Nigeria’s Minimum Tax Rule Explained

This article examines Section 57 of the Nigeria Tax Act 2025, one of the most significant provisions introduced by Nigeria’s recent tax reform. The provision takes effect on 1 January 2026 and establishes a Minimum Effective Tax Rate (ETR) of 15% for certain categories of companies operating in Nigeria.

When read alongside Section 6 of the same Act, which governs the taxation of profits earned through foreign subsidiaries, Section 57 signals Nigeria’s move toward global standards on corporate taxation and profit transparency.

This article explains:

• the companies affected by Section 57;
• the practical implications of the provision;
• the operation of the top-up mechanism under Section 6(3);
• the taxes counted toward the minimum rate;
• the companies exempted from the rule;
• the penalties for non-compliance; and
• the authority responsible for enforcement.

Background: Why Section 57 Was Introduced

For many years, large corporations, especially multinationals, used sophisticated tax planning strategies to reduce their effective tax burden. Common strategies included profit shifting to low-tax jurisdictions, aggressive deductions, transfer mispricing, and routing income through subsidiaries in countries with minimal corporate tax.

As a result, some companies generated substantial revenue in Nigeria while paying little or no tax because they reduced taxable income through legally permissible but economically weak arrangements.

Section 57 of the NTA 2025 addresses this problem directly. The provision requires qualifying companies to pay at least 15% of their net income as tax, regardless of deductions, incentives, or reliefs claimed. Where a company’s actual tax liability falls below that threshold, it must pay a top-up tax to cover the shortfall.

The provision closely reflects the principles of the OECD’s Base Erosion and Profit Shifting (BEPS) framework, particularly Pillar Two of the Two-Pillar Solution, which proposes a global minimum corporate tax rate of 15%. Although Nigeria has not formally adopted Pillar Two, Section 57 clearly follows its core principles.

Who Section 57 Applies To

Section 57 applies to two categories of companies.

1. Constituent Entities of Multinational Enterprise Groups

The first category covers companies that form part of a Multinational Enterprise (MNE) group. A constituent entity is a company within a group operating across multiple countries where the group prepares consolidated financial statements.

The provision applies where the group’s aggregate global turnover equals or exceeds €750 million. Therefore, a Nigerian subsidiary of a global group meeting that threshold falls within the scope of Section 57, regardless of the size of its Nigerian operations.

2. Large Nigerian Companies

The second category includes Nigerian companies with an aggregate annual turnover of ₦50 billion or more during the relevant year of assessment, even where they do not belong to a multinational group.

Accordingly, a Nigerian conglomerate that reduces its effective tax rate below 15% through lawful incentives or reliefs must still pay a top-up tax to meet the statutory minimum.

Understanding Multinationals and Parent-Subsidiary Structures

Because Section 57 primarily targets multinational groups, it is useful to understand how these structures operate.

A multinational enterprise is a business group operating in more than one country. The group usually consists of:

• a parent company that controls the group; and
• one or more subsidiaries in which the parent holds a controlling interest.

For example, where a Nigerian company owns 60% of a company registered in Mauritius, the Nigerian company acts as the parent while the Mauritian company serves as the subsidiary.

These structures create opportunities for profit shifting. A Nigerian parent company may pay substantial management fees or royalties to a low-tax foreign subsidiary. This arrangement reduces taxable profits in Nigeria while profits accumulate in a lower-tax jurisdiction.

Section 57 and Section 6 aim to prevent this outcome by ensuring that multinational groups pay at least the minimum effective tax rate on their profits.

Meaning of “Net Income” Under Section 57

The NTA 2025 applies the 15% minimum ETR to a company’s “Net Income,” which the Act defines specifically for this purpose.

Net Income means profits before tax after excluding:

• franked investment income; and
• unrealised gains or losses.

Franked Investment Income

Franked investment income refers to dividends received from another Nigerian company that has already paid tax on those profits. The exclusion prevents double taxation because the originating company has already paid tax on the income.

Unrealised Gains and Losses

Unrealised gains and losses arise from changes in asset or liability values that have not yet resulted in completed transactions or actual cash flows.

The exclusion ensures that companies do not pay minimum tax on accounting entries that do not reflect realised economic gains.

Where a Nigerian company controls a foreign subsidiary that retains profits instead of distributing dividends, the provision treats the Nigerian parent’s attributable share of those profits as taxable income in Nigeria, provided the subsidiary could distribute the profits without harming its operations.

This rule removes the tax deferral advantage previously associated with retaining profits offshore.

Section 6(3): Top-Up Tax Mechanism

Section 6(3) establishes the top-up tax mechanism.

Where a foreign subsidiary pays income tax below the 15% minimum ETR in its country of residence, the Nigerian parent company must pay additional tax in Nigeria to bridge the difference.

Example

Assume a Nigerian parent company owns a subsidiary in a jurisdiction with a 5% corporate tax rate.

• The subsidiary earns ₦500 million in profits.
• It pays ₦25 million in tax.
• Its effective tax rate equals 5%.

Under Section 6(3), the minimum required tax would equal 15% of ₦500 million, which amounts to ₦75 million.

The shortfall therefore equals ₦50 million. The Nigerian parent company must pay this ₦50 million as top-up tax to the Nigeria Revenue Service.

This provision significantly affects Nigerian companies that route profits through low-tax jurisdictions because any unpaid tax abroad may now become payable in Nigeria.

Taxes Counted Toward the Minimum ETR

The NTA 2025 identifies the taxes that qualify as covered taxes for purposes of calculating the 15% minimum ETR.

These include:

• Company Income Tax (CIT);
• Petroleum Profit Tax (PPT);
• Hydrocarbon Tax;
• the Development Levy; and
• priority sector tax credits.

The Development Levy consolidates several former levies, including:

• Tertiary Education Tax;
• IT Levy;
• NASENI Levy; and
• Police Trust Fund Levy.

Companies may count these taxes and credits toward the 15% threshold. However, where the combined covered taxes remain below 15% of Net Income, the law automatically triggers a top-up obligation.

Companies Exempted From Section 57

Section 57 does not apply to every company.

Free Zone Companies

The most significant exemption applies to Free Zone companies.

A company operating within a Nigerian Free Zone remains exempt from the minimum ETR where:

• it derives income exclusively from exports outside Nigeria; and
• it is not a constituent entity of a multinational enterprise group.

This exemption preserves the incentives designed for export-oriented businesses while preventing multinational groups from exploiting Free Zones to avoid minimum tax obligations.

However, beginning from 1 January 2028, Free Zone companies that sell goods or services into Nigeria’s customs territory will lose their tax exemptions on those domestic transactions.

Companies with mixed export and domestic operations should therefore begin restructuring and compliance planning well before that date.

Penalties for Non-Compliance Under the NTAA 2025

The Nigeria Tax Administration Act 2025 governs the enforcement of obligations under the NTA 2025, including Section 57.

Although the Act does not prescribe a penalty specific to the minimum ETR rule, its general compliance and enforcement provisions apply fully.

Failure to File Returns

Under Section 101 of the NTAA 2025, a company that:

• fails to file tax returns; or
• knowingly files inaccurate or incomplete returns,

commits an offence and becomes liable to:

• ₦100,000 for the first month of default; and
• ₦50,000 for each additional month during which the default continues.

Late Payment Surcharge

Section 142 replaces the former penalty regime for late payment with a surcharge system.

Any unpaid tax immediately begins to attract surcharge at a rate linked to the prevailing Central Bank of Nigeria Monetary Policy Rate. Consequently, unpaid liabilities may grow significantly over time.

Additional Assessments and Personal Liability

Where the Nigeria Revenue Service discovers underpayment during an audit, it may issue additional tax assessments.

Where fraud or deliberate misrepresentation caused the underpayment, Section 161 permits the imposition of personal liability on directors and officers responsible for the default.

The law therefore exposes not only companies, but also responsible executives, to legal and financial consequences.

Enforcement Powers of the NRS

The NRS also possesses broad enforcement powers under the NTAA 2025, including powers to:

• conduct audits and desk reviews;
• demand financial records;
• obtain court orders to attach and sell company assets; and
• apply for the temporary closure of business premises in serious cases of non-compliance.

The Regulatory Authority: Nigeria Revenue Service

The Nigeria Revenue Service serves as the primary authority responsible for administering and enforcing Section 57.

The Nigeria Revenue Service was established under the Nigeria Revenue Service (Establishment) Act 2025 and replaces the former Federal Inland Revenue Service (FIRS).

The agency now acts as the sole federal authority responsible for administering taxes payable by companies and non-resident persons in Nigeria.

The NRS operates under an Executive Chairman and maintains operational autonomy through its independent board and administration.

The agency also retains 4% of non-petroleum revenue collected as administrative cost recovery.

Under the NTAA 2025, the NRS may:

• conduct joint audits with state and local tax authorities;
• issue advance tax rulings;
• negotiate settlements; and
• exchange tax information with foreign authorities.

These powers significantly strengthen Nigeria’s ability to enforce minimum tax rules against multinational groups.

Conclusion

Section 57 of the NTA 2025, when read together with Section 6, represents Nigeria’s strongest legislative attempt to reduce aggressive tax planning and profit shifting by large corporations.

By imposing a mandatory 15% minimum effective tax rate and extending liability to Nigerian parent companies whose foreign subsidiaries underpay tax abroad, the law substantially reduces the advantages previously associated with low-tax jurisdictions.

The NTAA 2025 further strengthens enforcement through surcharge provisions, additional assessments, and personal liability for directors and officers involved in non-compliance.

Affected companies, including:

• Nigerian multinationals with foreign subsidiaries;
• Nigerian subsidiaries of global groups; and
• large domestic companies approaching the turnover threshold,

should begin reviewing their structures, tax positions, and compliance systems immediately.

SOW Professional Services Ltd provides tax advisory and compliance support for businesses seeking to understand and comply with Section 57 and Section 6 of the NTA 2025. Its professionals can assist with:

• determining whether a company falls within the scope of the minimum ETR;
• computing effective tax rates and top-up exposure;
• reviewing multinational group structures for CFC risks; and
• preparing and filing compliant tax returns with the NRS.