The Nigeria Tax Act 2025, signed on 26 June 2025 and effective from 1 January 2026, has introduced significant changes to the country's tax framework, particularly with regards to intra-group financing. According to tax advisory firm Kreston Pedabo, the Act grants tax authorities stronger powers to scrutinise transactions between related entities, including shareholder loans, parent-subsidiary financing, and affiliate lending. This development is expected to impact Nigerian companies that engage in financing arrangements with connected parties.
The new tax Act marks a major departure from the previous framework, widening the range of financing arrangements that can now be examined by tax authorities. The Act strengthens the tax authorities' ability to examine financing arrangements involving connected companies, including guarantees and other forms of intra-group funding. Kreston Pedabo's report, authored by Adewale Kayode, Ayodeji Adenugba, and Esther Nofiu, highlights the significant changes under the new law, including the expansion of the interest deductibility limitation.
One of the most significant changes under the new law is the expansion of the interest deductibility limitation. Previously, the regime restricted interest deductions on loans from foreign connected parties to 30 per cent of Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). However, the new rules extend this restriction to both foreign and domestic transactions involving connected persons. Notably, banking and insurance companies are exempt from this restriction.
The Nigeria Tax Act 2025 also expands the definition of debt to cover loans, financial instruments, finance leases, and derivatives. This change potentially limits the ability of corporate groups to use debt structures to reduce taxable profits. According to Kreston Pedabo, related party financing is frequently deployed as a tax planning mechanism, creating opportunities for base erosion and profit shifting.
In addition to interest deductions, companies now face stronger transfer pricing requirements for related-party financing. Businesses must demonstrate that interest rates, loan tenures, repayment schedules, collateral arrangements, and other financing terms are consistent with what independent parties would have agreed under comparable circumstances. To comply with these requirements, companies should maintain contemporaneous documentation, including executed loan agreements and creditworthiness assessments.
Kreston Pedabo advises companies to maintain detailed records, including benchmarking studies and evidence of the commercial rationale for their financing arrangements. Taxpayers are also required to submit prescribed transfer pricing declarations and annual disclosure forms detailing related-party financing transactions during the relevant accounting period. Failure to meet these requirements could result in penalties and transfer pricing adjustments.
The Nigeria Tax Act 2025 has also removed previous exemptions applicable to interest on certain foreign loans, affecting foreign borrowing. Companies will need to carefully review their financing arrangements to ensure compliance with the new tax regime. With the increased scrutiny of intra-group transactions, businesses must be prepared to justify their financing arrangements and demonstrate compliance with the new regulations.
Key points
- The Nigeria Tax Act 2025 strengthens tax authorities' powers to scrutinise intra-group transactions.
- The Act extends interest deductibility limitations to both foreign and domestic transactions involving connected persons.
- Companies must maintain detailed records to comply with transfer pricing requirements for related-party financing.
