New Tax Act Tightens Intra-group Financing for Businesses, Advisory Firm Warns

Nigerian companies now face a significantly higher bar for structuring and justifying financing arrangements with related entities, as the Nigeria Tax Act 2025 hands tax authorities stronger powers to scrutinise intra-group transactions, tax advisory firm Kreston Pedabo has warned.

In its September 2026 Monthly Newsletter, titled Impact of the Nigeria Tax Act 2025 on Related Party Financing, Pedabo said the Act — signed on 26 June 2025 and effective from 1 January 2026 — marks a major departure from the previous tax framework, widening the range of financing arrangements that can now be examined, including shareholder loans, parent-subsidiary financing, affiliate lending, guarantees and other forms of intra-group funding.

The report was authored by manager, Tax Services, Adewale Kayode; senior associate, Tax Services, Ayodeji Adenugba; and senior associate, Tax Services, Esther Nofiu.

According to Pedabo, the Act, signed on 26 June 2025 and effective from 1 January 2026, strengthens the tax authorities’ ability to examine financing arrangements involving connected companies.

These include shareholder loans, parent-subsidiary financing, affiliate lending, guarantees and other forms of intra-group funding.

The firm identified the expansion of the interest deductibility limitation as one of the most significant changes under the new law.

It said that while the previous regime restricted interest deductions on loans from foreign connected parties to 30 per cent of Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA), the new rules extend the restriction to both foreign and domestic transactions involving connected persons.

Banking and insurance companies are exempt from the restriction.

Pedabo also said the definition of debt has been expanded to cover loans, financial instruments, finance leases and derivatives, potentially limiting the ability of corporate groups to use debt structures to reduce taxable profits.

“Related party financing is frequently deployed as a tax planning mechanism, creating opportunities for base erosion and profit shifting,” the firm stated.

Beyond interest deductions, Pedabo said companies now face stronger transfer pricing requirements for related-party financing.

Businesses must demonstrate that interest rates, loan tenures, repayment schedules, collateral arrangements and other financing terms are consistent with what independent parties would have agreed under comparable circumstances.

The firm said companies should therefore maintain contemporaneous documentation, including executed loan agreements, creditworthiness assessments, benchmarking studies and evidence of the commercial rationale for their financing arrangements.

Pedabo added that taxpayers are required to submit prescribed transfer pricing declarations and annual disclosure forms detailing related-party financing transactions during the relevant accounting period.

The firm said failure to meet the requirements could result in penalties and transfer pricing adjustments.

Pedabo also highlighted changes affecting foreign borrowing.

It said the Nigeria Tax Act has removed previous exemptions applicable to interest on certain foreign loans, meaning interest on foreign loans, including those provided by related parties, is now generally subject to 10 per cent withholding tax.

However, the rate can be reduced to 7.5 per cent where an applicable double taxation agreement provides for the lower rate.

According to Pedabo, the change could increase the cost of accessing foreign debt for Nigerian companies while reducing the net returns earned by foreign lenders.

The firm advised multinational and domestic groups to review their intercompany loan arrangements, debt-to-equity ratios and transfer pricing policies.

It said companies should ensure that related-party financing is commercially justified, appropriately priced and supported by adequate documentation as the new tax regime gives authorities stronger statutory powers to challenge arrangements lacking commercial substance.