Nigeria has always been a magnet for foreign businesses. From oil majors to tech giants, construction firms to financial services providers, international companies have flocked here to tap into Africa’s largest economy. For years, many operated under a patchwork of rules that weren’t always clear or consistently enforced.
Those days are over. The Nigeria Tax Act, 2025 has fundamentally changed the game for foreign companies doing business here. The new rules are clearer, more comprehensive and designed to ensure that businesses profiting from Nigerian customers contribute fairly to the country’s development.
The message is straightforward: foreign investment is welcome, but so is paying your fair share of taxes. Here’s what every foreign company needs to know about the new landscape.
Two Ways to Become Taxable: PE and SEP
The biggest change in the new law is how Nigeria determines whether a foreign company owes tax here. Previously, there was essentially one test: did you have a permanent establishment (PE) in Nigeria? If you had no physical presence, that is, no office, no staff, no fixed location, you could often avoid Nigerian taxes entirely.
The digital age has made this approach obsolete. That’s why the new 2025 Tax Act, signed into law by President Tinubu, introduces a second pathway to taxation: Significant Economic Presence (SEP).
Permanent Establishment (PE) – The Traditional Route
Permanent establishment means that you have a fixed place of business in Nigeria, such as an office, branch, factory, or construction site.
Examples:
- A Chinese construction company building roads in Abuja
- A European bank with branches in Lagos and Port Harcourt
- A tech company with a customer service center in Nigeria
- A manufacturing firm with a factory in the country
According to the new tax law, the tax consequence is that the profits directly or indirectly connected to your Nigerian operations are taxable here.
Significant Economic Presence (SEP) – The Digital Age Rule
A company with ‘significant economic presence’ (SEP) is one that earns substantial revenue from Nigerian customers, regardless of whether it have any physical presence here.
Who this affects:
- Streaming platforms serving Nigerian subscribers
- Online marketplaces facilitating Nigerian transactions
- Cloud storage providers serving Nigerian users
- Digital advertising platforms targeting Nigerian audiences
- E-commerce sites selling to Nigerian customers
The key insight is that companies no longer need a desk in Lagos to have tax obligations here. If you’re making money from Nigeria, you may now owe tax here too.
How your SEP tax obligations are determined: The law sets revenue thresholds and qualitative criteria (like continuous digital interaction with Nigerian users) that trigger SEP status. These specific thresholds will be established by regulation.
What Profits Get Taxed?
Nigeria doesn’t tax a foreign company’s entire global income, it taxes only the portion that’s reasonably connected to its Nigerian activities.
For Companies with Permanent Establishment
If you have a PE in Nigeria, you pay tax on profits that are directly or indirectly connected to your Nigerian operations. Think of it this way: if a foreign construction firm wins a contract in Abuja, profits from that project are taxable in Nigeria, but their unrelated earnings from projects in Ghana or Kenya are not.
For Companies with Significant Economic Presence
If you have SEP but no PE, the tax authority can estimate your taxable profits based on turnover attributable to Nigerian customers, adjusted for costs and margins typical in your sector.
What this means practically, is that foreign businesses must now keep detailed records of Nigerian-sourced revenue and be prepared to justify how much profit comes from those activities.
Special Rules for Transport Companies
The new law introduces simplified taxation for foreign companies in shipping and air transport, industries where traditional profit calculations can be complex across multiple jurisdictions.
A Fixed Rate System
Instead of calculating actual profits, foreign transport companies now pay tax at fixed rates on their gross revenue from Nigerian operations:
- Foreign shipping companies: 2% of gross revenue from Nigerian sources
- Foreign airlines: 6% of gross revenue from Nigerian operations
Why this matters: These fixed rates replace complex profit calculations, providing more certainty for both taxpayers and tax authorities. If you’re a shipping company moving goods from Lagos port or an airline flying passengers from Nigerian airports, you now know exactly how much tax you’ll pay.
The 4% Minimum Tax Floor
To prevent profit-shifting and ensure fair contribution, the Act introduces a 4% minimum tax floor on turnover for certain non-resident companies.
How it works: If a foreign company reports very low or no taxable profit in Nigeria, despite significant Nigerian revenue, it may still be subject to this minimum tax. This prevents businesses from escaping taxation entirely through aggressive deductions or transfer pricing arrangements.
Example: A foreign tech company earns ₦1 billion from Nigerian customers but reports only ₦10 million in taxable profit after deductions. Even if the regular corporate tax on ₦10 million is minimal, they would still pay the 4% minimum tax (₦40 million) on their Nigerian turnover.
New Compliance Requirements
The Act imposes stricter requirements on foreign companies operating in Nigeria:
Registration and Filing
- Companies with SEP or PE must register with the Nigerian tax authority
- Annual tax returns must be filed
- Records must clearly distinguish Nigerian-sourced income from other earnings
Documentation and Transparency
- Maintain detailed records of Nigerian activities
- Be prepared to justify profit allocation to Nigeria
- Comply with transfer pricing rules for intra-group transactions
Penalties for Non-Compliance
The consequences of ignoring these requirements have become more severe:
- Financial fines for non-registration or late filing
- Interest on unpaid taxes
- Potential restrictions on remitting funds out of Nigeria
- Audit scrutiny and additional assessments
Real-Life Scenarios
Scenario 1: The Streaming Platform GlobalStream Ltd, based in the UK, offers video streaming services to Nigerian subscribers. They have no physical presence in Nigeria but earn $10 million annually from Nigerian subscriptions. Under the new law, they likely have SEP and must register for Nigerian tax, file returns and pay tax on profits attributable to their Nigerian operations.
Scenario 2: The Construction Company EuroBuilders has a 3-year contract to build a bridge in Rivers State. They maintain a project office and equipment yard in Nigeria. This clearly constitutes a PE, and all profits from the Nigerian project are taxable in Nigeria.
Scenario 3: The Shipping Line MediterraneanShip operates cargo vessels that regularly call at Lagos ports. Under the new rules, they pay 2% of their gross revenue from Nigerian operations, regardless of their actual profit margins.
What Foreign Companies Should Do Now
Immediate Actions
1. Assess your exposure: Review your Nigerian revenue and activities to determine if you have PE or SEP.
2. Register if required: If you meet the criteria, register with the Nigerian tax authority promptly.
3. Organize your records: Ensure you can clearly identify and document Nigerian-sourced income.
4. Review your structure: Consider whether your current business structure is tax-efficient under the new rules.
Ongoing Compliance
1. Maintain separation: Keep detailed records distinguishing Nigerian activities from other operations.
2. Monitor thresholds: Track your Nigerian revenue to know when you cross SEP thresholds.
3. Stay informed: Keep up with regulatory updates as specific thresholds and procedures are clarified.
4. Engage local expertise: Work with Nigerian tax advisors who understand both the new rules and local enforcement practices.
The Bottom Line
The Nigeria Tax Act, 2025 reflects the reality of a modern, interconnected economy. It welcomes foreign investment while establishing clear expectations: if you profit from Nigerian customers, you’re expected to contribute to the system that supports them.
For foreign businesses, this isn’t necessarily bad news, it’s an opportunity for clarity and certainty. The old system’s ambiguity often led to disputes and unexpected assessments. The new rules, while more comprehensive, provide clearer guidelines for compliance.
The key is preparation and transparency. Companies that proactively assess their position, register when required, and maintain proper records will find the new system manageable. Those that ignore it risk penalties, audits, and reputational damage.
Nigeria remains a market of enormous potential. In this new tax regime, opportunity and responsibility go hand in hand, and that’s probably how it should be.
How Taxpal Can Help
Navigating Nigeria’s new tax landscape can be complex, especially for foreign companies unfamiliar with local requirements. Our partner, Taxpal provides comprehensive support for international businesses, including PE and SEP assessments, registration assistance, compliance monitoring and ongoing tax management.
Visit their website to explore their consultation services and portal access options. Whether you’re entering the Nigerian market or need to comply with new requirements, Taxpal will help you navigate the system efficiently and legally.
