Export profits exemption now tied to forex repatriation

Nigerian exporters will now have to repatriate their foreign exchange earnings through official banking channels before qualifying for tax exemption on export profits.

This applies to companies exporting goods or services and requires verifiable evidence that proceeds were brought into the country through authorised financial institutions.

The move is aimed at strengthening foreign exchange oversight and tax compliance, and means that companies that fail to repatriate export earnings risk having those profits fully taxed.

According to PwC, “Profits of any Nigerian company in respect of goods exported from Nigeria are exempt from tax, provided that the proceeds from such exports are repatriated to Nigeria and are used exclusively for the purchase of raw materials, plant, equipment, and spare parts.”

PwC added that the exemption does not apply to companies operating in the oil and gas industry.

Fatika Consulting also stressed that the exemption is conditional. In a LinkedIn post analysing the reforms, the firm stated that “the exemption does not arise from the mere act of exporting. It is conditional on strict compliance with the requirement for a verifiable and traceable inflow of foreign exchange. Failure to meet these conditions defeats the claim to the exemption.”

The tighter compliance requirements come at a time when Nigeria’s non-oil export sector is expanding. Foreign exchange inflows from non-oil exports rose to $6.1 billion in 2025, representing an 11.5 percent increase from $5.456 billion in 2024, according to data from the Nigerian Export Promotion Council.

In the first nine months of 2025, non-oil exports stood at $6.93 billion, accounting for 15.72 percent of total export earnings.

Oil exports, including crude oil and gas, amounted to $37.13 billion, representing 84.28 percent of total exports, based on Central Bank of Nigeria data. Over the same period, Nigeria recorded a trade surplus of $10.83 billion.

The revised framework also affects companies operating in Export Processing Zones (EPZs) and Free Trade Zones (FTZs), which were historically designated as tax-free areas to encourage export-driven investment.

According to PwC, companies engaged in approved manufacturing activities in an Export Processing Zone are entitled to 100 percent capital allowance in the year of assessment.

In addition, export-oriented companies located outside designated zones may enjoy a three-year tax holiday, provided that at least 75 percent of their turnover is derived from exports and the proceeds are repatriated.

However, under Schedule 2 of the Nigeria Tax Act, full exemption for companies operating within export zones now applies only where total sales arise from exports or serve exclusively as inputs for export, and where not more than 25 percent of sales arise from the customs territory.

Where sales into the customs territory exceed 25 percent of total turnover, tax becomes payable on the profits attributable to those domestic transactions. From January 1, 2028, profits relating to sales to the customs territory will be fully subject to tax, regardless of the percentage threshold.

Olamide Obajimi, lead partner of the tax practice at Olaniwun Ajayi LP, wrote in a tax update that “it is no longer the case that all your profits are exempt from taxation” for approved entities operating within the zones.

Free Trade Zone companies are also required to file income tax and transfer pricing returns with the Nigeria Revenue Service as a condition for maintaining tax benefits. This introduces additional reporting obligations for entities that previously relied largely on location-based incentives.

The compliance focus extends beyond exporters and zone operators to non-resident companies doing business in Nigeria.

In an article titled Tax Registration for Non-resident Companies in Nigeria, EY stated that “Nigeria’s international tax framework is undergoing a subtle but consequential shift.”

While withholding tax may continue to represent final tax for non-resident companies without a permanent establishment in Nigeria, administrative requirements have expanded.

Section 100(2) of the Nigeria Tax Administration Act imposes a N5 million penalty on any statutory body or company that awards a contract to an unregistered person.

EY warned that what was previously considered a back-office administrative issue is becoming a commercial risk, as companies may now require proof of tax registration before awarding contracts or making payments.

Exporters must now maintain detailed repatriation records, zone operators must monitor domestic sales thresholds, and Nigerian firms engaging foreign partners must verify registration status to avoid penalties.

While export incentives remain available, they are no longer automatic. Access now depends on compliance, documentation, and proof of repatriation.