty of N5,000,000. Petroleum companies that fail to file the estimates or actual return are liable to a fine of N10,000,000 on the first day and N2,000,000 for subsequent days that the failure continues.

FIRS Renamed NRS

The Federal Inland Revenue Service is now renamed the Nigeria Revenue Service, and is going to be the body responsible for the collection of taxes for the federation and revenues previously handled by other agencies like the Nigeria Customs Service, the Nigerian Port Authority, among others.

Introduction of the Tax Appeal Tribunal and the Office of the Tax Ombud

The Joint Revenue Service Board Act introduces the Tax Ombud, which will serve as an independent arbiter to review complaints relating to tax and against tax officials. Taxpayers can make their complaints to this office regarding the actions of the tax authorities, agents, or officials. The Tribunal is also established to address disputes or controversies relating to the Nigerian Tax Act and the Nigerian Tax Administration Act, and any other tax laws.

Conclusion

These sweeping tax reforms signal a clear intention by the Nigerian government to modernise the country’s fiscal framework and create a more enabling environment for startups and innovative businesses. By introducing targeted incentives such as tax exemptions for early-stage investors, clarifying rules around employment and partnership taxation, and increasing the exemption threshold for small businesses, the reforms could significantly reduce entry barriers and operating costs for startups.

However, with new benefits come increased responsibilities. Startups must now pay closer attention to compliance, maintain proper documentation, and adapt to a more structured reporting and regulatory regime. The inclusion of steeper penalties and the creation of dispute resolution mechanisms like the Tax Tribunal and Ombud office suggest that enforcement will be more rigorous moving forward.

Ultimately, for founders and investors in Nigeria’s startup ecosystem, these reforms are both an opportunity and a challenge. The opportunity to operate in a clearer, more globally aligned tax environment, and the challenge of staying compliant in the regulatory landscape. It is advisable for startups to engage legal practitioners to analyse and reframe their tax strategies to ensure that they are compliant with these new regulations.

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