Navigating Nigeria’s new tax era: Key transitional provisions and compliance considerations for 2026

The recently enacted Nigerian tax laws mark a significant milestone in the country’s fiscal reform agenda. These laws introduce comprehensive provisions designed to modernize the taxation framework for businesses and individuals operating in Nigeria. Though the Nigeria Revenue Service (Establishment) Act (NRSEA) and the Joint Revenue Board of Nigeria (Establishment) Act (JRBEA) took effective on 26 June 2025, the changes, introduced by the four enacted Acts (Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service (Establishment) Act, and the Joint Revenue Board of Nigeria (Establishment) Act), will take full effect on 1 January 2026, ushering in a unified, friendly, and more transparent tax regime.

With the effective date fast approaching, businesses and individuals must begin preparing for a seamless transition from the current tax system to the new framework. Although the Acts include some transitional provisions to guide this process, understanding and applying these provisions correctly is crucial for ensuring compliance and effective risk management.

Transitional Provisions

Transitional provisions are clauses within the new tax laws that guide how existing laws, rights, obligations, and arrangements will continue or phase out under the new law. Their purpose is to prevent legal uncertainty and abrupt disruptions in compliance by providing a structured bridge from the existing laws to the new framework.

The new tax laws become effective on 1 January 2026, meaning all tax filings from that date onward must comply with the new provisions:

• Transaction taxes – From 1 January 2026, compliance obligations with respect to filing, assessment, and penalties for late filing (₦100,000 for the first month of default and ₦50,000 for each subsequent month) of transaction taxes, such as Value Added Tax (VAT), Withholding Tax (WHT), Stamp duties (SD), must align with the provisions of the new tax laws.
• Income tax of individuals – Annual employers' returns due by 31 January 2026, as well as individuals’ annual filings, will be based on the provisions of the NTAA. Penalties for non-compliance will also be based on the new law.  
• Companies' Income Tax – Companies' Income tax filings from 1 January 2026 will be based on the new provisions, including returns for the 2026 Year of Assessment (YOA) for companies with a year-end between July and December 2025.
• Chargeable Gains – Gains or losses on assets disposed of in 2025 are to be included in the assessable income for the 2026 YOA and taxed under the NTA.

Transitional provisions for Value Added Tax (VAT)

A. Input VAT Claims: Section 156(5) of the NTA allows registered businesses to claim all input VAT incurred in making taxable supplies, subject to the following conditions:

• The input VAT must be incurred in making taxable supplies.
  • Input VAT incurred by businesses supplying non-vatable items (VAT exempt items) is to be expensed or capitalised as they are not eligible for input VAT claims.
  • Input VAT incurred by businesses supplying zero-rated items qualifies for VAT refund under the Act.
• The input VAT shall be allowable for deduction within five (5) years after the end of the tax period in which the input VAT was incurred.

However, transitional rules limit claims to input VAT incurred from the commencement of the Act (i.e., 1 January 2026). This means that:

1. unclaimable input VAT (input VAT on services and assets) under the current VAT system cannot be claimed under the NTA.
2. claimable input VAT (input VAT on goods purchased for resale or goods which form stock-in-trade used for production of a new product on which VAT is charged) incurred under the current system but not fully utilized can still be claimed after the NTA takes effect.
3. From 1 January 2026 onward, all input VAT incurred on taxable supplies will be claimable.

B. VAT Refund: VAT refund will now be processed within 30 days of receiving a valid request. Taxpayers must submit refund requests to the Nigeria Revenue Service (NRS) within 12 months of the transactions giving rise to the refund; otherwise, it shall lapse. Any amount not refunded to the taxpayer within the stipulated period shall become eligible for set-off against any tax liability of the taxpayer.

Taxpayers may still request refunds in 2026 for qualifying transactions that occurred in 2025 under the current VAT Act, provided the request is made within 12 months of the transaction date.

C. Classification of items: The NTA reclassifies some items that are currently VAT-exempt as zero-rated, enabling businesses to claim input VAT incurred in supplying necessities such as basic food items, education, and healthcare. For compliance, businesses must update their accounting systems to correctly apply VAT rates of 0%, 7.5%, or exempt.

D. Obligations of Non-resident Companies (NRC): Section 151(5) of the NTA formally established the responsibility of appointed NRCs who do not process payments in respect of supply to collect VAT on the supplies through the mechanism with which it collects its commission. This requirement was previously introduced under the 2021 Federal Inland Revenue Service (FIRS) guidelines, “Guidelines on Simplified Compliance Regime for Value Added Tax (VAT) for Non-Resident Suppliers”, through which all NRCs supplying goods, services, or intangibles to persons in Nigeria through electronic or digital platforms were appointed to collect and remit VAT. It also requires non-residents acting as intermediaries to collect VAT on both the supply carried out through their platforms and their commission on the transaction. 

This requirement now has statutory backing under the NTA. Therefore, all appointed non-residents, particularly those operating as intermediaries, must collect VAT on both the supply and their commission, even where they do not receive payment directly from customers.

E. VAT Filing and Attribution: Section 22 (11) of the NTAA requires VAT returns to include details of consumption of taxable supplies, irrespective of where the return is filed. Currently, VAT is attributed to the state where it is filed, which is usually the tax office of the taxpayer, not considering the location of actual consumption. This compliance requirement ensures accurate distribution of VAT revenue among states and local governments based on consumption data.

Businesses should monitor NRS circulars for updated filing procedures effective January 2026. It is also expected that the VAT Schedule template available on the TaxPro Max portal may be updated to reflect this change.

Transitional provisions for Companies

A. Capital Allowance Claims: The NTA introduces significant changes to the treatment of capital allowance claims, as follows:

• The initial allowance previously available under the Companies Income Tax Act (CITA) has been removed.
• Annual allowances have been restructured into three classes of Qualifying Capital Expenditure (QCE), with corresponding rates of 10% for Class 1, 20% for Class 2, and 25% for Class 3, simplifying capital allowance computations and claims.

The first schedule to the NTA provides specific transitional rules as follows:

• Fully Claimed QCEs: For assets on which capital allowances have been fully claimed before the commencement of the NTA, no further action is required, and no additional allowance will be granted under the NTA.
• Partially Claimed QCEs: Where the number of years claimed for an asset under CITA is less than the number allowable under the NTA, the remaining years will equal the NTA’s allowable years minus years for which allowance has already been claimed. The capital allowance will then be computed based on the remaining useful life under the NTA.

Kindly note that the above illustration applies specifically to Plant Expenditure

• Equal or Greater Years Claimed: For assets whose years of claims under CITA is equal to or greater than the number of years allowable under the NTA, a single allowance shall be granted upon commencement of the Act.

Additional changes include:

• The retention amount in capital allowance computations has been revised from ₦10 to 1% of QCE, treated as a notional figure that does not affect claimable amounts.
• Balancing allowances and charges have been eliminated, as the new chargeable gains computation under the NTA incorporates these adjustments.
• Companies can now claim full allowances without restrictions, as the former two-thirds (66 2/3) limitation under CITA has been abolished.

B. Carry-Forward of Losses and WHT Credits: Existing tax losses and unutilized WHT credits under the current tax regime remain valid and can be carried forward under the new Act, except in the case where a company ceases operation, in which case all credits lapse.

C. Chargeable Gains: Under the current system, gains on asset disposals are taxed on an actual year basis, i.e., tax is paid in the year of disposal. Under the NTA, gains on disposal must now be included in the taxable income of the preceding year and taxed on a preceding year basis. For example, gains realized in 2025 will be added to the assessable profits for the 2026 Year of Assessment (2025 FY) and taxed at the applicable income tax rate (0% or 30%).

Since some taxpayers may have already paid Capital Gains Tax (CGT) at 10% in 2025, the NRS is expected to issue guidelines clarifying whether such gains should be excluded from 2026 filings. It is expected that assets on which CGT has been paid will not be included in subsequent income tax computations and filings.

D. Free Zone Entities (FZE): From 1 January 2026, FZEs will no longer enjoy blank tax exemptions. Exemption will now depend on the percentage of export and compliance with the provisions of the NTA. Full exemption will apply where:

• Profits arise from the full export of goods or services.
• Total sales serve as inputs into goods or services exclusively for export.
• Sales of goods or services to the customs territory in Nigeria are not more than 25%
• Tax will apply on the profits from the total sales to the customs territory where sales of goods or services to the customs territory exceed 25%.
• From 1 January 2028, subject to a Presidential Order, profits of an export processing zone entity will be fully subject to tax, in respect of its sales to the customs territory, regardless of the percentage of the sales.

FZEs are advised to review manufacturing arrangements with related entities operating in the customs territory to ensure that they comply with the arm’s length principles. It is essential to maintain contemporaneous TP documentation to justify that all transactions with related entities comply with the arm’s length principle.

E. Economic Development Incentive: The NTA introduces the Economic Development Tax Incentives (EDTI) Scheme to replace the current Pioneer Status Incentives (PSI). The purpose is to encourage the development or establishment of a sector in Nigeria. These sectors are referred to as 'Priority Sectors'. Under the EDTI framework:

• A minimum Qualifying Capital Expenditure (QCE) threshold applies for eligibility, ranging from ₦250 million to ₦500 billion, depending on the sector.
• Companies will no longer enjoy blanket tax exemptions as under the Pioneer regime. Instead, an EDI tax credit of 5% per annum for five years will apply to each eligible QCE acquired within five years, starting from the production date.
• The tax credit can be used to offset tax payable for any Year of Assessment during the priority period, except for additional tax payable under the Minimum Effective Tax Rate (METR).
• Any unutilized tax credit or QCE on which the 5% annual credit has not been fully claimed may be carried forward for five additional years, after which unused credits will lapse.

Companies with PSI certificates under the Industrial Development (Income Tax Relief) Act will continue to enjoy their existing reliefs for the remaining unexpired period.

To facilitate the transition, the Nigerian Investment Promotion Commission (NIPC) stopped accepting PSI applications effective 10 November 2025. Applications for EDTI certificates will commence under the NTA from January 2026.

F. Lottery and Gaming Trade or Business: Companies in the gaming and lottery sector, previously taxed under a separate regime, will now be subject to Corporate Income Tax (CIT), similar to other companies. The NTA allows specific deductions, including winnings or prizes paid from the Prize Fund, Commission fees to licensed agents, and regulatory and government levies paid under applicable law.

Other provisions, such as the minimum effective tax rate, VAT, WHT, etc., will also apply where relevant. Given the significant change for companies operating in this sector, it remains unclear whether the income tax filings for the 2026 year of assessment for companies with year-ends from July to December 2025 will follow the current practice or the NTA. However, businesses in this sector are advised to watch out for the NRS circular in this regard.

Transitional provisions for Individuals

1. Income Tax Computations: From 1 January 2026, Individuals’ Income tax will be computed based on the new tax bands and rates introduced under the NTA.
2. Rent Relief Allowance: The NTA introduced a rent relief allowance of 20% of annual rent paid, subject to a maximum of ₦500,000, whichever is lower. This relief will only be granted where the individual accurately declares the actual amount of rent paid and provides any other additional information required by the relevant tax authority.
3. Although state tax authorities have yet to issue guidelines on the mode of claiming this relief, it is reasonable to expect that rent paid in 2025 may be used as a relief for 2026 tax liabilities. This approach would prevent taxpayers from losing the benefit in the first year of implementation.
4. Benefit-in-Kind (BIK) on Premises: Where an employer provides premises to an employee, the employee will be deemed to receive additional emoluments equal to the annual rental value of the premises, subject to a maximum of 20% of the employee’s annual gross income from the employment, excluding the rental value itself. This provision offers relief for employees occupying high-value premises provided by their employer.
5. Annual Employer Returns Filings: Employers are required to file returns with the relevant tax authority, not later than 31 January of each year, detailing all emoluments paid to employees in the preceding year. The return for 2025, due by 31 January 2026, will be based on the provisions of the NTAA. Penalties for late filing are
   1. ₦100,000 for the first month of default
   2. ₦50,000 for each subsequent month
6. Business premises and development levy: The NTA repeals the “Taxes and Levies (Approved List for Collection) Act”, which previously authorized State tax authorities to collect Business Premises Fee and Development Levy. However, any unpaid Business Premises Fee and Development Levy for 2025FY must still be remitted.
7. The Joint Revenue Board (JRB), in a communique issued on 15 December 2025, urged all States to expedite action in the passage of the Harmonized Taxes and Levies (Approved List for Collection) Bill into law. This is to ensure uniform application of taxes, rates, and levies at the sub-national level. Consequently, we should anticipate a new Taxes and Levies (Approved List for Collection) Act under the new tax regime.
8. Submission of Audited Financial Statements or Statement of Accounts: Individuals earning income from trade, business, profession, or vocation are required to submit Audited Financial Statements or Statement of Accounts attested to by the taxpayer under the NTAA.
9. Taxpayers engaged in business activities should prepare for this requirement when filing their 2026 returns.

Strategies for Effective Transition

Businesses and individuals should adopt the following strategies to ensure a smooth transition to the new tax regime effective 1 January 2026:

• Conduct an impact assessment: Businesses should evaluate how the new provisions affect their operations, financial position, and reporting obligations.  This assessment will help identify key risks, compliance gaps, and areas requiring system or process adjustments to ensure readiness for the new regime.
• Accounting systems & tax reporting: Businesses must adapt their accounting systems to reflect new company classifications, new VAT item classification, tax bases, new tax obligations, and documentation requirements.
• Review transactions: Businesses should ensure that VAT is paid on all VAT-able supplies to ensure deductibility for income tax purposes. Where invoices for vatable transactions do not include VAT, businesses are advised to self-charge and remit the VAT. Failure to do so will result in the expense being disallowed for tax purposes.
• Model financial impact: Analyze the impact of the 30% tax rate on asset disposals and investment decisions, as well as the effect of the 15% Minimum Effective Tax Rate (METR) on overall financial performance. Companies should use scenario modeling to guide strategic planning, budgeting, and capital allocation under the new regime.
• PAYE Computation template: Businesses are to revise their PAYE computation template to reflect new bands, rates, and reliefs.
• Companies' Income Tax templates: Companies are to update their income tax computation template to reflect new provisions, including chargeable gains, development levy, Minimum Effective Tax Rate (METR), etc. Furthermore, companies are to maintain separate templates for resident and non-resident companies, as their computations will differ under the NTA.
• Compliance for Non-resident companies (NRC): NRCs are to comply with the assessment requirements under section 17 of the NTA, particularly where Permanent Establishment (PE) or Significant Economic Presence (SEP) exists.
• Transfer Pricing (TP) documentation: Companies with related party transactions are to maintain contemporaneous TP documentation to justify that transactions with related entities comply with the arm’s length principle.
• Individuals' tax considerations: Individuals, especially expatriates and non-residents, may need to understand how expanded residency definitions and new personal income tax measures apply.
• Seek expert guidance: Engage tax professionals to review your compliance framework and provide tailored advice for your industry and operational structure.

Conclusion

The provisions of the 2025 Tax Acts will significantly reshape tax obligations for businesses and individuals, introducing new compliance requirements and changing the way taxes are computed and reported. While the Act provides a comprehensive framework, it is expected that the Nigeria Revenue Service (NRS) and State tax authorities will issue detailed guidelines to clarify certain provisions and ensure effective implementation.

With a few days to the commencement date, businesses and individuals must take proactive steps to fully understand the new provisions and compliance requirements. This includes reviewing transitional rules, updating their compliance frameworks and templates, and seeking expert guidance where necessary.