November 13, 2025
The Minimum Effective Tax Rate (METR) is the lowest rate of tax a company must effectively pay on its profits, even after all exemptions and incentives.
Under Nigeria’s new Tax Act 2025, the METR is 15%, meaning every qualifying company, especially foreign companies that are subsidiaries of Nigerian companies, must pay at least 15% tax on its profits.
If a company’s actual tax rate falls below 15%, it will pay a “top-up tax” to reach that level. This rule ensures fairer taxation and prevents profit shifting to low-tax countries.
If your company owns or controls businesses outside Nigeria, there’s a new tax rule you should know about.
Remember the tax reform laws that were enacted earlier this year.
The Nigeria Tax Act 2025 (NTA 2025), one of the four laws enacted, introduces something known as a Controlled Foreign Company (CFC) rule.
This is a measure designed to stop companies from shifting their profits to low-tax countries in order to avoid paying tax in Nigeria.
What’s a Controlled Foreign Company (CFC)?
A Controlled Foreign Company is any company registered outside Nigeria that’s controlled by a Nigerian company.
If a Nigerian company controls more than 50% of a foreign company’s shares or voting rights, that foreign business is considered a Controlled Foreign Company.
In simple terms, if your Nigerian company owns or controls a business in another country (say Ghana or the UAE), that foreign business is your CFC.
What the New Rule Says
Under Section 6(2) of the NTA 2025, if your foreign company (the CFC) refuses to distribute dividends (profits) to its shareholders in a given year, when such dividends could have been distributed without affecting its normal operations, those dividends would be taxed by the Nigerian Government, as though they were actually sent to the Nigerian company.
This means that retained profits will be taxed in Nigeria, regardless of the fact that they were not actually transferred to the Nigerian company. The goal is to stop Nigerian companies from leaving profits in foreign subsidiaries just to avoid paying Nigerian tax.
The “Top-Up” Tax
Section 6(3) of the Act adds another rule: if a non-resident (foreign) subsidiary of a Nigerian company, or a foreign company that is a member of a Nigerian multi-national group pays tax to its government at a rate below 15%, the Nigerian company would have to pay an extra tax in Nigeria make the foreign subsidiary’s income tax equal to the minimum effective tax rate (15%) in Nigeria.
This ensures that every Nigerian-controlled company pays at least a 15% effective tax rate globally, whether in Nigeria or abroad.
Let’s say a Nigerian company owns a 100% stake in a tech company in Kenya, the Kenyan company makes ₦100 million profit in 2025 but decides not to pay dividends to the Nigerian company.
Normally, this income would remain untaxed in Nigeria because it wasn’t repatriated. However, under the NTA 2025, the Nigerian Company may still be required to include its share of the undistributed profits (₦100 million) in its Nigerian taxable income.
More so, if the Kenyan government’s tax rate is at 10%, and the CFC (Kenyan company) pays just 10% of its income to the Kenyan government, the Nigerian company would be required to pay a 5% top-up tax to the Nigerian Government, to reach the minimum 15% effective rate under the NTA 2025.
The idea is that profits kept abroad in low-tax jurisdictions would still be taxed in Nigeria, to prevent profit shifting and tax deferral.
Why It Matters
This new rule is part of Nigeria’s effort to align with global tax reforms like the OECD’s Base Erosion and Profit Shifting (BEPS) project.
It means Nigerian companies with foreign operations can no longer simply gather profits overseas. Those earnings could still attract Nigerian tax, even if no money crosses the border.
For small and medium-sized businesses with international subsidiaries, this adds a new compliance layer.
Companies will need to:
Track the profits of their foreign subsidiaries; Confirm how much tax was paid abroad; and Keep solid documentation showing why profits were retained.
When Does This Rule Take Effect?
The CFC rule takes effect from the 2025 financial year, once the Nigeria Tax Act 2025 comes into force on 1 January 2026.
So, Nigerian companies with foreign subsidiaries will have to start reviewing their 2025 profits and tax filings in line with this new requirement.
The Federal Inland Revenue Service (FIRS) will issue detailed guidelines on computation, reporting format, and timelines for remittance.
You’ll also need to pay attention to tax rates in foreign countries where your subsidiaries operate, as rate below 15% could trigger an extra tax paid to the Nigerian government.
Courtesy: Lawpadi
