Double Taxation Relief Explained: What Nigeria’s 2025 Tax Act Means for You

Double Taxation Relief Explained: What Nigeria’s 2025 Tax Act Means for You

By Baha’s Books — Modern Accounting. Smarter Tax. Seamless Compliance.

In today’s global economy, many Nigerians earn income beyond the country’s borders — from consultancy work, digital services, or foreign investments. But this often raises a serious question: can the same income be taxed twice?

Under the Nigeria Tax Act, 2025, the government has provided a clear answer through Chapter 4 — Relief for Double Taxation (Sections 120–123). This chapter introduces a structured framework designed to protect individuals and companies from paying tax twice on the same income, whether earned in Nigeria or abroad.

The Concept of Double Taxation

Double taxation occurs when the same income is taxed in two jurisdictions — for example, if a Nigerian consultant earns income in Canada and both Nigeria and Canada impose tax on that same income. The new Tax Act offers two forms of relief:

  1. Unilateral Relief – where Nigeria provides relief on its own, even without a treaty.

  2. Bilateral Relief – where relief is based on a formal Double Taxation Agreement (DTA) between Nigeria and another country.

These provisions encourage cross-border investment and ensure Nigerian businesses and professionals compete fairly in the global marketplace.

Unilateral Relief: Nigeria’s Independent Protection

Under Section 120, when a Nigerian resident pays tax on foreign income in another country, the same income will not be taxed fully again in Nigeria. Instead, the tax already paid abroad is credited against their Nigerian tax liability.

However, the relief isn’t unlimited. The Act ensures that the credit is capped at the lower of the two:

  • The amount of Nigerian tax due on that income, or

  • The amount of tax paid in the foreign country.

This balance ensures fairness and prevents taxpayers from claiming more credit than they actually paid overseas.

The law also introduces a proportional formula: the Nigerian tax attributable to foreign income is determined by comparing the foreign income to total income, and applying that ratio to total Nigerian tax. This brings transparency and uniformity to cross-border tax calculations.

Bilateral Relief: When Nigeria and Other Nations Agree

Section 121 introduces the concept of Double Taxation Agreements (DTAs) — formal treaties Nigeria can sign with other countries to ensure both governments coordinate their taxation systems.

Once approved by the National Assembly, these treaties automatically apply nationwide. Under a DTA, income taxed in the treaty partner’s country is credited against tax payable in Nigeria.

The Act also strengthens international cooperation by requiring tax authorities in both countries to exchange relevant information. Confidentiality laws cannot be used to block this exchange, aligning Nigeria with global transparency standards set by the OECD and G20.

Importantly, the law prevents misuse of these treaties. Reliefs cannot be claimed through treaty shopping or by shell companies. Only genuine residents and beneficial owners of income are eligible for treaty-based tax relief.

By doing so, Nigeria ensures that relief provisions are not abused for tax evasion or aggressive avoidance, maintaining the country’s fiscal integrity.

Section 122: How Tax Relief is Calculated

For taxpayers under a double taxation agreement, relief is applied as a tax credit — the foreign tax paid is deducted from the Nigerian tax payable on the same income.

But again, the principle remains: the credit allowed must be the lower of:

  • The Nigerian tax on the foreign income, or

  • The foreign tax actually paid.

To ensure accuracy, the Act sets a strict two-year limit after the end of the assessment year for taxpayers to claim this credit. Any disputes can be appealed just like normal tax assessments.

If foreign tax authorities later adjust the tax paid abroad (for instance, after an audit or reassessment), Nigerian tax relief can also be recalculated to reflect the correct amount.

This flexibility ensures fairness to taxpayers while preserving the integrity of Nigeria’s tax administration.

Additionally, where an income is exempted from Nigerian tax under a DTA, that income will still be considered when calculating the tax rate applicable to the taxpayer’s other income — preventing tax avoidance through artificial exemptions.

Section 123: Key Definitions You Should Know

To ensure clarity, the Act defines the core terms used throughout this chapter:

  • Foreign Tax – any tax paid to a treaty partner under a DTA.

  • Foreign Income – income earned abroad that is taxable both in Nigeria and the treaty country.

  • Foreign Profit – profit subject to tax in both jurisdictions.

  • Nigerian Tax – income tax chargeable under Nigerian law.

  • Treaty Partner – any country with which Nigeria has signed a DTA.

These definitions create uniformity and ensure every taxpayer, consultant, and multinational knows exactly how cross-border taxation applies to them.

Why This Matters for Businesses and Individuals

The introduction of these double taxation relief provisions reflects Nigeria’s modern fiscal outlook — one that balances revenue protection with international cooperation.

For businesses expanding abroad, investors earning dividends from overseas, or professionals offering global services, these rules ensure that income is taxed fairly and transparently.

Nigeria’s alignment with global tax frameworks, including the OECD’s Base Erosion and Profit Shifting (BEPS) principles and the global minimum tax rate, signals a strong commitment to fairness, accountability, and economic integration.

Baha’s Books Insight

At Baha’s Books, we interpret complex tax laws and transform them into practical strategies for businesses and professionals.

Through our tax advisory and compliance services, we help clients:

  • Understand how double taxation relief applies to their income.

  • File accurate tax returns in compliance with the Nigeria Tax Act, 2025.

  • Leverage QuickBooks automation and cloud accounting tools for seamless international reporting.

Our goal is to simplify the intersection between local taxation and global operations — ensuring that your business stays compliant, transparent, and efficient in a connected world.

The Takeaway

The Nigeria Tax Act, 2025 (Sections 120–123) reinforces one principle: no one should pay tax twice on the same income. It builds trust between taxpayers and regulators, strengthens Nigeria’s investment climate, and positions the country as a cooperative player in global commerce.

With this framework, Nigeria is not only simplifying tax compliance but also redefining what fairness in international taxation looks like.

Baha’s Books
Modern Accounting. Smarter Tax. Seamless Compliance.
Visit bahasbooks.com

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