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Background
The Nigeria Tax Act, 2025 (“NTA 2025”) as well as other Tax Reform legislations – the Nigeria Tax Administration Act 2025, the Nigeria Revenue Service Administration Act 2025, & the Joint Revenue Board of Nigeria 2025 (all collectively called “the Reform Acts) signed into law in June 2025 mark a significant legislative overhaul of Nigeria’s tax regime. These Reform Acts consolidates various existing tax frameworks and introduces new provisions to regulate taxation across Nigeria. Among its detailed provisions, the NTA 2025 presents a comprehensive approach to taxing entities operating within Export Processing Zones (EPZs) and Export Free Trade Zones (FTZs) (“Approved Entities”), established to strategically boost economic growth, attract foreign direct investment, and promote export-focused industries by offering various tax incentives.
Export Processing and Free Trade Zone Entities: Comparing Structures
Prior to the promulgation of the NTA 2025, Approved Entities operating within Nigeria’s EPZs/FTZs enjoyed broad tax exemptions designed to incentivize investment within these Zones. Notably, the Nigeria Export Processing Zone Act of 1992 (NEPZA Act) and the Oil and Gas Export Free Zone Act (OGFZA) explicitly provides that “approved enterprises operating within a Zone shall be exempted from all Federal, State, and Local taxes, levies, and rates.” This comprehensive relief included exemption from corporate income tax (CIT), value-added tax (VAT), import and export duties obligations. In addition, FTZ enterprises enjoyed unrestricted repatriation of capital and dividends, waivers of expatriate quotas, rent-free land during construction, and complete exemption from foreign exchange controls.
To qualify for these incentives under the existing regime, an enterprise must first propose to undertake an “approved activity” such as manufacturing goods for export, warehousing, handling duty-free goods, banking, or importing goods for special services, among others. This initial step is followed by a formal application to the NEPZA Authority. If the application is approved, the enterprise will be granted a license to carry out the approved activity within the Zone and will then become entitled to the substantial incentives provided under the Act.
Under the NTA 2025
The NTA 2025, however, introduces a recalibrated model which replaces these blanket exemptions with a more conditional and targeted incentive regime. While the NTA 2025 maintains a general exemption of profits from tax, strict compliance with two conjunctive criteria are now a condition precedent for eligibility for this exemption. Firstly, to enjoy tax exemption, an Approved Entity’s sales must be wholly derived from export activities, either through the direct export of goods and services or by supplying inputs that are themselves exclusively used for exports. This requirement firmly anchors the incentive to its underlying policy goal of promoting export-led growth.
Secondly, sales to Nigeria’s domestic market are strictly limited. Importantly, the NTA 2025 limits the allowable value of sales from transactions within the customs territory (i.e., all areas outside the Zone) to a maximum of 25%. Where an Approved Entity exceeds this threshold in any assessment year, its tax exemption is limited as profits attributable to domestic sales are taxed. This is to ensure that Approved entities are not abusing incentives while actively competing in the local market.
Hence, to enjoy full exemption from income tax in Nigeria, an Approved Entity must engage solely in export related activities and must limit its sale to the custom territory to a maximum of 25% of its total sales. It is however worth nothing that this is subject to the sunset provision addressed below.
Compliance Obligations
Despite significant exemptions and incentives, enterprises operating in EPZs and FTZs are still liable to comply with general tax administration and compliance obligations enshrined in the Nigeria Tax Administration Act 2025 (NTAA 2025) along with other applicable legislations. In practice, this requires Approved Entities to register with the appropriate tax authorities, submit periodic tax returns, and adhere to source-deduction requirements such as Pay-As-You-Earn (PAYE) for employees or withholding tax (WHT) on payments to contractors. These obligations ensure that, even while benefiting from profit-based tax holidays, zone enterprises stay connected to the formal tax system, supporting transparency and allowing the government to gather essential data for national economic planning.
Furthermore, to safeguard the integrity of the incentives and ensure they are used solely for export-driven activities, Approved Entities must provide verifiable evidence of export proceeds. This evidence can include cash inflows from exports or the importation of raw materials and equipment directly used in export production. By requiring this, the NTA 2025 creates a control system that needs solid proof of export activity and reinvestment of earnings, thereby preventing the diversion of tax benefits to non-qualifying or purely domestic operations.
Rules for Transactions with Related or Connected Companies
The NTA 2025 broadly defines “connected persons” to include companies having common capital source, management or control, or entities where one can reasonably be expected to act on the instructions of another. This aims to cover a wide range of relationships that could be used for non-arm’s length transactions. It also addresses potential methods of tax avoidance or profit shifting through transactions between EPZ/FTZ entities and their related or connected companies outside the zones. The NTA 2025 establishes strict rules for such arrangements.
Contracted Manufacturing Services: If an Approved entity outsources manufacturing services or any other approved activity to a related or connected resident company outside the Zone, the income from selling the goods produced by the Zone entity will be considered as the income of the related or connected resident company. This reallocation of income aims to prevent non-zone companies from channeling their production through a tax-exempt zone entity solely to avoid taxes. An exception is made if the Nigerian Revenue Service (NRS) is satisfied that the transaction was conducted at arm’s length, (i.e., on terms that independent parties would have agreed upon).
Other Services Provided by Resident Companies: For services other than manufacturing services which a Nigerian company operating outside a Zone offers to a related or connected entity in the zones, the Transfer Pricing Regulations will apply. These regulations are designed to ensure that prices for inter-company transactions are set as if the parties were unrelated, preventing artificial manipulation of profits for tax advantages.
Services Consumed by Free Zone Entities in Customs Territory: Further, the NTA 2025 clarifies that services provided to an EPZ or FTZ entity by a person within the customs territory, or services used by a free zone entity within the customs territory, are subject to applicable taxes. This provision prevents a free zone entity from importing tax-free services from the domestic market or using services domestically without paying the required taxes, thereby safeguarding the tax base of the customs territory.
Future Adjustments and the Sunset Clause
The NTA also introduces a forward-looking provision that signals a future adjustment to these incentives. Effective from January 1, 2028, the profits of an export processing zone entity will be fully subject to tax on its sales to the Nigerian customs territory, regardless of the percentage of such sales. This marks a significant shift from the 25% threshold, indicating that the blanket exemption for domestic sales within that limit will no longer apply. After this date, any sales into Nigeria by an Approved Entity will be taxed fully on the attributable profits, removing one of the key benefits for limited domestic market engagement.
However, recognizing the need for flexibility and ongoing economic support, the NTA 2025 includes a proviso which empowers the President to extend the January 2028 sunset date. Such an extension must be made through a publication in the Official Gazette and can last up to 10 years from the commencement date of the NTA 2025 (i.e., 1st January 2036). This clause allows the government to adjust the incentive framework based on economic conditions and policy goals without requiring a full legislative amendment.
Conclusion
In conclusion, the NTA 2025 establishes a comprehensive yet nuanced framework for taxing EPZ/FTZ Enterprises. While providing significant tax exemptions on profits to promote export-driven growth and attract investment, it also integrates these entities into the national tax system. This therefore creates a favorable environment for export-oriented businesses while preventing potential abuses and ensuring compliance with national tax laws. The detailed provisions reflect a strategic goal to effectively use economic development zones for the country’s economic development, all within transparent and fair tax principles.
Authors
Oluwatobiloba Adekoya, Senior Associate at WTS Blackwoodstone
Abdulateef Ibrahim, Associate, WTS Blackwoodstone
