The tax collector has come knocking on the nonprofit sector’s door, and this time the rules have changed entirely.

When President Bola Ahmed Tinubu signed the Nigeria Tax Act 2025 into law, nonprofits across the country entered a new regulatory era. The new legislation, which took effect on 1ˢᵗ January 2026 after a six-month transition period, consolidated over 60 disparate tax laws into a smaller set of clear, well-defined statutes. A single, unified framework now governs tax administration under the newly restructured Nigeria Revenue Service.

Before this change, nonprofits could qualify for tax exemptions if they met three conditions: 1). registration under relevant Nigerian law, 2). profits not derived from commercial activities, and 3). no distribution of profits to members or promoters. For instance, Section 23(1)(c) of the former Companies Income Tax Act exempted the “profits of any company engaged in ecclesiastical, charitable or educational activities of a public character” from taxation.

The new Act continues to provide exemptions in certain circumstances. Section 163 states that profit or gains from selling assets owned by individuals involved in educational, religious, or charitable activities for the public can be exempt, as long as these profits are not derived from any business or trade activities of the organization.

A major implication of the Act is that it reframes the relationship between nonprofits and the tax authorities. Charitable purpose no longer translates into minimal engagement with the tax system. Nonprofits must now register for tax purposes, file periodic returns, comply with withholding obligations, separate exempt income from commercial revenue, and account for VAT, including on digital services procured from abroad.

We will examine the key policy changes under the new tax regime and explain how they are set to reshape nonprofit operations in Nigeria throughout 2026 and beyond.

All “Taxable Persons” must register for TIN

The first major shift eliminates the distinction between taxable and non-taxable entities for compliance purposes. Section 2 of the Nigeria Tax Act defines a “taxable person” as any person required to comply with any provision of the tax laws, whether personally or on behalf of another person. The definition expressly includes a corporation sole, trustee, executor, or any other legal arrangement.

In that sense, all nonprofits are now required to register with the Nigeria Revenue Service and obtain a Tax Identification Number. In addition, non-profits that are registered with CAC and engage in profit-making activities are required to file annual Companies Income Tax returns with the Nigeria Revenue Service

The Return Filing Mandate: Zero Liability Does Not Mean Zero Paperwork

Section 180(1) of the Nigeria Tax Act mandates that “all the relevant provisions of Chapter Two of this Act and the Nigeria Tax Administration Act 2025, including filing returns, shall apply” to all entities, including those enjoying tax incentives. For nonprofits claiming exemptions under Section 163, this creates a mandatory annual obligation.

Nonprofits must demonstrate zero liabilities. You must show your calculations. You must document how every naira of revenue qualifies for exemption. You must prove that earned income does not cross into “trade or business” territory. This test is, however, nuanced. For example, a donor-funded health clinic charging consultation fees must provide documentation showing the fees barely cover operational costs. A training institute charging course fees must show these fees represent cost recovery, not profit generation. The burden of proof now rests decisively on nonprofits

Penalties Have Teeth: The Four-Fold Increase

The Nigeria Revenue Service is also not playing games with enforcement. Administrative penalties for failing to file tax returns jumped from ₦25,000 for the first month to ₦100,000. Each subsequent month of non-compliance now costs ₦50,000 instead of ₦5,000. This represents a fourfold increase in penalty severity.

For small nonprofits operating on tight budgets, a three month delay in filing returns now costs ₦200,000. That represents money not going to beneficiaries. For many community based organizations, this penalty exceeds their monthly operational budget. Essentially, compliance now carries real weight alongside your mission.

The Mixed-Activity Trap and Financial Segregation Requirements

This policy shift targets nonprofits with hybrid revenue models. “Profit making Nonprofits” cannot deduct expenses incurred in generating tax-exempt income when calculating tax liability on their commercial activities. This provision reverses decades of accounting practice

Consider a scenario grounded in the realities facing many Nigerian NGOs:

Your nonprofit runs a maternal health program funded entirely by grants from international donors. This constitutes exempt income under Section 163 of the Nigeria Tax Act, provided the income is “applied exclusively towards the organisation’s approved objectives.” Alongside this program, you operate a pharmacy selling medications at market prices. The pharmacy generates revenue that arguably crosses into commercial territory, making it potentially taxable.

Your executive director splits time 70/30 between the health program and pharmacy. Your rent covers facilities used by both operations. Your utilities, security, and administrative support serve both activities. Under the old regime, you might allocate 30% of these overhead costs to the pharmacy to reduce its taxable profit.

Now those allocations no longer shield you. The costs directly related to your core charitable work cannot reduce the tax liability associated with your commercial arm. The provision creates an asymmetric accounting burden where nonprofits could possibly face higher effective tax rates than purely commercial entities.

The VAT Trap and Digital Services Compliance

The most operationally disruptive change involves Value Added Tax compliance. Section 145 of the Nigeria Tax Act explicitly requires nonprofits making taxable supplies to collect and remit VAT at 7.5%. Section 148 removes most of the exemptions that organizations previously relied upon.

The limited good news is that goods purchased by NGOs for use in humanitarian donor funded projects remain zero rated. Basic food items, educational books and materials, medical services, and tuition for nursery, primary, secondary, or tertiary education also attract 0% VAT. The extensive bad news is that VAT now applies to goods procured for non-humanitarian purposes. NGOs are liable to pay VAT on services they procure or consume, except where such services are specifically exempt. Furthermore, NGOs must now “self account” for VAT on taxable goods and services supplied by non-resident vendors.

This last provision creates an immediate operational crisis for the majority of Nigerian nonprofits, who rely heavily on foreign digital service providers.

The Digital Services Problem: Your Zoom Subscription Just Became a Compliance Minefield

Non-resident persons supplying taxable goods and services to Nigerian consumers are required to register for VAT, charge it on their invoices, and remit it to the Nigeria Revenue Service. The critical catch? Most foreign service providers might not comply. They might not add Nigerian VAT to their invoices. They might not register with the NRS. They may simply charge you their standard rate.

When Amazon Web Services bills your nonprofit $500 monthly for cloud hosting, when Zoom charges $100 for video conferencing, when Microsoft bills $200 for Office 365 subscriptions, when Salesforce charges for donor management software, these foreign vendors are not adding 7.5% Nigerian VAT. Under the reverse charge mechanism, your organization becomes liable to self-account for the VAT and remit it to the NRS.

The burden extends beyond software subscriptions. Web hosting, cloud storage, digital marketing platforms, online survey tools, virtual event platforms, graphic design subscriptions, and project management software all trigger VAT obligations. A mid-sized NGO that easily incurs $2,000-3,000 monthly in such software subscriptions might be liable to approximately ₦300,000-450,000 in VAT liability at current exchange rates.

The 14-Day Deadline: Where Good Intentions Meet Harsh Reality

Also, section 155(4) sets a non-negotiable timeline: VAT collected, withheld, or self-accounted for “shall be remitted to the Service on or before the 14th day of the month immediately following the month of the transaction.” That is to say, if you miss that deadline, penalties start accumulating. This new regime “imposes firmer deadlines” with surcharges and interest accruing daily until payment.

For most nonprofits, this creates five immediate challenges:

• Identify all cross-border digital service subscriptions as they occur, often scattered across multiple departments and program teams

• Calculate 7.5% VAT in naira on transactions billed in foreign currencies, accounting for exchange rate fluctuations

• Process VAT remittance payments within the 14-day window through the NRS payment platforms

• File monthly VAT returns by the 21^st day of the following month, as mandated by the Act.
  Maintain comprehensive documentation for audit purposes, including proof of services received and VAT calculations

The Path Forward: Compliance in the New Era

The Nigeria Tax Act 2025 marks the end of an era where nonprofit status meant limited tax engagement. The new regime is now fully operational, demanding professional level financial management from organizations of all sizes.

The policy changes we have examined collectively require immediate action:

The question that should be facing every nonprofit board and management team is no longer whether to comply with the Nigeria Tax Act 2025. The question is how quickly you can adapt your operations to meet these new standards while continuing to serve your beneficiaries effectively. Nonprofits that embrace this reality and invest in proper systems will emerge stronger, more transparent, and better positioned to attract donor confidence in an increasingly regulated environment.

This article reflects our personal views and is for informational purposes only. If you have questions about the Nigeria Tax Laws, you should consult a qualified tax professional.