Nigeria's financial landscape entered a new era on January 1, 2026, as the country's most comprehensive tax reforms in decades officially became active. In a detailed communication to its customers, Union Bank of Nigeria has broken down the implications of the sweeping changes, clarifying who will benefit from exemptions and who will face higher liabilities.
Major Relief for Low-Income Earners
The reforms introduce a significant threshold for personal income tax. Individuals earning ₦800,000 or less annually will pay zero personal income tax and zero capital gains tax. This translates to a monthly income of roughly ₦66,667. Union Bank's CEO, Yetunde Oni, highlighted this provision as a critical relief measure expected to impact millions of Nigerians positively.
For those earning above this threshold, a progressive tax system applies. Rates increase across various income bands, culminating in a top rate of 25% for individuals with an annual income exceeding ₦50 million.
Clarity on Tax Residency and Worldwide Income
A landmark change in the new legislation is the clear definition of tax residency, ending years of ambiguity. An individual is now considered a tax resident if they meet any of these criteria:
- Are domiciled in Nigeria.
- Maintain a permanent home in the country.
- Spend at least 183 days in Nigeria within a year.
- Have substantial economic or family ties locally.
- Serve as a Nigerian diplomat or public servant abroad.
This distinction is crucial because tax residents are liable for tax on their worldwide income, which includes foreign investments, subject to existing double-taxation treaties. Non-residents, however, are only taxed on income sourced from within Nigeria, such as local salaries, rent, and dividends.
Revised Rules for Investors and Businesses
The treatment of capital gains has been reshaped. For retail investors, Capital Gains Tax on stock sales may no longer apply if two conditions are met in a 12-month period: total disposal proceeds are below ₦150 million, and total gains do not exceed ₦10 million. If either limit is breached, tax applies only to the excess amount.
For individuals, capital gains will now be taxed at personal income tax rates (0-25%), moving away from a previous flat rate. Companies will face a flat 30% rate on capital gains, aligning it with corporate income tax.
A new 10% withholding tax applies to interest from instruments like Treasury Bills and Corporate Bonds, though Federal Government bonds and CBN OMO bills remain exempt.
New Levies and Stricter Compliance
Businesses with an annual turnover below ₦100 million remain exempt from Company Income Tax. However, a new 4% Development Levy on assessable profits replaces several previous levies. Small companies with turnover under ₦100 million and fixed assets below ₦250 million are fully exempt from both.
Large multinationals with global revenue of €750 million or more, and Nigerian firms with turnover of ₦50 billion and above, must now maintain a minimum effective tax rate of 15%.
While the VAT rate stays at 7.5%, compliance mechanisms are tighter. Penalties for non-compliance have increased sharply, with late filing attracting a ₦100,000 fine for the first month and ₦50,000 for each subsequent month.
Everyday Banking and Documentation
The familiar ₦50 charge on electronic transfers of ₦10,000 and above is now formally classified as Stamp Duty. Union Bank also reminded customers that the National Identity Number now serves as the Tax Identification Number for individuals, while businesses must use their Corporate Affairs Commission registration number.
The bank advises Nigerians to keep accurate records, verify vendor registrations, and review their financial planning in light of the new brackets. These reforms, while significant, underscore that disciplined planning and timely compliance remain pillars of financial stability.
In a related early implementation of the new laws, major Nigerian banks have begun deducting a 10% withholding tax on interest earned from foreign currency deposits, including dollar accounts, effective from January 1, 2026.
