Background
On 26 June 2025, President Bola Ahmed Tinubu signed into law the Nigeria Tax Act, 2025 ("NTA"), Nigeria Tax Administration Act, 2025 ("NTAA"), National Revenue Service (Establishment) Act, 2025 ("NRSEA"), and Joint Revenue Board (Establishment) Act ("JRBEA"), together the "Nigerian Tax Reform Acts". This marked the birth of a new tax regime in Nigeria, with the primary tax laws in the country being the Nigerian Tax Reform Acts.
While the Nigerian Tax Reform Acts are comprehensive and promise economic prosperity, they also have significant compliance implications for various sectors of the Nigerian economy, including mergers, acquisitions, and private equity ("MAPE") market. With a record US$3.8 billion in mergers and acquisitions transactions in Nigeria during the first 9 months of 20241, and the Nigerian private equity deals projected to close at US$382.36 million in 2025,2 the MAPE market has been noteworthy. The Nigerian Tax Reform Acts potentially offer the MAPE market more opportunities and awaken consciousness through the repeal, amendment, restatement, and introduction of certain tax obligations. Appreciating the Nigerian Tax Reform Acts, this article highlights the key tax concerns for the MAPE market.
Tax Concerns for The MAPE Market
1. Tax Registration for Certain Non-resident Persons
Offshore private equity firms, foreign investors, and other non-resident persons must register for tax and obtain a taxpayer identification ("Tax ID") to file required returns and pay taxes in Nigeria if they derive income from Nigeria.3 This will equally apply to private equity funds domiciled outside Nigeria but operating in Nigeria through their Nigerian offices.
Such a Tax ID is a prerequisite to deal with Nigerian banks, insurance, stockbrokers, or other financial institutions.4 If a tax authority, based on information at its disposal, determines that a non-resident person required to obtain a Tax ID is unregistered, the tax authority may, at its discretion, register and issue such a non-resident entity a Tax ID and notify the non-resident accordingly.5 However, non-resident persons deriving only passive income6 from Nigeria are not mandated to register and obtain a Tax ID,7 but the Nigeria Revenue Service8 may require them to provide relevant information.9
Notably, non-resident persons' income, profits or gains accruing in, or derived from Nigeria, are subject to tax in Nigeria.10 Additionally, the gains from the disposal of chargeable assets by non-residents are taxable in Nigeria,11 if the gains relate to a trade, business, profession, or vocation carried on by the non-resident person in Nigeria; any asset located in Nigeria; or any asset deemed to be located in Nigeria under the NTA.12
2. Capital Gains Tax ("CGT") Exemptions for Angel Investors, Venture Capitalists, Private Equity Funds, Accelerators, and Incubators
If an angel investor,13 venture capitalist,14 private equity fund, accelerator,15 or incubator16 disposes of an asset to a labelled startup,17 the gain accruing from such disposal is exempted from CGT on the condition that the disposed assets have been held in Nigeria for a minimum of 24 months before the disposal.18 The exemption here is good news for the stated private equity participants, as it incentivises asset disposals to labelled startups and equally helps mitigate the risks associated with such disposals.
3. New Thresholds for The Exemption of Chargeable Gains on Share Disposals
Before 31 December 2021,19 CGT was not chargeable on the gains of share disposals in a Nigerian company, but following the enactment of the Finance Act, 2021, the exemption of the gains of such share disposal from CGT was limited to a N100,000,000 threshold.20 However, the NTA has now introduced new thresholds. Concerning MAPE transactions, CGT will, from the commencement of the NTA, not be chargeable on the gains relating to the disposal of shares in a Nigerian company if the aggregate of the disposal proceeds is below ₦150,000,000 and the chargeable gains do not exceed ₦10,000,000 in any 12 consecutive months ("CGT threshold").21 This increase in the threshold is friendly to small-scale share disposal transactions that will typically fall within the CGT threshold. Additionally, where the proceeds from the disposal of shares in a Nigerian company exceed ₦150,000,000, CGT remains not chargeable on the gains of such disposal if the proceeds are reinvested within the same year of assessment in the acquisition of shares in the same or other Nigerian companies.22 This exemption will apply only to the portion of such disposal proceeds that were reinvested.23
4. Preventing MAPE Transactions from Being Deemed Artificial
If a Relevant Tax Authority ("RTA") believes that an MAPE transaction is artificially created to reduce payable taxes, the RTA may disregard such a transaction and charge the applicable taxes accordingly.24 An example of an MAPE transaction that may be construed as artificial by an RTA is a related party transaction not conducted at arm's length.25 The affected parties of such a transaction have the right to appeal the decision of the RTA.26
5. CGT Exemption for Assets Transferred to A Surviving Merger Entity
In a merger of two or more businesses or trades, the gains on the assets transferred to the new or surviving merger entity will not be liable to CGT.27
6. Effects of The Repeal of The Venture Capital (Incentives) Act, Cap. V2, Laws of the Federation of Nigeria, 2004 ("VCIA")
With the repeal of the VCIA by the NTA,28 qualifying venture capital companies29 ("VC Companies") will no longer enjoy certain incentives.30 One of such incentives is that qualifying VCs will no longer enjoy capital allowances31 on equity investments in a venture project company.32 This means that the capital allowances of qualifying VC companies on equity investments in a venture project company will now be subject to only the capital allowance regime under the NTA.
The VCIA further provides that the gains on the disposal of a qualifying VC Company's shares in a venture project company are exempted from CGT if the disposal occurs after 15 years of acquiring the equity investment, and during the period before the 15-year timeline, such gains are chargeable to CGT at varying rates.33 However, this will no longer be the case upon the commencement of the NTA, as the exemptions to CGT on the gains of share disposals under the NTA will now apply.34 Additionally, the provisions of the incentives under the Industrial Development (Income Tax Relief) Act and Export (Incentives and Miscellaneous Provisions) Act will no longer apply to a venture project company.
7. Chargeable Gains on Share Disposals by Non-Residents
If a non-resident person, such as an offshore private equity fund or foreign investor, disposes of shares held by it, the gains on such disposal will be chargeable to CGT only if the disposal results in a change of the ownership structure or group membership of any Nigerian company, or of ownership of, title in, or interest in any asset located in Nigeria.35 This limitation on chargeable gains on share disposals by non-residents is favourable to inter-group share disposals.
8. Transfer of Allowances and Deductions to The Surviving or New Meger Entity
In a merger of two or more businesses or trades, the unutilised capital allowance on the assets transferred shall be available for use by the new or surviving trade or business.36 The unabsorbed losses of the merging entities shall be available to the surviving trade or business, provided that such losses were incurred by the merged trade or business.37 Additionally, the taxes deducted at source relating to the merging entities shall be available for the surviving or new merger entity.38
9. VAT Exemptions for Business Restructurings
VAT shall not apply to business restructurings contemplated under the NTA.39 The business restructurings contemplated under the NTA are:40 a merger of two or more trades or businesses; a sale or transfer of a trade or business resulting in the cessation of a trade or business; and a sale or transfer of a business asset that does not stop the business, and the sale or transfer price does not exceed the residue of the qualifying capital expenditure and unutilised capital allowance of the asset.
Additionally, if a business or a part of it that can operate separately is transferred as a going concern, and the purchaser continues to utilize the assets in the same business activities for which the assets were previously employed by the seller, such a transfer will not be treated as a supply of goods or services liable to VAT.41 This VAT exemption reduces the tax exposures of asset transactions. However, the exemption is applicable on the condition that the buyer is already registered as a taxpayer in Nigeria or becomes registerable due to the transfer.42
10. New Stamp Duty Rates
Except for exempted instruments,43 documents first executed in Nigeria or executed outside Nigeria and relating to any property situated or to any matter or thing done in Nigeria are subject to stamp duties.44 The Ninth Schedule to the NTA outlines rates and corresponding exemptions for stamp duties on documents, including documents for MAPE transactions such as conveyance or transfer on sale charged at 1.5% ad valorem rate, excluding a property with a value of N10,000,000 or less; or transfer between related companies holding at least 90% shareholding in each other or through a third party if such conveyance or transfer document of the property had been stamped in the prior purchase of the property.
11. Definitive Timeline for Obtaining Tax Clearance Certificate ("TCC")
RTAs are obliged to, upon a taxpayer's satisfaction of tax obligations, issue TCC to a taxpayer within two (2) weeks of demand, or if not, give reasons for the denial.45 This definitive timeline may be useful in structuring schedules for transactions that require TCCs as part of the condition precedents.
Final Thoughts
While the benefits are commercially attractive, there is no need to guess that the consequences of defaulting on tax obligations are severe under the Nigerian Tax Reform Acts and may therefore not be commercially wise. The penalties for default include forfeiture of property, loss of operating licences, hefty fines, and criminal prosecution. For MAPE transactions, the cost of non-compliance is prohibitive for parties, and thus, prudent legal advice is essential to navigate specific circumstances and structure transactions to avoid tax breaches while maximising relevant tax reliefs and incentives.
Footnotes
1. BusinessDay NG, "2024 in Focus: Top Mergers and Acquisitions in Nigeria" ( https://businessday.ng/companies/article/2024-in-focus-top-mergers-and-acquisitions-in-nigeria/) accessed 26 June 2025
2. Source: Private Equity - Nigeria | Statista Market Forecast
3. Section 6(1), NTAA. In addition, the NTAA makes non-resident persons liable to tax if they supply taxable goods or services to persons in Nigeria. And section 151(6) of the NTA requires that a non-resident person who makes a taxable supply to a person in Nigeria must register for tax and include VAT on its invoice for all taxable supplies, i.e., any transaction for sale of goods or the performances of a service for a consideration excluding goods and services exempted under section 187 of the NTA.
4. Section 8(2), NTAA.
5. Section 7(3), NTAA.
6. i.e., the income from inactive participation in investments, such as dividends, interests, etc.
7. See the proviso, i.e., qualification to Section 6(1) of the NTAA.
8. The Nigeria Revenue Service is a federal tax authority established by the NRSEA to replace the Federal Inland Revenue Service.
9. See the proviso, i.e., qualification to Section 6(1) of the NTAA.
10. Section 17(1), NTA. See Part III of the NTA for further details on the taxation of non-resident persons.
11. Section 17(2), NTA.
12. See section 46 of the NTA on the determination of the location of assets.
13. i.e., means a high net worth individual or company which provides funding to an early-stage startup, typically in exchange for equity in the startup company. See section 47 of the Nigeria Startup Act No. 32 of 2022 ("Startup Act") and section 202 of the NTA.
14. i.e., a person or company that provides capital to a Startup (a company in existence for not more than 10 years, with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process) that is exhibiting high growth potential in exchange for equity. See section 47 of the Startup Act and section 202 of the NTA.
15. i.e., a fixed-term, cohort-based programme which provides a Startup with mentorship and educational assistance to aid its growth. See section 47 of the Startup Act and section 202 of the NTA.
16. i.e., a company, partnership, non-governmental organisation or limited liability partnership, whose principal object is to support the establishment and development of a startup, promotion of innovation, and related activities through the offer of dedicated physical spaces and services. See section 47 of the Startup Act and section 202 of the NTA.
17. i.e., a Nigerian company granted start-up label under the Startup Act.
18. Section 163(m), the NTA.
19. This is the commencement date of the Finance Act, 2021.
20. See section 2 of the Finance Act, 2021, for details.
21. Section 34(1)(a)(i), the NTA.
22. Section 34(1)(a)(iii), the NTA.
23. See the proviso, i.e., qualification to section 34(1)(a)(iii) of the NTA. It is also noteworthy that the gains arising from the transfer of shares between an approved borrower and a lender in a regulated securities lending transaction are exempted from CGT. See section 34(1)(a)(ii) of the NTA.
24. Section 191(1), NTA.
25. Section 191(3), NTA.
26. Section 191(2), NTA.
27. Section 190(1)(a)(ii), the NTA
28. Section 196(l), the NTA.
29. A qualifying VC Company is an incorporated company set up to invest in venture projects, and its investment in a venture project is not less than 25% of the total capital required for the venture project. A venture project is a project certified by the Federal Inland Revenue Service ("FIRS") to accelerate industrialisation by nurturing innovative ideas; commercialising impactful research; promoting self-reliance through resource-based strategic industries with risk guarantees; encouraging indigenous processes and technologies; supporting small and medium enterprises focused on local raw materials; or any other objectives the FIRS may specify. See sections 3 and 6 of the VCIA.
30. However, this will not affect incentives being enjoyed or already enjoyed by the qualifying VC companies under the VCIA.
31. 30% in the first and second years; 20% in the third year; and 10% in the fourth and fifth years. See section 4(a) of the VCIA.
32. A company incorporated for a venture project under the VCIA.
33. Section 4(b), the VCIA.
34. For the exemptions of chargeable gains on share disposals, see our discussion on item 3 of this article.
35. Section 47, the NTA.
36. Section 190(1)(a)(v), the NTA.
37. Section 190(1)(a)(vi), the NTA.
38. Section 190(1)(a)(vii), the NTA.
39. Sections 190(6), the NTA.
40. Sections 190 (a), (b), and (c), the NTA.
41. Sections 190(7), the NTA.
42. See the proviso, i.e., qualification to section 190(7) of the NTA.
43. See the Ninth Schedule to the NTA for the details of instruments exempted from stamp duties. In addition, section 185 of the NTA exempts certain documents from stamp duties, including all documents relating to the transfer of shares and any document used to dispose of, in any way, the interest or share of any part of a ship or vessel.
44. Section 124, the NTA.
45. Section 72(1), the NTAA.
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