A Nigerian conglomerate with subsidiaries scattered across four continents files its 2026 returns and discovers an unfamiliar line item on its assessment.
The charge is a top-up, a calculation that requires the Nigerian parent company to pay additional tax whenever a foreign subsidiary falls below a 15% effective tax rate in its own jurisdiction.
That single provision, buried in Section 6(3) of the Nigeria Tax Act, 2025, is now reshaping how multinationals with Nigerian parents think about their offshore structures and incentive regimes.
If your company sits inside a group that crosses the revenue thresholds set by this law, you need to understand what the top-up demands, how it interacts with older rules on foreign profits, and where free zone protections end.
How the 15% minimum effective tax rate top-up works under the Nigeria Tax Act
Section 57 of the Nigeria Tax Act imposes a 15% minimum effective tax rate on two categories of companies operating within the country, EY noted in its tax alert on the legislation.
The first category covers any company that belongs to a multinational enterprise group with aggregate global turnover of at least EUR 750 million, or its naira equivalent.
More on Nigeria’s tax overhaul:
Stamp duty changes in Nigeria 2026 — what the new Act removes
The second category captures any other company with annual turnover above NGN 50 billion, regardless of whether it operates across borders.
For companies within scope, the calculation compares actual income tax paid against 15% of net income, defined as profits before tax minus franked investment income and unrealized gains or losses, PwC Nigeria explained in its review of the reform Acts.
Section 6(3) adds a cross-border layer: when a non-resident subsidiary of a Nigerian parent pays income tax below 15% in its home jurisdiction, the Nigerian parent must pay the difference to the Nigeria Revenue Service, as OECDPillars.com confirmed.
Pillar Two alignment and Nigeria’s controlled foreign company rules
The top-up tax draws directly from the OECD’s Pillar Two framework, which established a 15% global minimum tax for multinational groups with consolidated revenue above EUR 750 million, according to the OECD.
Roughly 147 countries and jurisdictions have committed to the OECD’s Inclusive Framework, though national adoption timelines and rule details continue to vary significantly across regions.
Nigeria has not formally adopted the OECD’s BEPS Pillar Two model wholesale, but its top-up tax mirrors the core Income Inclusion Rule mechanism, EY noted.
Running alongside the top-up is the controlled foreign company regime introduced in Section 6(2), which targets a different gap: when a foreign subsidiary does not distribute its profits within one year, the Nigeria Revenue Service can treat those undistributed earnings as deemed income of the parent, Mondaq reported.
The only exception is where the revenue authority accepts that distributing those profits would genuinely harm the foreign subsidiary’s ongoing business operations.
Free zone tax exemptions face new boundaries under the minimum rate
The Nigeria Tax Act preserves free zone tax exemptions for export-oriented earnings, but draws a firm line at the customs territory border, PwC Nigeria confirmed.
Free zone companies that sell goods into Nigeria’s domestic market lose their exemption on that portion of revenue once customs-territory sales exceed 25% of total sales.
Starting from January 2028, even the 25% buffer disappears entirely, though the President retains authority to extend that deadline by up to ten years, UNCTAD’s Investment Policy Hub noted.
Critically, the minimum effective tax rate exemption does not extend to free zone entities that are part of multinational groups with turnover above EUR 750 million, Mondaq reported in its analysis of Section 57(3).
What experts are saying:
Manal Corwin, Director of the OECD Centre for Tax Policy and Administration, described the January 2026 Pillar Two side-by-side agreement as “really a testament to the strong commitment among Inclusive Framework members” to international cooperation on minimum taxation, speaking at an OECD webinar on the side-by-side package.
What the top-up tax in Nigeria means for multinational tax planning
The combined effect of Sections 6(2), 6(3), and 57 creates a layered enforcement structure that leaves very little room for multinational groups to shelter offshore income from Nigerian taxation.
Taiwo Oyedele, who chaired the Presidential Fiscal Policy and Tax Reforms Committee before his appointment as Nigeria’s Minister of Finance in 2026, called the reform package “a game changer for Nigeria,” This Day reported via AllAfrica.
The Chartered Institute of Directors Nigeria urged companies to treat tax compliance as a core fiduciary duty under the new regime, with Dr. Taiwo Noias-Alausa, the institute’s director general, stating that boards must now ensure transparent reporting and robust record-keeping, This Day reported via AllAfrica.
Key provisions of the top-up tax framework at a glance
- EUR 750 million threshold: MNE groups with consolidated global turnover at or above this level fall within the top-up scope under Sections 6(3) and 57
- NGN 50 billion domestic threshold: Any company with annual turnover above this amount faces the 15% minimum effective tax rate, even without cross-border operations
- Top-up calculation: If a foreign subsidiary’s effective tax rate falls below 15%, the Nigerian parent pays the difference to the Nigeria Revenue Service
- CFC deemed distribution: Undistributed profits of foreign subsidiaries controlled by Nigerian parents are treated as parent income after one year, under Section 6(2)
- Free zone carve-out limits: Zone exemptions do not apply to customs-territory sales exceeding 25% of total revenue, or to entities in MNE groups above the EUR 750 million threshold
- Implementation guidance pending: Section 6(4) empowers the Nigeria Revenue Service to issue detailed rules for both the CFC and top-up provisions
Professional guidance is essential for companies within the top-up scope
This is a technical area of tax law where the financial consequences of misinterpretation can be severe, and the interaction between domestic rules and international frameworks adds further complexity.
As of the September 2025 gazette publication, the Nigeria Revenue Service had not yet published the comprehensive implementation guidance authorized under Section 6(4), OECDPillars.com noted.
Working with a qualified tax advisor who understands both the Nigeria Tax Act and the OECD Pillar Two framework is not optional for groups operating within the scope of these provisions.
