On January 1, 2026, two landmark pieces of legislation took effect that fundamentally restructured Nigeria's tax system: the Nigeria Tax Act (NTA) 2025 and the Nigeria Tax Administration Act (NTAA) 2025. Together, they represent the most significant overhaul of the country's fiscal framework in decades — and every business operating in or entering Nigeria needs to understand what changed, what it costs, and what it means for their bottom line.
This is not a theoretical policy discussion. If you employ staff in Nigeria, import goods, hold assets, or plan to establish a local entity, these reforms directly affect your payroll calculations, compliance obligations, and tax planning strategy starting now.
The New Personal Income Tax Framework
The most immediately visible change is the restructured personal income tax (PIT) schedule. The old system was widely criticized as regressive — low-income earners were taxed from relatively low thresholds, while middle-income earners hit the highest marginal rate quickly. The new framework introduces broader bands and a critical 0% threshold.
| Annual Taxable Income (NGN) | Old Rate | New Rate (2026) |
|---|---|---|
| Up to 800,000 | Up to 15% | 0% |
| 800,001 – 3,000,000 | 19% – 21% | 15% |
| 3,000,001 – 12,000,000 | 21% – 24% | 18% |
| 12,000,001 – 25,000,000 | 24% | 21% |
| 25,000,001 – 50,000,000 | 24% | 23% |
| Above 50,000,000 | 24% | 25% |
The practical impact is significant. An employee earning NGN 5 million annually will see a meaningful reduction in their tax burden. The 0% band on the first NGN 800,000 alone saves every taxpayer up to NGN 120,000 per year compared to the old regime. For companies employing large workforces, the aggregate payroll tax savings are substantial — but only if PAYE systems are updated correctly.
What This Means for Employers
Every company running payroll in Nigeria must reconfigure its PAYE calculations immediately. Using the old tax tables after January 1, 2026 results in over-deduction from employee salaries — which creates both a compliance issue and an employee relations problem. The Federal Inland Revenue Service (FIRS) expects employers to apply the new rates retroactively from January 1.
Key compliance actions for employers include:
- Update payroll software: Ensure your system applies the new six-band progressive structure with the 0% threshold
- Recalculate YTD deductions: If January and February payroll used old rates, reconcile and refund over-deductions to employees
- Review TIN compliance: The NTAA 2025 tightens Tax Identification Number requirements. Every employee must have a valid TIN; employers face penalties for processing payroll without verified TINs
- Audit contractor arrangements: The new act clarifies withholding tax obligations for independent contractors and service providers
- Document everything: The NTAA 2025 strengthens FIRS audit powers and introduces stricter record-keeping requirements
Impact on Foreign Investors and Expatriates
For foreign companies establishing Nigerian subsidiaries, the tax reform has several implications beyond payroll. The NTA 2025 introduces clearer rules on transfer pricing, thin capitalization, and the taxation of digital services. Companies with cross-border transactions must review their intercompany pricing arrangements to ensure compliance with the updated framework.
Expatriate employees are subject to the same PIT rates as Nigerian nationals. The new progressive structure means that high-earning expatriates — those above NGN 50 million annually — face a modest increase to 25%, up from 24%. However, the broader bands below that threshold mean most expatriate employees will see a net reduction in their tax burden.
The CERPAC (Combined Expatriate Residence Permit and Aliens Card) fee structure remains separate from the income tax framework. Expatriate Quota holders should budget for both the annual CERPAC renewal ($1,000 for the card plus associated processing fees) and the income tax obligations under the new PIT schedule.
Digital Economy and Cryptocurrency Provisions
The 2026 framework also addresses the taxation of digital assets and Virtual Asset Service Providers (VASPs). Nigeria, which has one of the highest cryptocurrency adoption rates globally, now requires VASPs to register with the FIRS and collect/remit taxes on qualifying transactions. Individual holders of Bitcoin and other digital assets are subject to capital gains tax on disposals, with specific reporting obligations introduced under the NTAA 2025.
For fintech companies and digital platforms operating in Nigeria, the compliance burden has increased — but so has regulatory clarity. The previous ambiguity around crypto taxation has been replaced with a defined framework, which many in the industry view as a net positive for institutional adoption.
Practical Steps for Businesses Entering Nigeria in 2026
If you are establishing a Nigerian entity or expanding operations this year, the tax reform should inform your entry strategy from day one:
- Engage a local tax advisor before incorporation: The choice of entity structure (LLC, PLC, branch office, free zone entity) has direct tax implications under the new framework
- Budget for compliance infrastructure: Payroll systems, TIN verification processes, and transfer pricing documentation are not optional — they are legal requirements
- Leverage free zone incentives: Entities operating within designated Special Economic Zones (such as the Lekki Free Trade Zone) may qualify for tax holidays and reduced rates that stack with the new national framework
- Plan expatriate compensation packages: The new PIT rates should be modeled into total compensation calculations for expatriate hires, including gross-up provisions where applicable
Key Takeaways
- The NTA 2025 and NTAA 2025 took effect January 1, 2026 — the most significant tax reform in decades
- A new 0% tax band on the first NGN 800,000 benefits every taxpayer; most employees will see higher take-home pay
- Employers must update PAYE systems immediately and reconcile any over-deductions from January/February
- TIN compliance requirements have tightened — penalties apply for non-compliance
- Digital assets and VASPs now have a defined tax framework for the first time
- Foreign investors should factor the new tax structure into entity selection, compensation planning, and transfer pricing arrangements
Sources: Nigeria Tax Act 2025 (Gazetted), Nigeria Tax Administration Act 2025, BIPO Nigeria Tax Reform Payroll Guide (Feb 20, 2026), Federal Inland Revenue Service, BusinessDay, Central Bank of Nigeria