Nigeria’s comprehensive tax overhaul, which raises the capital gains rate for companies from a flat 10 percent to as high as 30 percent and introduces a sweeping “economic nexus” rule, is prompting a sharp reassessment among foreign venture capital investors. The Nigeria Tax Act 2025, which replaced the standalone Capital Gains Tax Act with a unified regime, removes longstanding protections that insulated offshore share sales from domestic taxation. For a startup ecosystem that has attracted billions in foreign investment and positioned Nigeria as Africa’s leading technology destination, the changes introduce new friction at the exact point where investors seek returns, potentially redirecting capital toward competing markets with more predictable fiscal environments.
The most consequential innovation is the economic nexus test codified in Section 46(f) of the new Act. If, within the preceding 365 days, more than half the value of shares being disposed of is derived directly or indirectly from Nigerian assets—including shares in Nigerian companies or immovable property—the shares are deemed situated in Nigeria, and the gain becomes taxable locally. This effectively closes what policymakers describe as an “offshore loophole” that previously allowed investors to structure exits through Delaware or London holding companies without triggering Nigerian tax liability, provided proceeds remained outside the country.
The rate increase compounds the structural shift. Large companies now face a 30 percent capital gains rate, aligned with standard corporate income tax, up from the previous flat 10 percent. For upstream oil and gas firms still under the Petroleum Profit Tax Act, rates can reach 85 percent. Individuals now have capital gains combined with total income and taxed at progressive rates between 0 percent and 25 percent, rather than the separate 10 percent rate that previously applied.
For venture funds, the arithmetic is unforgiving. “Moving from 10% to 30% CGT overnight changes the Internal Rate of Return for every VC fund in the market,” said Segun Cole, CEO of Maasai VC, a mergers and acquisitions platform. “For a foreign fund, this 30% ‘toll gate’ at the exit might make Nigeria less attractive compared to Kenya or Egypt, which still maintain more competitive exit taxes.” Cole estimates that founders now require exit valuations roughly 20 percent higher simply to deliver the same net returns investors expected in 2024.
The uncertainty surrounding implementation compounds the rate shock. The Act’s “value” test lacks clarity on whether it applies to revenue, earnings, assets, intellectual property, headcount, or some combination. If a startup’s holding company is domiciled in Delaware with IP held offshore while its Nigerian subsidiary generates only part of its revenue, the tax calculation methodology remains undefined. For global funds with strict compliance protocols, this ambiguity itself can be disqualifying.
One foreign general partner, speaking on condition of anonymity, stated that the mere obligation to file Nigerian taxes creates a deterrent effect independent of the rate. “Even if it was a very low tax rate, most international investors who don’t have to invest in Nigeria would say that is enough for us not to do the investment.” The partner noted that funds already model for currency devaluation and liquidity constraints, typically applying a 20 percent discount relative to international comparatives. “Adding another 27.5% markdown for potential capital gains makes the hurdle too high.”
The most immediate behavioural response may be portfolio diversification rather than outright withdrawal. If the 50 percent rule hinges on value derived from Nigeria, companies have incentives to dilute their Nigerian exposure through accelerated expansion into Kenya, South Africa, Egypt, or Francophone West Africa. “Our portfolio companies are already thinking about making sure less than 50% of value is coming from Nigeria,” the foreign GP said. “If by the time of exit, Nigeria is only 10% of the portfolio value, then practically they’ll operate outside.”
Government officials defend the changes on fairness grounds. A source within the administration, speaking anonymously, argued that assets deriving value from the Nigerian market should generate revenue for the country when sold. The integration of Nigeria Startup Act incentives into the new framework provides a potential exemption path: capital gains from shares in a labelled startup can be exempt if held for at least 24 months, provided at least one-third ownership is held by Nigerians. However, VCs note this threshold is unrealistic for venture-backed companies reliant on international capital.
The fiscal rationale is clear. Nigeria’s tax-to-GDP ratio remains among Africa’s lowest, and broadening the tax base is essential for sustainable development. But critics question the timing. “VCs are all about exit ease and perception,” said policy expert Timi Olagunju. “Perception can have consequential effects on reality. Most investors are already wary. This may have come too early.”
Unlike developed markets where IPOs offer clear liquidity pathways, Nigerian startup exits occur almost exclusively through trade sales. The Nigerian Exchange Technology Board, created in 2022 to attract high-growth technology listings, has yet to record a single company. In a market where liquidity events are rare and returns already compressed by currency and regulatory risk, adding friction at the exit point strikes at venture economics’ core.
For Nigeria’s long-term technology ambition, the stakes are substantial. The startup ecosystem has demonstrated capacity for innovation, talent development, and job creation. Sustaining this trajectory requires continuous capital inflow, which depends on investor confidence that exit proceeds will reach their destinations with predictable taxation. The new regime’s success will be measured not by immediate revenue yield—given the limited exit volume, near-term collections may be modest—but by whether it preserves Nigeria’s position as the premier destination for African technology capital.
