28th September, 2026 | News

Nigeria’s 2025 Tax Act Tightens Rules on Related-Party Loans, Transfer Pricing

Tax advisory firm Kreston Pedabo has warned companies that rely on inter-company loans and other related-party financing arrangements to prepare for increased tax scrutiny under Nigeria’s Tax Act 2025.

The firm said the new tax regime expands transfer pricing obligations, broadens restrictions on interest deductions and changes the withholding tax treatment of certain foreign loans.

Kreston Pedabo made the disclosure in its September 2026 Monthly Newsletter, describing the reforms as a significant change to Nigeria’s corporate tax framework.

According to the firm, the changes bring Nigeria’s tax system closer to international Organisation for Economic Co-operation and Development (OECD) principles aimed at limiting profit shifting and ensuring that taxes are paid in jurisdictions where economic value is created.

New Tax Rules Apply From January 2026

The report, titled “Impact of the Nigeria Tax Act 2025 on Related Party Financing,” was authored by Adewale Kayode, Manager, Tax Services; Ayodeji Adenugba, Senior Associate, Tax Services; and Esther Nofiu, Senior Associate, Tax Services.

Kreston Pedabo said the law was signed on June 26, 2025, and took effect from January 1, 2026.

Under the new framework, the Nigeria Revenue Service (NRS) has broader powers to examine transactions between connected companies.

The transactions covered include shareholder loans, parent-subsidiary financing, affiliate lending, guarantees and other intra-group funding arrangements.

Interest Deduction Rules Expanded

One of the major changes highlighted by Kreston Pedabo is the expansion of the interest deductibility limitation.

The firm explained that under the previous Companies Income Tax Act (CITA), as amended by the Finance Act 2019, the 30 per cent EBITDA limitation generally applied to loans obtained from foreign connected parties.

Under the new tax regime, the restriction has been extended to both foreign and domestic transactions involving connected persons, with banking and insurance companies excluded.

The definition of debt has also been broadened to cover loans, financial instruments, finance leases and derivatives.

According to the advisory firm, the broader definition could limit opportunities for companies to reduce taxable profits through excessive debt financing.

Transfer Pricing Requirements Tightened

Kreston Pedabo also pointed to tougher transfer pricing requirements for related-party financing.

Companies are expected to demonstrate that the terms of their financing arrangements reflect market conditions and comply with the arm’s length principle.

This includes factors such as:

• Interest rates
• Loan tenure
• Repayment schedules
• Collateral arrangements
• Creditworthiness of borrowers

The firm advised companies to maintain contemporaneous documentation supporting their financing arrangements.

Such records could include executed loan agreements, creditworthiness assessments, benchmarking studies and evidence showing the commercial rationale for the transactions.

Companies Face Additional Disclosure Obligations

Businesses involved in related-party financing will also face additional reporting requirements under the new regime.

Kreston Pedabo said taxpayers are expected to submit prescribed transfer pricing declarations and annual disclosure forms covering related-party financing transactions carried out during each accounting period.

Failure to comply could expose companies to penalties and potential transfer pricing adjustments.

Foreign Loan Interest Faces Withholding Tax

Another significant change highlighted by the advisory firm concerns withholding tax on interest from foreign loans.

Kreston Pedabo said the Nigeria Tax Act 2025 removed previous exemptions covering interest payable on certain foreign loans.

As a result, interest on foreign loans, including related-party loans, is generally subject to a 10 per cent withholding tax.

The rate may be reduced to 7.5 per cent where an applicable double taxation agreement provides for the lower rate.

Potential Impact on Foreign Borrowing

According to Kreston Pedabo, the changes could increase the cost of foreign borrowing for Nigerian businesses while reducing net returns for overseas lenders.

The firm said the new tax treatment could therefore become a factor in financing and investment decisions involving Nigerian companies and foreign lenders.

The broader rules are also intended to address what the firm described as opportunities for base erosion and profit shifting through related-party financing arrangements.

Kreston Pedabo Advises Companies to Review Financing Structures

Kreston Pedabo advised multinational and domestic corporate groups to review their existing inter-company loan arrangements and tax policies in response to the new rules.

The firm specifically recommended reviewing inter-company loan terms, debt-to-equity ratios and transfer pricing policies.

It also warned that financing arrangements lacking sufficient commercial substance or supporting documentation could face increased scrutiny during tax audits.

Companies operating with related-party financing arrangements will therefore need to ensure that their transactions are properly documented, commercially justified and consistent with the requirements of the new Nigerian tax framework.