Nigeria’s New Tax Law: Opportunities and Risks for Foreign Investors
JP Morgan, a multinational bank based in the United States of America (USA) is currently on track with its direct investment into the Nigerian financial sector with the deposit of =N=50 billion (i.e., $38 million) with the Central Bank of Nigeria (CBN) for a banking license. Just few days ago, Adedapo Adedayo Olagunju was appointed in principle as the Managing Director for the bank in Nigeria. This development brings to the fore the issues of the new Nigerian 2026 tax rules and foreign direct investment.
As an investor, especially a foreign investor or a prospective one with the intention of making it big in in the Nigerian market through a foreign direct investment (FDI) or foreign portfolio investment (FPI), there are things you need to know in terms of the opportunities and threats that the new 2026 tax reform in Nigeria brings.
As you already know, Nigeria re-wrote its tax rules in 2025, and commenced their implementation on January 1, 2026. This therefore means if you’re a foreign investor you have a whole lot of reasons to pay attention and to be familiar with the threats and opportunities inherent in the laws.
Pre 2026, individuals and companies looking to invest in Nigeria have had to navigate different tax laws, overlapping levies and complicated administrative procedures. For a foreign business hoping to build a factory, acquire a Nigerian company, setting up a trading station, establish a digital service, or even investing in the Nigerian capital market, figuring out what to pay and whom to pay it to could be a herculean task.
Then, Nigeria was often considered among the most difficult countries in the world to do business. This stereotype is what Nigeria’s new tax rules are designed to change.
The Nigeria Tax Act 2025 (which commenced implementation in 2026) alongside other tax reform legislation, unified into a single tax framework previously fragmented tax provision. The reforms also reorganise the Federal Inland Revenue Service (FIRS) into the Nigeria Revenue Service (NRS) and introduce digital procedures designed to make tax administration less cumbersome and more transparent.
In a 2026 study published in the Journal of Third World Economics, Onum Friday Okoh of the Department of Economics at the University of Ibadan examined the relationship between Nigeria’s new tax laws and foreign direct investment. The research, titled “The New Nigerian Tax Law and Foreign Direct Investment: Opportunities or Deterrents,” explored the key components of the Nigerian 2026 tax system, what foreign direct investment is, the types of FDI and applicable taxation in Nigeria, the incentives and reliefs in the laws, inherent opportunities and deterrents in the laws, and lastly the recommendations to investors wishing to do business in Nigeria.
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Components of the Nigeria’s tax system in 2026
To understand the new law, it will help to know what came before it. Nigeria’s tax system has undergone several changes over the years. One notable shift came in 1993, when Value-Added Tax (VAT) replaced sales tax. The idea was to broaden the government’s revenue from consumption rather than rely entirely on other forms of taxation.
Between 2019 and 2023, successive Finance Acts during Buhari’s presidency expanded VAT coverage, improved input tax credit arrangements and introduced measures intended to simplify compliance. But despite all these positive changes, businesses still had to deal with multiple tax laws. However, the administrative burden of having to contend with various tax documents remained a concern for businesses.
In 2025, rather than continue adjusting individual tax laws, President Tinubu’s government moved towards consolidating the entire tax framework of the country. The changes also sought to harmonise procedures across federal and other levels of government, expand taxation into the digital economy and make filing and processing taxes more automated. The idea was to eliminate the problems businesses often faced with dealing with a collection of separate tax laws and rules by consolidating them into a single more coordinated tax framework.
This move does not mean every tax has disappeared. Rather, Corporate Income Tax (CIT) remains a central part of the tax system, while VAT continues to apply to qualifying goods and services, including cross-border digital transactions. Capital Gains Tax (CGT), Withholding Tax (WHT), customs duties and excise taxes also remain relevant to businesses and investors under the new 2026 tax regime.
Major changes were made in the laws themselves. And much more, major changes were also made in how tax obligations are organised and administered. The essence of the tax reforms was to make the requirements of the rules clearer, improve information sharing and reduce the delays that can arise when businesses deal with overlapping and sometimes conflicting tax procedures. Clearer tax requirements and uncomplicated tax procedures are what businesses and investors require for planning long-term investments because they make for predictability.
What is foreign direct investment?
Foreign direct investment occurs when an investor from one country establishes a lasting business interest in another country and exercises substantial influence over its management. A foreign investor typically holds at least 10% of a business’s equity for the investment to qualify as FDI. JP Morgan’s move to establish a banking operation in Nigeria as mentioned in the opening paragraph of this article is an FDI. An FDI can take several forms, including equity capital, reinvested earnings and loans between related companies.
Usually, an FDI is not simply about money entering the country. Foreign investment can help establish factories, expand telecommunications networks, develop infrastructure and introduce new technology. It can also create employment and bring management experience into domestic businesses.
In the case of Nigeria, the benefits could extend beyond the industries receiving the money. A foreign manufacturer establishing operations in the country, for instance, may need local suppliers, workers and transport services. A telecommunications investment may require additional infrastructure and technical expertise. An agricultural processing project could create demand for locally produced raw materials. In essence, for a country like Nigeria, an FDI could also lead to economic diversification. A foreign investment in manufacturing, services, telecommunications and agriculture can help broaden economic activity beyond the oil sector and bring about structural transformation.
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Types of FDI and Applicable Taxation in Nigeria
There are various forms an FDI could take according to the study. A foreign company could build an entirely new manufacturing facility in what economists call a greenfield investment. Such a company, under the Nigeria tax system will face Company Income Tax (CIT), development levy of 4% of assessable income, customs duties on imported equipment and raw materials, and other applicable taxes. But it may also qualify for incentives such as economic development incentive (if it’s into a priority business), investment allowances and accelerated depreciation on its qualifying assets.
An FDI could also be in the form of acquisition of an existing Nigerian business. This is called a merger and acquisition. In a merger and acquisition, Capital Gains Tax on qualifying share transfers is applicable under the 2026 Nigerian tax system. Company Income Tax (CIT) and Withholding Tax on dividend payments are also applicable.
A foreign investor could also come into the country’s market via a joint venture scheme. In this case, the foreign business and the Nigerian business share project’s ownership, risks and operations. In such an arrangement, tax obligations such as CIT, withholding taxes on distributed profits etc may become applicable.
Sometimes, a foreign company could also organize its business horizontally or vertically. And this can affect the tax exposures of the company’s operations across various countries. A horizontal investment involves a foreign company establishing the same kind of business it already operates elsewhere. A vertical investment, on the other hand, involves placing different stages of production in different countries. For example, a company may locate part of its production chain in Nigeria while retaining other activities in some other countries. This can introduce questions about customs duties, VAT input credits, transfer pricing and CIT.
In the same vein, a foreign business can be a digital business. In this case, a foreign company supply services or digital products to Nigerian customers without establishing extensive physical infrastructure in the country. Under the framework described in Okoh’s study, these activities can attract VAT, withholding tax and digital-service-related tax obligations.
Usually, investors do not simply choose a country because the country needs investment. They also look at what they stand to gain after paying taxes and meeting regulatory requirements of such a country. Which brings us back to the new law and how the law can affect different kinds of foreign investments.
The Incentives and Reliefs for FDIs in the 2026 Tax System.
Okoh’s study identifies some tax incentives and investment reliefs that businesses especially FDIs could enjoy in Nigeria under the 2026 tax system.
- Manufacturing is one of them. Companies establishing production facilities may benefit from customs duty exemptions on eligible machinery, capital allowances and economic development incentives especially if the company is into a priority business. Those measures can help reduce the tax cost of setting up operations, particularly when substantial equipment must be purchased before production begins.
- Investment in renewable energy is another area of opportunity. Solar and other clean-energy projects may benefit from targeted tax breaks, economic development incentive and investment allowances. For businesses financing infrastructure that requires considerable upfront expenditure, such reliefs could make projects more attractive.
- Then there is agriculture. Commercial farming and agricultural processing are among the activities identified as potential beneficiaries of priority-sector incentives. Such investments could support both primary production and businesses that turn agricultural commodities into finished goods.
- Technology businesses also feature in the study. The reforms’ treatment of digital transactions, combined with possible pioneer reliefs for eligible innovative ventures, could provide a more defined environment for foreign technology investments.
- Telecommunications infrastructure, export-oriented manufacturing, refining, transport facilities, mineral processing and cross-border digital financial services are also identified as potential investment opportunities.
These industries are connected because they require substantial capital, long-term planning and specialised infrastructure. This therefore means tax incentives that reduce early expenses could therefore influence investment decisions.
But an industry being identified as an opportunity does not automatically mean every company operating in it qualifies for a tax holiday or exemption. Investors still need to examine the applicable conditions and their own eligibility.
The Opportunities under the Tax System for FDIs
The study identifies some opportunities that foreign direct investors stand to enjoy under the dispensations of the 2026 tax system in Nigeria. Here are some of the opportunities:
- Economic development incentives for investments in priority businesses: Any company that invest in any priority business or in the production of priority products stands to enjoy an economic development incentive for a period of 5 years. For instance, a minimum investment of =N=500 million in the manufacture of starches and starch products like glucose syrub are eligible for a tax credit equalled to the company income tax amount computed.
- For investment in the oil industry, customs duties or other like charges in respect of machineries, equipment and goods used in the company’s petroleum operation are allowable expenses in the computation of CIT. Say for instance, you as an investor in the oil industry in Nigeria incurred =N=100 million as customs duties on the importation of oil rig equipment. This sum will be deducted from your profit before the computation of the petroleum profit tax.
- Investment in renewable energy is another area of opportunity. Solar and other clean-energy projects may benefit from economic development incentive in the forms of targeted tax breaks and investment allowances. For businesses financing infrastructure that requires considerable upfront expenditure, such reliefs could make projects more attractive.
- Investment in agriculture: Commercial farming and agricultural processing are among the activities identified as priority activities. Such investments could support both primary production and businesses that turn agricultural commodities into finished goods. Agribusinesses are granted economic development incentives in the forms of tax holidays and tax credits under the new tax system.
- Telecommunications infrastructure, export-oriented manufacturing, refining, transport facilities, mineral processing and cross-border digital financial services are also identified as potential investment opportunities that qualify for economic development incentives.
- Investment in green transport and utility, and export-oriented processing are also amongst the qualifying investments for economic development incentive.
The Threats under the Tax System for FDIs
The following are some of the threats inherent in the new tax system especially for a foreign investor according to the study.
- There could be an increase in tax burdens and costs of doing business especially in the aspect of obtaining an e-invoicing system which is a condition imposed by the Nigeria Revenue Service (NRS) on the organizations doing business in Nigeria under the new 2026 tax code. The cost of acquisition and annual maintenance of such a system could run into millions of naira.
- There are some grey areas in the new tax laws that beggar for understanding. Some aspects of the laws are be-devilled by ambiguities.
- The new system is also skewed towards heavy complexity in the areas of compliance. There are strict documents to keep, and the penalties for non-compliance are heavy financially.
Advise to Investors
The research provided some recommendations to foreign investors. As a foreign investor in Nigeria, there are some things you can do to exploit the opportunities in the new 2026 tax system of Nigeria while avoiding the inherent threats. In this regard, you can take note of the following:
- Conduct a detailed due diligence not only in the aspect of the business you want to do but also in the applicable regulations to the business you want to carry out prior to capital commitment.
- The need to engage a professional tax advisor can not be over-emphasized. The tax advisor must be versed in the tax system of the country.
- In other to harness the opportunities in the new tax system, it’s imperative that you target your investment into the priority sectors of the economy of the company. This may make you eligible for economic development incentive, custom duties exemptions, and tax holidays. Example of such sectors are agriculture, manufacturing and waste management.
- Sometimes, it is more advisable to do your business in the country in piece-meal. This phased capital deployment will help mitigate the uncertainties inherent in the laws and even in the general economic and political climate.
- And lastly, as a business, as an investor, ensure you align your accounting system with the NRS especially in the aspect of automated filing, e-invoicing, compliance date reminder and so on.
Conclusion
For investments that qualify for meaningful incentives, the reforms may improve the attraction of some particular projects and businesses. For others facing substantial tax obligations, administrative costs or regulatory uncertainty, the calculation could be quite different.
And that raises another question: What happens when investors begin looking beyond the promised benefits and start calculating the actual costs of doing business in the country?
