Nigeria’s new tax laws have introduced several technical terms into conversations around business, compliance, and government revenue.
While many of these concepts were previously limited to tax professionals, they are becoming increasingly relevant to companies, investors, digital businesses, and even employees.
Here are 12 tax terms emerging from the Nigeria Tax Act, 2025, and what they mean in simple language:
Development levy (4%)
The development levy is a new single levy that combines several older company levies into one payment. Instead of paying separate education, police, IT, and science levies, medium and large companies will now pay a unified four percent levy on their assessable profits.
Section 59 of the Nigeria Tax Act, 2025 states that the levy applies to all companies chargeable to tax under the income tax and petroleum operations chapters, except small companies and non-resident companies.
Revenue is collected by the Nigeria Revenue Service and distributed across several government funds. The Tertiary Education Trust Fund receives 50 percent, the Nigerian Education Loan Fund receives 15 percent, while portions also go to technology, cybersecurity, defence, and innovation-related funds.
Force of Attraction (FoA)
A rule designed to stop foreign companies from avoiding Nigerian tax by routing some sales outside the country.
Under the Force of Attraction principle, if a foreign company already has a business presence in Nigeria, such as a branch or factory, the government may also tax similar sales it makes directly to Nigerian customers from abroad.
For example, if a foreign company has a Nigerian office but processes some Nigerian transactions through another offshore office, those sales could still become taxable in Nigeria.
The principle is embedded in how the law treats non-resident income. Section 4(1) of the Act provides that profits earned from Nigeria are chargeable to tax.
In essence, Force of Attraction prevents foreign companies from bypassing their Nigerian operations for certain transactions while still benefiting from a local presence.
Economic Development Incentive (EDI)
EDI is a tax incentive designed to encourage companies to invest in priority sectors of the economy.
The incentive replaces the old Pioneer Status regime. Instead of granting full tax holidays, qualifying companies may now receive tax credits tied to investments in equipment, infrastructure, and expansion projects.
Sections 165 and 166 of the Nigeria Tax Act establish the framework, while Section 201 defines an Economic Development Incentive Certificate as proof that a company qualifies as a “priority company”.
The policy is intended to promote employment, attract foreign investment, and support economic diversification.
Minimum Effective Tax Rate (ETR)
A rule ensuring that large companies pay at least a minimum level of tax.
Section 57 of the Nigeria Tax Act sets the minimum effective tax rate at 15 percent. If a company’s effective tax rate falls below that threshold in any year, it may be required to pay additional tax to reach the minimum level.
Covered taxes include corporate income tax, petroleum profit tax, hydrocarbon tax, development levy, and priority sector tax credits.
The rule mainly targets large multinationals and domestic companies with an annual turnover of at least N50 billion.
The measure is part of broader global efforts to reduce aggressive tax planning and profit shifting by large corporations.
VAT fiscalisation
A system allowing tax authorities to digitally monitor VAT transactions in real time.
The law requires taxable persons making taxable supplies to implement a fiscalisation system deployed by the Nigeria Revenue Service.
This may include electronic invoicing systems, software solutions, or secure communication networks connected directly to the tax authority’s platform.
For example, businesses may eventually issue invoices that are automatically transmitted to the tax authority in real time.
The goal is to improve VAT tracking, reduce leakages, and strengthen tax compliance.
Input VAT recovery
A rule allowing businesses to recover VAT paid on many business expenses.
Under the new rules, registered businesses may deduct input VAT paid on taxable supplies, including services and fixed assets, from the VAT they owe the government.
For instance, a company that pays VAT on machinery, equipment, or certain services may now be able to offset those costs against its output VAT.
The law also allows excess input VAT to be carried forward as a credit or refunded where applicable.
Input VAT claims must generally be made within five years after the end of the relevant tax period.
Presumptive tax
A simplified tax system for small or informal businesses that do not keep detailed accounting records.
Instead of calculating taxes using audited financial statements, tax authorities may estimate taxable income using a fixed formula or percentage.
This could apply to small traders and informal businesses that do not maintain proper books of account.
Section 29 of the Nigeria Tax Act allows the Minister, acting on the advice of the Joint Revenue Board, to establish presumptive tax rules where income cannot easily be determined.
The aim is to simplify compliance while expanding the tax net.
Controlled Foreign Company (CFC) rules
Rules designed to prevent Nigerian companies from shifting profits to low-tax countries.
Under Section 6(2) of the Nigeria Tax Act, profits kept in foreign subsidiaries controlled by Nigerian companies may still become taxable in Nigeria, even if the money is not brought back into the country.
In some cases, part of those profits may be treated as though they were distributed to the Nigerian parent company.
The rules are intended to reduce offshore tax avoidance and discourage profit shifting to tax havens.
The Nigeria Revenue Service is expected to issue additional implementation guidelines.
Significant Economic Presence (SEP)
As digital businesses grow, Nigeria is expanding its ability to tax foreign companies operating online.
Significant Economic Presence allows Nigeria to tax certain foreign digital companies even if they do not maintain a physical office in the country.
A non-resident company may be considered taxable if it earns substantial income from Nigerian users through e-commerce platforms, apps, streaming services, digital advertising, or other electronic transactions.
For example, a foreign digital platform generating significant revenue from Nigerian users could fall within Nigeria’s tax net under SEP rules.
Where profits cannot be directly determined, the law allows tax authorities to apply the company’s profit margin to its Nigerian-generated income.
The rules mainly target the growing digital economy and cross-border online business activities.
Tax Ombuds Office
An independent office created to help resolve tax disputes and taxpayer complaints.
Established under Section 36 of the Joint Revenue Board of Nigeria (Establishment) Act, 2025, the Office of the Tax Ombud acts as a mediator between taxpayers and tax authorities.
Its functions include investigating taxpayer complaints, resolving disputes informally, and monitoring arbitrary tax practices.
For example, a taxpayer who believes they are being unfairly treated by a tax authority may approach the Ombuds Office for intervention.
However, the Office cannot determine actual tax liabilities or override court decisions.
Advance rulings
Official guidance issued by tax authorities explaining how tax laws apply to a specific transaction or business arrangement.
Businesses can request advance rulings before carrying out major transactions in order to gain certainty about their tax obligations.
For example, a company planning a complex merger or investment structure may seek clarification from tax authorities beforehand to avoid future disputes.
Section 73 of the Nigeria Tax Administration Act, 2025 provides that tax authorities should issue rulings within 21 days after receiving a complete application, or explain why they are unable to do so.
Loss of employment exemption
A tax relief covering certain compensation paid to workers who lose their jobs.
The Nigeria Tax Act, 2025, exempts compensation for loss of employment, including some redundancy payments, from capital gains tax up to N50 million.
Any amount above that threshold may become taxable.
For example, an employee receiving a severance package after redundancy may not pay tax on the first N50 million of that compensation.
The law also requires taxes to be deducted at the point of payment where applicable.
In addition, terminal benefits paid after employment ends are treated as income earned on the employee’s last day of work.
Chioma Nwangwu
Chioma Nwangwu is a Tax Reporter at BusinessDay, covering Nigeria’s tax policies, regulatory reforms, and compliance trends. She reports on how evolving tax rules impact businesses, investors, and the economy, translating complex fiscal regulations into clear, actionable insights.
