New Nigeria Tax Law Explained (2026): What Individuals & Small Businesses Must Know

What Individuals & Small Businesses Must Know

Introduction

I recently had the privilege of attending the New Tax Reform Conference, where detailed insights were shared about the New Nigeria Tax Act, scheduled to take effect in January 2026.

Given the level of confusion, fear, and misinformation surrounding taxes—especially among individuals, freelancers, small business owners, and remote workers—this article is written to keep you informed.

Below is a simplified Questions & Answers guide explaining how the new Nigerian tax law will affect individuals and small businesses.

When Does the New Nigeria Tax Law Take Effect?

The New Nigeria Tax Act will officially take effect on 1st January 2026.

Who Does the New Nigerian Tax Law Apply To?

The law applies to:

All individuals earning income in Nigeria
Employees, freelancers, traders, content creators, influencers, and remote workers
Nigerians earning income abroad if they are tax residents in Nigeria

Are Bank Transfers, Deposits, or Savings Taxed?

No.

Transfers, deposits, withdrawals, and POS transactions are not taxable
Simply keeping money in your bank account is not taxed
Only income earned (salary, business profits, interest, etc.) is taxable

Will Students or Unemployed Persons Pay Tax?

No.

If you have no taxable income, you are not required to pay tax

Will Tax Authorities Monitor Bank Accounts More Closely?

Yes, compliance monitoring will improve, but:

Your bank balance is not taxed
Only income and profits are subject to tax

Are Loans and Borrowed Money Taxable?

No.

Loans from banks or fintechs (e.g., Fairmoney) are not income
However, interest earned by lenders is taxable in their own hands

Personal Income Tax vs Company Income Tax

Enterprise / Business Name → Pay Personal Income Tax (PIT)
Limited Liability Company (Ltd) → Pay Company Income Tax (CIT)

Are Share Sales and Investment Gains Taxable?

No tax if:
- Shares sold are ₦150 million or less, and
- Capital gains are ₦10 million or less
Gains above these thresholds become taxable

Pension, Retirement & Military Income

Approved pensions and retirement benefits → Tax-exempt
Military salaries → Fully tax-exempt
Disability pensions for armed forces → Fully tax-exempt

Taxation of Creatives & Digital Income

Creatives (authors, musicians, athletes, etc.) must now pay tax on:
- Income earned within Nigeria
- Income earned outside Nigeria
Crypto, NFT, and digital asset gains are now taxable

Who Is Exempt From Personal Income Tax?

You are exempt if you earn:

The national minimum wage or less, or
Below ₦800,000 annually

New Progressive Personal Income Tax Bands (From 2026)

Income Band	Tax Rate
First ₦800,000	0%
Next ₦2.2 million	15%
Next ₦9 million	18%
Next ₦13 million	21%
Next ₦25 million	23%
Above ₦50 million	25%

Severance & Exit Packages

Severance pay of ₦50 million or less → Tax-free
Amounts above ₦50 million → Taxed using the progressive tax bands

Foreign Income: Dividends, Rent & Royalties

Income earned abroad is tax-exempt if:

It is brought into Nigeria through approved banking channels
Applies to dividends, rent, interest, and royalties

Agricultural Companies & Tax Holiday

Agricultural businesses enjoy a 5-year tax holiday, including:

Crop production
Livestock & dairy
Forestry
Cocoa processing

The exemption starts from the date operations commence.

Are Government Bonds Taxable?

No.

Income from Federal and State Government bonds is fully tax-exempt

Rent Relief Under the New Tax Law

From 2026:

Individuals can claim 20% of annual rent paid
Relief is capped at ₦500,000
You must:
- Declare your actual rent
- Provide supporting details to tax authorities

Example:
Annual rent = ₦5 million
20% = ₦1 million
Allowed relief = ₦500,000 (cap applies)

Practical Example: Earning ₦6 Million Annually

Under the old tax law:

Total tax = ₦896,000

Under the new tax law:

Total tax = ₦780,000

✅ Savings of ₦116,000, resulting in higher take-home pay

Small Businesses & Company Tax

Companies with annual turnover below ₦50 million → Tax-exempt

Remote Workers & Foreign Employees

Remote workers in Nigeria must pay tax if:
- Their employer’s country exempts the salary under a treaty
Foreigners earning in Nigeria may be exempt if:
- Their employer is a start-up, tech, or creative company, and
- Their income is already taxed in their home country