2026 Tax Shake-Up: Union Bank Explains Who Pays Nothing, Who Pays More as New Laws Take Effect
- Nigeria's tax overhaul exempts low earners, raising hopes for millions with incomes below ₦800,000 annually
- New residency rules clarify tax obligations for Nigerians, affecting worldwide income taxation and compliance requirements
- Major tax reforms include changes to capital gains, withholding taxes, and tighter penalties for non-compliance
Nigeria’s new tax laws officially took effect on January 1, 2026, marking the most far-reaching overhaul of the country’s tax framework in decades.
In a detailed message to customers, Union Bank outlined how the reforms will affect salary earners, investors, and business owners, urging Nigerians to review their finances and compliance status immediately.
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The reforms introduce wide-ranging changes to income tax, capital gains, company taxation, VAT, and compliance penalties, with winners and losers clearly emerging.
₦800,000 income exemption brings relief for low earners
Under the new regime, individuals earning ₦800,000 or less annually, about ₦66,667 per month, will pay zero personal income tax and zero capital gains tax.
This exemption is one of the most significant reliefs in the reform package and is expected to benefit millions of low-income earners.
Income above ₦800,000 is taxed progressively, with rates rising across income bands and topping out at 25 per cent for individuals earning more than ₦50 million annually.
Clear rules on tax residency end years of uncertainty
For the first time in Nigeria’s tax history, the law clearly defines who qualifies as a tax resident.
An individual is considered a resident if they are domiciled in Nigeria, maintain a permanent home in the country, spend at least 183 days in Nigeria within a year, have substantial economic or family ties locally, or serve as a Nigerian diplomat or public servant abroad.
This distinction matters because residents are taxed on worldwide income, including foreign investments, subject to double-tax treaties.
Non-residents are taxed only on Nigeria-sourced income such as local salaries, rent, and dividends. Remote workers and Nigerians with cross-border income are advised to assess their residency status carefully.
Capital gains rules reshaped for investors
The reforms dramatically change how capital gains are taxed. Most retail investors may no longer pay Capital Gains Tax on stock sales if two conditions are met: total disposal proceeds within 12 months must be below ₦150 million, and total gains must not exceed ₦10 million.
If either threshold is breached, tax applies only to the excess. For individuals, capital gains are now taxed at personal income tax rates ranging from 0 to 25 per cent, replacing the old flat rate.
Companies will pay a flat 30 per cent on capital gains, aligning with corporate income tax.
New withholding taxes and business levies introduced
A 10 per cent withholding tax now applies to interest earned on Treasury Bills, Commercial Papers, Corporate Bonds, Promissory Notes, and similar instruments. Interest on Federal Government bonds and CBN OMO bills remains exempt.
Businesses with annual turnover below ₦100 million remain exempt from Company Income Tax.
However, a new 4 per cent Development Levy applies to assessable profits, replacing multiple levies including the Tertiary Education Tax, IT Levy, NASENI Levy, and Police Trust Fund Levy.
Companies with a turnover of ₦100 million or less and fixed assets not exceeding ₦250 million qualify for full exemption from both Company Income Tax and the Development Levy.
Large multinational companies with global revenue of at least €750 million, or Nigerian firms with turnover of ₦50 billion and above, must now maintain a minimum effective tax rate of 15 per cent.
VAT stays at 7.5 Per cent, but compliance tightens
While the VAT rate remains 7.5 per cent, businesses can now recover input VAT on all purchases linked to taxable supplies.
Basic food items, educational materials, medical supplies, and electricity transmission are zero-rated. Mandatory e-invoicing is also being introduced for VAT-registered businesses.
Penalties for non-compliance have risen sharply. Late filing now attracts ₦100,000 for the first month and ₦50,000 for each additional month. Awarding contracts to unregistered entities carries a ₦5 million fine.
Stamp Duty and TIN rules affect everyday banking
The ₦50 charge on electronic transfers of ₦10,000 and above is now formally classified as Stamp Duty and will be deducted from the sender’s account.
Transfers below ₦10,000, salary payments, and transfers between accounts with the same name and BVN remain exempt.
Union Bank reminded customers that Tax Identification Numbers must now be properly linked. For individuals, the National Identity Number serves as the TIN, while businesses must use their CAC registration number.
Staying ahead in 2026
Union Bank urged customers to keep accurate records, verify vendor registrations, automate compliance where possible, and review financial goals under the new tax brackets.
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While Nigeria’s tax landscape has shifted, the bank noted that disciplined planning, proper documentation, and timely compliance remain the foundation of long-term financial stability.
Banks begin 10% tax on dollar deposits
Legit.ng earlier reported that Nigerian banks have begun implementing a 10 percent withholding tax on interest earned from foreign currency deposits, marking one of the first visible outcomes of the country’s newly enacted tax reforms.
The deductions took effect from January 1, 2026, and apply to interest on dollar and other foreign currency accounts held by customers.
Major lenders, including Access Bank, Zenith Bank, United Bank for Africa (UBA), and others, have started notifying customers of the change, which is rooted in the Nigeria Tax Act, 2025.
Source: Legit.ng
