Introduction
Taxation of gains derived from disposal of shares in Nigeria was introduced by the Finance Act (“FA”) 2021 which amended the Capital Gains Tax Act (“CGTA”) by providing for capital gains tax (“CGT”) on gains accruing to a person on disposal of shares in any Nigerian company. By this amendment, gains derived from the disposal of shares in a Nigerian company became taxable in the hands of the person making the disposal, except where: the proceeds from such disposal are reinvested in the same or other Nigerian company within the same year of assessment; the disposal proceeds, in aggregate, are less than NGN100,000,000 (One Hundred Million Naira) in any 12 consecutive months; or the shares are transferred between an approved borrower and lender in a regulated securities lending transaction.
Under the CGTA as amended , only gains derived from disposal of shares in a Nigerian company can be liable to CGT in Nigeria. However, the Nigeria Tax Act, 2025 (“NTA”) provides for CGT on gains derived from the disposal of shares in non-resident entities under certain conditions. This article analyses the framework for the taxation of gains derived by non-residents from disposal of shares in non-resident entities.
The framework for the taxation of gains derived by non-resident persons from disposal of shares of non-resident entities
Under the NTA, gains derived by a non-resident person would be taxable in Nigeria if the gains relate to: (i) a trade, business, profession or vocation carried on by the person in Nigeria; (ii) an asset located in Nigeria; (iii) an asset deemed to be located in Nigeria.
The introduction of the concept of deemed location of assets in Nigeria by the NTA expands the bases for taxation of gains derived by non-resident persons in Nigeria. The inclusion of gains relating to assets deemed located in Nigeria as chargeable gains means that a non-resident person could be subject to CGT in Nigeria on disposal of shares if the shares are deemed located in Nigeria, even if the shares are held in a non-resident entity and thus, located outside Nigeria.
Under Section 46 of the NTA, shares or other comparable interest in any foreign entity would be deemed located in Nigeria where at any time during the 365 days preceding the alienation, more than 50% of the value of the shares is derived, directly or indirectly: (i) through one or more interposed entities resulting in the change in direct or indirect ownership structure of a Nigerian entity; or (ii) from immoveable property or any other chargeable assets situated in Nigeria.
By Section 46 of the NTA, shares or other comparable interest in a non-resident entity would only be deemed located in Nigeria if more than 50% of the value of the shares or other comparable interest is directly or indirectly attributable to a Nigerian company or a chargeable asset in Nigeria within the 365 days preceding the alienation.
The value threshold is required to be satisfied within the 365 days preceding the alienation. Where the value attributable to Nigeria depletes below the threshold prior to the commencement of the 365-day period, the shares would not be deemed located in Nigeria, notwithstanding that the threshold had been met or maintained at an earlier period.
Conversely, if the threshold is met even for a brief period within the 365 days preceding the disposal of the shares, the shares would be deemed located in Nigeria, irrespective of whether, at the time of the disposal, not more than 50% of the value is attributable to Nigeria. Where the shares or other comparable interest in a non-resident entity is so deemed to be located in Nigeria, their transfer would create a taxable event in Nigeria and the gains arising from the transfer subject to CGT in Nigeria.
Indirect transfer of ownership of Nigerian companies or assets located in Nigeria
Further to the provision for the deemed location of shares in Nigeria, Section 47 of the NTA expressly provides that any gains derived by a non-resident person from a disposal of shares or other comparable interest in a non-resident entity shall be chargeable in Nigeria if the disposal results in:
(i) change in the ownership structure or group membership of any Nigerian company; or (ii) in change of ownership of, title to, or interest in any asset located in Nigeria.
Unlike the extant CGT regime which only applies to gains derived from the disposal of shares in a Nigerian company, the NTA subjects gains derived by non-resident persons from disposal of shares in non-resident entities to CGT in Nigeria, provided that the disposal results in change of ownership structure or group membership of a Nigerian company or ownership of, or title to an asset located in Nigeria.
It is important to note that the term “ownership structure” is not defined in the NTA and it is not clear when a transfer of shares in a non-resident entity would be deemed to have resulted in change in ownership structure of a Nigerian company. Given the absence of a definition of ownership structure, an argument can be made that the transfer of shares in any non-resident entity which directly or indirectly affects the ownership of a Nigerian company, either by the introduction of a new member into the group of which the Nigerian company is a part, the exit of a member of such group, or the transfer of shares of the direct or indirect non-resident parent of the Nigerian company to other members of the group would trigger a CGT liability in Nigeria.
This would mean that any share sale or transfer in a multinational enterprise (“MNE”) group of which the Nigerian company is a member would create a CGT incident in Nigeria. Such interpretation would give a wide application to Section 47 of the NTA and disregard the value threshold under Section 46. In other words, gains derived from the disposal of shares in a non-resident company that directly or indirectly owns shares in a Nigerian company would be subject to CGT in Nigeria even if only a marginal percentage of the value of the shares of the non-resident entity is attributable to Nigeria. This would create an anomaly in the framework for taxation of gains derived by non-resident persons and render Sections 17 and 46 which respectively prescribe the conditions for taxation of gains derived by non-resident persons and define when shares of a non-resident entity would be deemed located in Nigeria redundant. It is difficult to see how such an anomaly could have been intended by the Legislature.
A better interpretation would be that the transfer of shares of a non-resident entity can only be taken to have resulted in change in ownership structure or group membership of a Nigerian company or ownership of, or title or interest in an asset located in Nigeria if the shares are deemed located in Nigeria under Section 46 of the NTA. This interpretation aligns Section 47 with Sections 17 and 46 and is consistent with the general framework for the taxation of gains derived by a non-resident person.
Practical implications for non-resident investors in Nigeria
Uncertainty regarding the portion of gains to be chargeable in Nigeria
The NTA does not prescribe rules for determining the portion of gains derived by a non-resident person from a disposal of shares in a non-resident entity that should be apportioned to and taxable in Nigeria. Given the absence of apportionment rules, the tax authority may take the view that the entire gains derived by a non-resident from an indirect transfer would be attributable to and taxable in Nigeria, especially because the shares being disposed of would be deemed located in Nigeria.
A second possible argument, which we consider to be the stronger argument, would be that only the proportion of the gains representing the percentage of the value of the shares that is attributable to Nigeria should be taxable in Nigeria. For example, if 51% of the value of the shares being transferred is attributable to a Nigerian company or an asset located in Nigeria, there would be a good basis for arguing that only 51% of the gains, which would represent the value of the shares attributable to Nigeria in that case should be taxable in Nigeria. This is consistent with the rules on taxation of business or trading profits of non-residents in Nigeria.
By Section 17 of the NTA, the profits of a non-resident person derived from a business, trade, profession, or vocation carried on in Nigeria would only be taxable in Nigeria to the extent that the profits are attributable to a permanent establishment (“PE”) or significant economic presence (“SEP”) in Nigeria. This means that only the proportion of profits attributable to a PE or SEP, and not the entire profits derived from Nigeria would be taxable in Nigeria. A similar rule applies to gains relating to a trade, business, profession, or vocation carried on by a non-resident person in Nigeria.
There is no apparent policy or commercial reason for treating gains derived from an indirect transfer differently, and a strong argument can be made that only the proportion of the gains corresponding with the value of the shares attributable to Nigeria should be chargeable in Nigeria. The tax authority may however not adopt this view and may seek to subject the entire gains derived from an indirect transfer to tax in Nigeria.
Risk of double taxation
Shares that would be deemed located in Nigeria would, in fact, be located in another jurisdiction which could be the country where the shares are registered or the entity in which the shares are held is resident. Thus, the gains may be subject to tax both in Nigeria and in the country of the target company, or the country of residence of the person deriving the gains. This will give rise to double taxation of such gains.
For instance, if Company A which is resident in Country X owns shares in company B resident in Country Y which in turn holds shares of a Nigerian company, and if the conditions for deemed location of Company B’s shares in Nigeria are met, gains from the disposal of company B’s shares will be taxable in Nigeria. The gains may also be subject to tax in Country Y where Company B is resident, and possibly in Country X.
A higher capital gains tax rate
Currently, CGT is chargeable at 10% of chargeable gains. However, the NTA treats capital gains as forming part of the total profits of a company and prescribes a general corporate income tax rate of 30%. Consequently, gains derived by a non-resident person from an indirect transfer would be chargeable at 30%.
Compliance burden and reporting requirements
Non-resident persons deriving gains from indirect transfers would be required to comply with tax obligations applicable to taxpayers in Nigeria such as registration with the tax authority and obtaining a Tax Identification Number, filing appropriate returns, and presentation and disclosure of relevant documents upon the request of the tax authority.
Conclusion
The introduction of taxation of gains derived by non-resident persons from indirect transfers of Nigerian companies and assets located in Nigeria under the NTA aligns Nigeria’s CGT regime with the global shift towards greater protection of domestic taxing rights of source States. The provisions aim to preserve Nigeria’s tax base and counteract tax avoidance schemes that may rely on offshore holding structures.
provisions have significant potential implications for offshore share sale transaction, and other corporate restructuring arrangements involving the transfer of shares of non-resident entities that directly or indirectly hold shares in Nigerian companies. Given the significance of the provisions, it is expected that a lot more clarity on the application of the rules, particularly regarding apportionment of gains, and valuation of assets to avoid artificial allocation of value of shares to Nigeria or depletion of value attributable to Nigeria would be provided by the tax authority.
