There’s been a lot of talk and confusion about the new tax law in Nigeria coming into effect in 2026.

Some people say the government will start pulling taxes straight from bank accounts. Others think salaries will automatically shrink overnight.

The truth is, the changes are big, but they’re not as dramatic as the rumours suggest.

The Federal Government has indeed signed a new tax reform in Nigeria called the Nigeria Tax Act 2025, which replaces and merges many older tax laws into one.

But what’s really happening is a restructuring of how taxes are understood, calculated, and enforced, not a surprise raid on your wallet.

Let’s unpack what this means for businesses, HR professionals, and everyday employees.

What’s Changing and When

The Nigeria Tax Act (NTA) and a few related laws were signed in June 2025, but the personal and payroll-related provisions take effect from January 1, 2026.

That means right now, we’re in the transition period when HR teams, finance departments, and business owners should be preparing their systems and communication plans.

Separately, some tax rules, like the Withholding Tax Regulations, already took effect in January 2025.

Those govern how companies deduct tax at source when they make certain payments, for example, paying consultants, rent, or dividends.

So yes, some parts are live already, but the personal and payroll changes are set for 2026.

What Changes for Companies

A. No “Free Money” Left on the Table

In the old system, some payments used to slip through the cracks, especially those made to contractors, vendors, or consultants. The government is closing those loopholes.

Under Nigeria’s new tax law, your company must deduct and remit taxes whenever you make payments to service providers, landlords, or even third-party consultants. This applies to Withholding Tax (WHT).

The catch? Even non-cash transactions like barter deals, swaps, or payments made in kind now count as taxable exchanges.

If you forget or “choose” not to deduct correctly, the company becomes liable for the unpaid tax, plus penalties. That’s a major shift from the old days, when things often went unnoticed.

This means:

• HR must clearly define how they compensate staff and contractors.
• Finance must ensure every payment, salary, vendor fee, or consultant retainer is tracked and properly taxed.
• Legal must update contracts to reflect these new obligations.

The taxman isn’t taking excuses anymore. If money moves, taxes follow.

B. Digital Presence and Non-Resident Companies

One of the boldest parts of the new tax reform in Nigeria is how it tackles digital and non-resident companies, that is, businesses making money in Nigeria without physically being here.

Before now, many international digital platforms and service providers could earn massive revenue from Nigerian customers (through ads, software, streaming, etc.) while avoiding local tax because they lacked a physical “office” or “fixed base.” Not anymore.

Taxing the Virtual Office (Significant Economic Presence)

Under the new tax law in Nigeria, companies are now taxed based on their digital footprint, regardless of physical location.

The Rule: If a foreign business earns income from Nigeria, even remotely, it is deemed to have a Significant Economic Presence (SEP). This triggers an obligation to pay Nigerian tax on that income.

Who is affected: 

This includes;

• Remote Tech Firms billing Nigerian clients.
• Digital Service Platforms that collect payment from Nigerian users.
• Multinational Corporations with a large, sustained Nigerian customer base.

The Global Minimum Tax Floor

The new law also ensures that the world’s largest companies can no longer rely on tax loopholes abroad to avoid paying a reasonable rate in Nigeria.

The Floor: A Minimum Effective Tax Rate (ETR) of 15% has been introduced for very large multinational groups.

The Requirement: This means that if a large global company operates in Nigeria and its overall tax rate falls below 15%, a Top-Up Tax will be applied to ensure the 15% minimum is met.

So even if your company plays globally, you’ll still have to meet a minimum 15% effective tax rate when operating in Nigeria.

C. Compliance Is Going Digital

The era of paper tax filings is ending.

The Federal Inland Revenue Service (FIRS) is being transformed into the Nigeria Revenue Service (NRS), a more tech-driven body with wider powers.

Here’s what that means for businesses:

• All major filings and remittances will be digital-first; expect e-filing, automated systems, and real-time tracking.
• Tax enforcement will be data-backed. The NRS will have better access to banking, payroll, and transaction data, meaning fewer chances to “forget” a remittance.
• There will be stricter penalties for late or inaccurate filings, especially for companies that fail to remit PAYE or Withholding Tax on time.
• For big companies, the government is introducing a 4% Development Levy on their assessable profits, which replaces and consolidates multiple older taxes, specifically the Tertiary Education Tax, the Information Technology Levy, the NASENI Levy, and the Police Trust Fund Levy, streamlining tax obligations into a single payment.

D. Unified Corporate Tax Framework

The new Nigeria Tax Act (NTA) pulls several old tax laws, like the Companies Income Tax Act, Capital Gains Tax Act, and others, into one consolidated system.

On paper, that sounds simpler. But in practice, it also means clearer definitions, fewer grey areas, and tighter penalties.

So, here’s what’s staying and what’s changing:

• Corporate Income Tax (CIT) still sits at 30% for large companies, that is, any business making ₦100 million and above in annual turnover.
• Small companies get a major break: The 0% CIT rate is now extended to cover most SMEs. The exemption threshold has been significantly raised from ₦25 million to ₦100 million in annual turnover.
• The 20% tax bracket is gone: This expansion means the 20% tax bracket previously applicable to “medium-sized companies” is now largely obsolete. Businesses that were paying 20% on turnover between ₦25 million and ₦100 million are now fully exempt (0% tax rate). This comes as a major financial relief for companies in this size category.
• Capital Gains Tax (CGT), which is what you pay when your company sells an asset and makes a profit, is now aligned with the CIT rate. That means 30%. So if you sell company property, shares, or machinery at a profit, that gain will now be taxed just like your regular business income. 

What Changes for Employees

Employees have been saying, “I’ve always paid my taxes, so why should anything change?”

This is actually a fair question to be asking. The average worker already has taxes deducted automatically through PAYE (Pay As You Earn).

But here’s what’s shifting:

A. Broader definition of “Income”

The new law expands what counts as taxable income. Beyond your cash salary, things like rent allowances, company-provided accommodation, car benefits, bonuses, and even digital rewards can now fall under taxable income.

B. New Tax Bands and Reliefs

The government has introduced updated tax brackets to make the system more progressive.

This means lower earners with an income of ₦800,000 or less annually now benefit from a zero per cent (0%) tax rate, while the highest bracket, applying to income over ₦50,000,000, is set at 25%. 

Crucially, the new law introduces a Rent Relief Allowance to reduce the burden of housing costs on individuals.

This allowance replaces the previous Consolidated Relief Allowance (CRA), allowing individuals who pay rent to claim 20% of their annual rent as a deduction from their gross income, subject to a maximum annual cap of ₦500,000.

Non-rent payers (such as those in employer-provided accommodation) may find they receive less overall relief compared to the old CRA system.

C. Clearer Residency Rules

Anyone spending 183 days or more in Nigeria, or who has strong economic or family ties here, may be deemed a Nigerian tax resident and taxed on worldwide income.

That includes remote workers who get paid in foreign currencies but live in Nigeria most of the year.

D. Better enforcement, not bank deductions

Let’s address the biggest myth head-on:

No, the government will not suddenly start deducting tax directly from your personal bank account.

Taxes on salaries will still be deducted through employers, as they always have been. The change is that enforcement will now be digital and data-driven.

The authorities can match information from banks, employers, and digital platforms to catch under-reporting or unpaid taxes, but they won’t simply “take” money from your account without due process.

So if you’ve always been taxed through PAYE, nothing changes in how your tax is deducted.

What might change is how much is taxed, depending on your income level and benefits. The only thing you need to do is to know how to calculate tax on salary in Nigeria

What HR Needs to Do

For HR teams, this period is crucial. Here’s what should be happening before the new regime takes effect:

• Review payroll systems: Update salary templates, benefits categories, and allowances to align with the new tax definitions.
• Re-evaluate benefits: Company housing, car schemes, and digital perks may now be taxable. It’s better to explain that early than let employees be surprised.
• Educate staff: Most confusion comes from poor communication. Create an FAQ or host a short session explaining how to calculate tax on salary in Nigeria and what might change in payslips.
• Coordinate with Finance: Payroll errors will attract penalties. Work together to review all forms of compensation and how they’re recorded.
• Plan for January 2026: Build a small task force internally to ensure everything is ready before the year ends.

What Employees Should Know and Do

For employees, the goal isn’t to panic but to prepare.

• Ask questions early: HR and Finance are required to explain what’s changing. Don’t wait until January to find out why your take-home pay looks different. Understand how the new PAYE tax computation in Nigeria would work. 
• Keep records: Store proof of rent payments, receipts, and benefits. These may count toward reliefs or deductions.
• Be aware of digital income: If you freelance, trade online, or earn from digital platforms, understand how that income fits into the new structure.
• Stay informed, not afraid: Enforcement may tighten, but the new tax laws in Nigeria doesn’t allow the government to withdraw your personal funds arbitrarily. It only requires accurate reporting and remittance.

Making Compliance Easier

If all of this sounds like a lot to track, that’s because it is. Between new definitions, stricter deadlines, and digital enforcement, HR and finance teams are going to be doing more than ever before to stay compliant.

That’s why automation is becoming a non-negotiable. Tools like PaidHR now make it easier for companies to handle statutory remittances from PAYE to pension, NHF, and tax deductions, all in one place.

Instead of juggling spreadsheets and bank uploads, PaidHR automates those remittances directly to the right bodies, ensuring accuracy and timely submissions.

So as the Nigeria new tax law evolves, your compliance process doesn’t have to become a manual nightmare. This way, we are giving HR and finance teams one less thing to worry about. 

If you are ready to give away your headaches to us, you can always book a demo to speak to a member of our team.