What You Need To Know About The New Capital Gains Tax Rules And Capital Market Investment In Shares

By the Presidential Fiscal Policy & Tax Reforms Committee

Overview

Recent discussions regarding the Capital Gains Tax (CGT) reform and its impact on the Nigerian capital market have led to some confusion and misinformation. As we await the official implementation guidelines, it is crucial to clarify key aspects of the reform to ensure accurate understanding.

The updated CGT framework represents a significant improvement over the previous laws. The reform is designed to make investing in the Nigerian capital market more attractive, reduce investment risk, and ensure fair treatment of legitimate costs incurred by investors. Ultimately, the reform promotes equity and builds confidence in the market — not the opposite.

Reform Objectives

The key goals of the CGT reform are:

1. Reducing Investment Risk:
   By allowing deductions for capital losses and other investment-related costs, the reform helps mitigate risk for investors.
2. Protecting Small and Institutional Investors:
   Exemptions are provided for retail investors and tax-exempt institutions, such as Pension Funds (PFAs) and Real Estate Investment Trusts (REITs).
3. Simplifying Tax Administration:
   By aligning CGT with income tax rules, the reform aims to make tax processes more progressive, consistent, and easier to comply with.

Key Changes

1. Progressive Tax Rates:
   The previous flat 10% CGT rate is replaced by a progressive income tax rate ranging from 0% to 30%, depending on the investor’s overall income or profit level.
2. Top Rate Reduction:
   The current 30% CGT rate for large corporate investors is expected to be reduced to 25% under broader corporate tax reforms.
3. Deductions for Costs:
   Investors can now deduct previously disallowed costs, ensuring they are not taxed when in a net loss position.

Exemptions

The following transactions qualify for exemption under the new CGT rules:

1. Disposals within 12 months where the total sales proceeds are ≤ ₦150 million and gains are ≤ ₦10 million.
2. Reinvestment of proceeds into shares of Nigerian companies within 12 months, even if the general exemption threshold is exceeded.
3. Capital gains from foreign share disposals repatriated into Nigeria via CBN-authorised channels.
4. Institutional investors such as Pension Funds, REITs, and NGOs remain exempt from CGT.
5. Small companies (annual turnover ≤ ₦100 million; total fixed assets ≤ ₦250 million) are eligible for 0% CGT.
6. Investment gains from labeled startups (e.g., venture capital, private equity, accelerators) are exempt.

Determination of Gains

For the purpose of CGT effective from 1 January 2026, the cost base for existing investments will be reset to the higher of:

a) the actual acquisition cost of the asset;
b) the closing market price as of 31 December 2025.

This ensures fairness, protecting investors from being taxed on gains accrued before the new law takes effect.

Allowable Deductions

Investors are now allowed to deduct a broader range of costs, including:

1. Realized capital losses on share disposals.
2. Transaction costs such as brokerage fees and regulatory levies.
3. Expenses like margin interest and realized foreign exchange losses directly linked to the investment. However, exchange gains will still be treated as taxable income.

Registration and Compliance

• Resident investors must register for tax purposes and obtain a Tax ID.
• Non-resident investors who only earn passive income (e.g., dividends or capital gains) are not required to obtain a Tax ID.
• Self-assessment will remain the default compliance model, although future regulations may introduce withholding or presumptive deductions at source through brokers or exchanges.
• All applicable taxes must be paid in Naira.

Filing and Payment Deadlines

• Individuals must file CGT returns on or before 31 March of the following year.
• Companies have six months after their financial year-end to submit CGT returns.
• Non-resident investors are required to file CGT on the disposal of shares, except where the proceeds are reinvested within the same year. Brokers or exchanges may be authorized to deduct CGT at source.

Administration

• Resident individuals are required to pay CGT to their state of residence in Nigeria.
• Resident companies must file returns and remit the applicable CGT to the Nigeria Revenue Service (NRS).
• Non-resident investors should remit any applicable CGT directly to the NRS or through an appointed tax withholding agent.

Additional Clarifications

• Corporate Reorganizations: Mergers, acquisitions, or internal restructurings as stipulated under the Nigeria Tax Act 2025 are exempt from CGT.
• Transition Arrangements: Gains earned on shares up to 31 December 2025 will be grandfathered and only taxed upon disposal based on the law in effect at that time.
• Record-Keeping: Investors are required to maintain documentation for acquisition costs, sale proceeds, and related expenses for audit and verification purposes.

The policy intent of the CGT reform is not revenue-driven but aims to promote harmonization, fairness, and investor confidence in Nigeria’s capital markets.

In a Nutshell

The new CGT framework is designed to make the tax system fairer, more aligned with global practices, and more attractive to long-term investors. By reducing investment risks, offering protections for small investors, encouraging reinvestment, and simplifying compliance, the reform ensures that large investors contribute their fair share when they realize gains that are not reinvested.