Nigerian Capital Gains Tax: When Foreign Shares Are Taxed in Nigeria

Nigerian Capital Gains Tax: When Foreign Shares Are Taxed in Nigeria

Understanding where an asset is “located” for tax purposes is one of the most technical but crucial parts of the Nigerian Capital Gains Tax (CGT) framework. This matters because it determines whether a transaction falls within Nigeria’s tax net, even when the asset being sold is not physically in Nigeria.

The 2025 Nigerian Tax Act makes it clear that certain foreign shares and comparable interests can be treated as if they are located in Nigeria, thereby attracting Nigerian capital gains tax.

The Rule on Foreign Entities

Under section 46(f), shares or comparable interests in any foreign entity are deemed to be located in Nigeria if, at any point during the 365 days before their disposal (that is, before they are sold or transferred), more than 50% of their value is derived, either directly or indirectly, from Nigerian assets.

This rule has two important applications:

  1. Indirect Ownership Through Entities: If the value of a foreign company’s shares is primarily tied to a Nigerian subsidiary, a Nigerian joint venture, or any Nigerian entity, then disposing of those foreign shares will be taxed in Nigeria. In simple terms, selling a foreign holding company that indirectly owns Nigerian businesses is treated the same as selling a Nigerian company itself.

  2. Value Derived from Nigerian Property: If more than half of the value of foreign shares comes from immovable property or other chargeable assets located in Nigeria (such as land, factories, or significant investments), then those shares will also be considered Nigerian assets for CGT purposes.

Why This Matters for Businesses

For multinational groups and holding companies, this closes a loophole where Nigerian assets were being sold indirectly by transferring foreign shares. Previously, a foreign parent company could be sold abroad without Nigerian tax authorities being involved, even though the real economic value came from Nigeria. Under this provision, those transactions are now firmly taxable within Nigeria.

Why This Matters for Individuals

High-net-worth individuals who hold foreign shares through offshore structures must be cautious. If those foreign entities derive most of their value from Nigeria, then any sale, transfer, or disposal of the shares will trigger Nigerian CGT liability—even if the paperwork and payments are executed abroad.

Practical Example

Suppose a foreign holding company owns 100% of a Nigerian real estate firm. If you sell your shares in the foreign company, more than 50% of the value clearly comes from Nigerian property. Even though the share certificate is foreign, Nigerian law will treat the disposal as taxable in Nigeria.

On the other hand, if a foreign company has diverse assets globally and less than 50% of its value is tied to Nigeria, selling those shares would not fall under Nigerian CGT.

Key Takeaway

Nigeria’s tax law has evolved to capture not just direct disposals of Nigerian assets, but also indirect disposals through foreign companies whose value is rooted in Nigeria. For both businesses and individuals, this means careful structuring, documentation, and awareness of the source of asset value is critical when planning sales or investments.

Tax compliance is no longer about “where the paper is signed,” but about where the value truly lies.

For more simplified tax insights and practical breakdowns, visit bahasbooks.com.

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