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Basis for Taxation of Enterprises in Free Trade Zones in Nigeria

Nigeria’s Free Trade Zones (FTZs) have long operated on a simple promise: bring capital, create jobs, export value, and enjoy fiscal insulation. For over three decades, this insulation was statutory—relied upon by investors in structuring long-term capital decisions. However, the enactment of the Nigeria Tax Act 2025 (NTA 2025) and the Nigeria Tax Administration Act 2025 (NTAA 2025) marks a decisive departure from that framework.

This guide examines the legal basis for taxing enterprises in Nigeria’s Free Trade Zones, exploring the historical framework, the transformative changes introduced by the 2025 tax reforms, and the practical compliance obligations for Free Zone Enterprises (FZEs).

The Pain Points: What Free Zone Enterprises Are Facing

Let’s be honest. If you’re operating in a Free Trade Zone in Nigeria, you’re probably feeling anxious about the new tax regime. Here are the specific frustrations many Free Zone Enterprises are experiencing.

“I Never Imagined My Tax Exemption Could Be Conditional”

You invested millions of dollars. You set up operations. You hired workers. You created jobs. All based on a promise of tax exemption that was written into law.

Now, that exemption is conditional. You must derive at least 75% of your sales from exports. If you sell more than 25% of your output into the Nigerian market, you lose your exemption on those sales. And from 2028, even that 25% window disappears.

The rules changed after you made your investment. That’s not just frustrating. It’s unsettling for long-term planning.

“I Don’t Even Know What My Tax Obligations Are Anymore”

The new laws are complex. The NTA 2025 introduces conditional exemptions, domestic sales limits, and a sunset clause. The NTAA 2025 introduces new filing requirements, electronic invoicing, and real-time reporting.

Many Free Zone Enterprises are confused. They don’t know:

Whether they still qualify for tax exemption

How to track the 25% domestic sales threshold

What they need to file and when

Whether services are consumed where the customer is located or where the supplier is established

This confusion creates risk. Filing incorrectly could trigger penalties. Missing deadlines could attract interest charges. And the cost of non-compliance could be significant.

“The Government Changed the Rules After I Invested”

This is the most painful frustration. You made investment decisions based on the law as it stood. Now the law has changed.

The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) warned that the changes could drive away over $200 billion in foreign direct investments and jeopardise more than 600,000 jobs. That’s not just a statistic. Those are real investments and real jobs that could be lost.

The 2028 sunset clause creates uncertainty for long-term investors who structured their investments based on the promise of indefinite tax exemptions. Experts warn that this might trigger capital flight risk in Free Trade Zones.

“I’m Trapped Between Compliance and Competitiveness”

You want to comply with the new laws. But compliance is costly. Electronic invoicing systems require investment. Real-time reporting requires new processes. Monthly filings require additional staff or consultants.

And if you can’t sell more than 25% of your output domestically, you’re limited in how you can compete in the Nigerian market. The law that was designed to encourage investment now feels like it’s restricting your business.

“I’m Worried About the 2028 Deadline”

2028 is only a few years away. From 1 January 2028, all domestic sales will be fully subject to tax, regardless of the 25% percentage threshold previously allowed. That’s a hard deadline that could fundamentally change your business model.

The uncertainty is compounded by the fact that the President may extend this date by order published in the Official Gazette. But you can’t build a business strategy on a hope. You need certainty.

“I Don’t Know How to Prepare”

You know the rules are changing. You know there’s a deadline. But you don’t know how to prepare. How do you restructure your business? How do you track the 25% threshold? How do you manage the compliance obligations? How do you position yourself for the post-2028 world?

You’re not alone. Many Free Zone Enterprises are in the same position. But that doesn’t make it any less stressful.

What Are Free Trade Zones in Nigeria?

Free Trade Zones (FTZs) refer to geographic areas within Nigeria that are exempt from the application of orthodox trade laws, particularly regarding the taxation of goods and services offered within such areas. Depending on their use, FTZs could be catalysts for national economic growth, incentivising local businesses, facilitating international trade, and attracting foreign direct investment.

Within the Nigerian context, FTZs serve as a strategic tool for diversifying national income, offering a non-oil revenue stream for the government and consolidating the national economy. The nomenclature for FTZs varies by jurisdiction—they are also termed Export Processing Zones, Special Economic Zones, and Foreign Trade Zones.

The Regulatory Framework

The primary legislation regulating the operation of Free Zone Enterprises (FZEs) in Nigeria includes:

1. Nigeria Export Processing Zones Act 1992 (NEPZA Act), Cap N107, Laws of the Federation of Nigeria, 2004
This Act established export processing zones as legally distinct economic enclaves where activities approved by the Nigeria Export Processing Zones Authority (NEPZA) are carried out by enterprises licensed to operate as Free Zone Enterprises within the Zone. The NEPZA Act applies to non-oil and gas enterprises within the FTZs.

2. Oil and Gas Export Free Zone Act (OGFZA Act), Cap O5, LFN 2004
This Act adopted a similar model for Free Zones dedicated to oil and gas-related activity, recognising the capital-intensive nature of energy infrastructure and replicating the core incentive structure of the NEPZA Act. The OGFZA Act applies to oil and gas enterprises within the FTZs.

3. Nigeria Tax Act 2025 (NTA 2025)
The NTA 2025, along with other tax reform legislations signed into law in June 2025, marks a significant legislative overhaul of Nigeria’s tax regime. Section 60 of the NTA 2025 provides that where a trade or business is carried on by an export processing or free trade zone entity, the provisions of the Second Schedule to the Act shall apply.

4. Nigeria Tax Administration Act 2025 (NTAA 2025)
This Act governs procedural and compliance matters for all taxpayers, including Free Zone Enterprises, introducing new compliance standards for entities operating within free trade zones.

The Historical Basis for Tax Exemption: The Legacy Regime

Statutory Tax Insulation

For over three decades, Nigeria’s FTZs operated on a simple statutory promise: bring capital, create jobs, export value, and enjoy fiscal insulation. Under the NEPZA Act and OGFZA Act, approved enterprises operating within a Zone enjoyed broad tax exemptions designed to incentivise investment.

The NEPZ Act conferred substantial fiscal privileges on approved enterprises including:

Exemption from federal, state, and local government taxes, rates, and levies

Duty-free importation of any capital goods, raw materials, machinery, and equipment intended for use in carrying out the approved activity

Unrestricted expatriation of capital and profits

Total foreign ownership of businesses

Freedom from foreign exchange controls

Under the laws, approved enterprises operating within an FTZ are exempt from all federal, state, and local government taxes, levies, and rates. Furthermore, provisions of any law pertaining to taxes, levies, duties, and foreign exchange regulations do not apply within the FTZ. FZEs are also granted duty-free import of capital goods, machinery, raw materials, and components intended to be used for an approved activity in the FZE.

The Legal Basis: Sections 8 and 18 of the NEPZA Act

Sections 8 and 18 of the NEPZA Act have been central to the tax exemption framework:

Section 8 provides that “approved enterprises operating within a Zone shall be exempted from all Federal, State and Government taxes, levies and rates”. This exemption applies to approved enterprises operating within a Zone, not to sales of goods and services to the customs territory.

Section 18 permits the sale of goods and services to the customs territory. However, this does not confer tax exemption on such sales. As the Manufacturers Association of Nigeria (MAN) clarified, Section 8 on exemption from taxes only applies to approved enterprises operating within a Zone; Section 18 permits the sale of goods and services to the customs territory, but this does not confer tax exemption on those sales.

The tax exemptions under the NEPZA and OGFZA Acts were not administrative privileges subject to executive discretion but arose by operation of law once an enterprise was licensed by NEPZA. This created a high degree of legal certainty for investors and lenders with long-term exposure to Zone-based projects.

Key Judicial Clarification: The Nigerdock Case

In the celebrated case of Nigerdock Nigeria Plc FZE v. FIRS, the Tax Appeal Tribunal (TAT) held that the tax exemptions apply only to an approved enterprise whose activities are carried out within the Zone. This judicial clarification reinforced that the exemption is location-specific and activity-specific—enterprises operating within FTZs are exempt from income tax in relation to business operations within the Zone, but this does not automatically exempt them from all tax obligations, particularly in respect of transactions with the customs territory.

The New Tax Regime: The NTA 2025 Framework

The Shift from Blanket Exemption to Conditional Incentives

The NTA 2025 introduces a recalibrated model which replaces blanket exemptions with a more conditional and targeted incentive regime. The broad, location-based fiscal immunity that defined the legacy regime has given way to a model predicated on conditional incentives, minimum performance thresholds, and unified tax administration.

The Free Zones themselves are not abolished, and their incentives are not entirely removed. What has changed is the legal basis on which those incentives are accessed and the administrative architecture through which they are verified.

The Second Schedule to the NTA 2025

Sections 60 and the Second Schedule of the NTA 2025 define the tax framework for entities operating under NEPZA-regulated Export Processing Zones and OGFZA-regulated Export Free Zones. The law now clearly distinguishes export-focused activities from domestic market participation.

The Nigeria Tax Act 2025 (Section 60 and the Second Schedule) amends the FTZ legal regime under the NEPZ Act Cap. N107 LFN 2004 and OGEFZA Act, Cap. O5 LFN 2004 by introducing conditional exemptions and specific compliance requirements.

Key Provisions of the NTA 2025 for FTZs

1. Conditional Tax Exemption for Export Activities

While the NTA 2025 maintains a general exemption of profits from tax, strict compliance with two conjunctive criteria are now a condition precedent for eligibility for this exemption:

Firstly, to enjoy tax exemption, an Approved Entity’s sales must be wholly derived from export activities, either through the direct export of goods and services or by supplying inputs that are themselves exclusively used for exports. This requirement firmly anchors the incentive to its underlying policy goal of promoting export-led growth.

Secondly, sales to Nigeria’s domestic market are strictly limited. The NTA 2025 limits the allowable value of sales from transactions within the customs territory to a maximum of 25%. Where an Approved Entity exceeds this threshold in any assessment year, its tax exemption is limited as profits attributable to domestic sales are taxed. This ensures that Approved Entities are not abusing incentives while actively competing in the local market.

2. The 25% Domestic Sales Rule

Under the new rules, FTZ companies can sell up to 25 per cent of their output into the domestic market without losing their tax exemptions. A three-year transition period has also been provided to allow firms to adjust smoothly.

Free Zone Enterprises (FZEs) must now derive the bulk of their income—typically at least 75 percent—from exports to retain full tax benefits. The reforms aim to curb abuses where companies used FTZ licences to evade domestic taxes while competing within the Nigerian market.

3. The 2028 Sunset Clause

Perhaps the most significant change is the sunset provision. From 1 January 2028, profits derived from domestic sales will be fully subject to tax, regardless of the 25% percentage threshold previously allowed. Paragraph 5 of the Second Schedule provides that the profits of an export processing zone entity shall be fully subject to tax effective from 1 January 2028, in respect of its sales to the customs territory in Nigeria, regardless of the percentage of the sales.

Notably, the President may, by order published in the Official Gazette, extend this date. After this date, profits derived from any sales into the Nigerian customs territory will be fully subject to tax, regardless of the 25% percentage threshold previously allowed.

4. Minimum Effective Tax Rate (ETR) for Large Multinationals

Large multinational-linked manufacturers operating within FTZs will face a minimum effective tax rate of 15 percent, aligning Nigeria with emerging global tax standards.

The NTA introduces a 15% minimum effective tax rate (ETR) applicable to constituent entities of a multinational enterprise (MNE) group with an aggregate global turnover of at least €750 million, and to companies with an annual domestic turnover of ₦50 billion. This policy aligns with a global tax agreement endorsed by over 140 countries under the OECD/G20 framework.

Notably, Free Zone companies remain exempt from this provision in respect of exports from Nigeria, provided they are not members of a multinational group.

5. VAT Exemption for Zone Transactions

Section 185(1)(i) of the NTA states that supplies consumed by an approved entity in the export processing or free trade zones, provided that the supplies are consumed on its approved activity, shall be exempt from VAT.

However, the interpretation of Section 185(1)(i) and Paragraph 9 of the Second Schedule may be subject to varied and multiple interpretations, particularly regarding whether services are deemed to be consumed where the customer is located or where the supplier is established. The key question remains unresolved in the legislation.

Specific Tax Treatments for Free Zone Enterprises

Companies Income Tax (CIT)

Under the NTA 2025, Free Zone Enterprises are exempt from Companies Income Tax on profits derived from export activities. However, the exemption is conditional:

Full exemption applies to profits wholly derived from exports

Partial exemption applies where domestic sales do not exceed 25% of total sales

Full taxation applies to domestic sales from 1 January 2028

Value Added Tax (VAT)

Free Zone transactions may be VAT-exempt or treated as outside the VAT net. Specifically:

Supplies consumed by an approved entity in the FTZ on its approved activity are exempt from VAT

In the event a sale is concluded by a Free Zone Enterprise in the customs territory, such Free Zone Enterprise will be expected to charge and remit VAT

Services rendered to an FTZ entity by a person in the customs territory may be chargeable to applicable taxes

Withholding Tax (WHT)

A critical distinction exists regarding Withholding Tax. WHT is not a tax on the company deducting it; it is an advance tax on the income of the recipient.

When a Free Zone company pays a taxable vendor:

The income belongs to the vendor

That income is taxable in Nigeria

The Free Zone company acts only as a collecting agent

Even though Free Zone companies are tax-exempt for their own profits, they still have a statutory obligation to deduct WHT on payments made to taxable vendors. Approved Enterprises must deduct WHT on certain types of transactions when engaging with non-exempt counterparties.

As one tax expert noted: “In tax, location does not always determine liability. Free Zone status is a shield for specific taxes—not a blanket immunity from every tax mechanism in the system”.

Customs Duties

Goods imported into FTZs are exempt from customs duties unless they are brought into the domestic market. Duty-free importation of capital goods, raw materials, machinery, and equipment intended for use in carrying out the approved activity remains available under the NTA 2025.

Stamp Duties

The Ninth Schedule to the NTA addresses stamp duties on dutiable instruments, though the basis for certain calculations remains to be clarified.

Compliance Obligations

Filing Requirements

Despite significant exemptions, Free Zone Enterprises must now comply with various filing obligations:

Under the new Guidelines, Free Zone Enterprises must file:

Monthly Value Added Tax (VAT) Returns

Monthly Withholding Tax (WHT) Returns

Monthly PAYE Returns

Annual returns with the tax authority, even if no tax is due

These mandatory filings reflect a deliberate transition from a blanket exemption model to a conditional, export-focused tax regime, in an attempt to align incentives with the intended purpose of the zones.

Record-Keeping Requirements

FTZ operators must maintain adequate records to demonstrate compliance with the export performance requirements and the 25% domestic sales threshold. Accurate record-keeping is essential for:

Demonstrating that sales are wholly derived from export activities

Tracking domestic sales to ensure they do not exceed the 25% threshold

Supporting VAT exemption claims

Defending against potential disputes with tax authorities

The Distinction Between Exemption and Immunity

A critical point is that Free Zone status is a shield for specific taxes—not a blanket immunity from every tax mechanism in the system. As the Tax Appeal Tribunal held, there is an obligation on a company registered and operating in an Export Free Zone to charge, deduct and pay VAT, and to withhold tax on certain payments and make remittances to the tax authority when engaging in transactions with non-exempt counterparties.

When engaging in transactions with non-exempt counterparties, Free Zone Enterprises must charge VAT and deduct WHT at the relevant tax rates, as the tax exemption only applies to the approved enterprise itself.

Rationale for the Reforms

Curbing Abuses

Government officials say the reforms aim to curb abuses where companies used FTZ licences to evade domestic taxes while competing within the Nigerian market. With the new measures, Nigeria aligns with global FTZ models in places like the UAE and Malaysia, where the zones function primarily as export hubs for logistics, manufacturing and technology.

Aligning with Global Tax Standards

The introduction of a 15% minimum Effective Tax Rate for large multinational companies aligns Nigeria with a global tax agreement endorsed by over 140 countries under the OECD/G20 framework. Without this adoption, Nigeria risked losing revenue to other countries through the “Top-Up Tax” mechanism, where the home country of a multinational collects the difference when a host country charges below 15 per cent.

Strengthening Revenue Generation

The reforms aim to strengthen revenue generation while maintaining the attractiveness of FTZs to investors. As one analyst noted, the shift is significant—for decades, companies operating in FTZs enjoyed sweeping tax holidays that helped transform zones such as the Lekki, Calabar, and Kano corridors into industrial clusters, attracting over $30 billion in FDI.

Challenges and Controversies

Investor Confidence Concerns

The reforms have generated significant controversy. The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) warned that the decision could drive away over $200 billion in foreign direct investments and jeopardise more than 600,000 jobs.

NACCIMA expressed concern that the proposed amendments, particularly Sections 57, 60, 198(2) and 198(3), threaten to dismantle key incentives that sustained FTZ investments since the scheme was introduced through the Nigeria Export Processing Zones Act in 1992.

The 2028 Deadline

Experts warn that the 2028 deadline might trigger capital flight risk in Free Trade Zones. The sunset clause creates uncertainty for long-term investors who structured their investments based on the promise of indefinite tax exemptions.

Implementation Challenges

The transition from the legacy regime to the new framework entails risks of temporary disruption, retraining burdens, and bureaucratic overlap. Additionally, there are concerns about the clarity of certain provisions, including the treatment of services rendered to FTZ entities and the place of consumption for VAT purposes.

How Qeeva Advisory Steps In

At Qeeva Advisory, we understand that navigating Nigeria’s new Free Trade Zone tax regime can be complex. Many Free Zone Enterprises are struggling with the specific pain points we just discussed—uncertainty about their tax obligations, confusion about compliance requirements, and anxiety about the 2028 sunset clause. We’re here to help.

Our Company Formation & Registration service is essential for Free Zone Enterprises. With over 12 years of experience working with clients across manufacturing, oil and gas, financials, and construction sectors, we help you navigate the licensing and registration requirements with NEPZA and the Corporate Affairs Commission. We ensure your Free Zone Enterprise is properly constituted to maximise available incentives.

Our Tax Strategies and Planning service is critical under the new regime. We help Free Zone Enterprises structure their operations to maintain tax incentives, manage the 25% domestic sales threshold, and prepare for the 2028 sunset clause. Our tax professionals provide strategic planning that balances compliance with business objectives, ensuring you don’t lose your tax benefits.

When disputes arise with tax authorities, our Tax Disputes Support provides expert representation. Drawing on precedents such as the Nigerdock case, we help Free Zone Enterprises navigate tax appeals and litigation, protecting your interests and ensuring your voice is heard.

For foreign investors establishing Free Zone operations in Nigeria, our Market Entry Services provide comprehensive support including research, strategy development, partner identification, and regulatory compliance guidance. We understand the unique challenges of entering the Nigerian market and can help you structure your investment for success.

With the new tax regime and the approaching 2028 sunset clause, many Free Zone Enterprises require restructuring to maintain their tax incentives. Our Corporate Restructuring service provides expert guidance on business restructuring and reorganisation, helping you position your Free Zone Enterprise for long-term sustainability.

Our Service Methodology

We don’t do generic. We do thorough, transparent, and actionable.

Step 1: Free Zone Tax Compliance Audit
We review your current tax practices, financial records, and compliance systems. We identify gaps and areas of exposure under the NTA 2025, including compliance with the 25% domestic sales threshold and preparation for the 2028 sunset clause.

This step draws on our Tax Strategies and Planning expertise to identify gaps and opportunities, and our Company Formation & Registration knowledge to ensure your corporate structure is optimised for tax compliance.

Step 2: Regulatory Risk Assessment
We assess your tax practices against the new legal framework, identifying areas where your Free Zone operations may expose you to regulatory or reputational risk. This includes evaluating your compliance with VAT, WHT, and CIT obligations.

Our Tax Disputes Support expertise comes into play here, helping you identify potential areas of dispute and proactively address them before they escalate.

Step 3: Compliance Strategy Development
We develop a comprehensive compliance strategy that balances your regulatory obligations with your business objectives, ensuring you maintain your tax incentives while meeting all filing requirements.

For this, we lean on our Corporate Restructuring expertise to ensure your compliance strategy is grounded in business reality and aligned with your long-term goals.

Step 4: Implementation & Training
We help you implement compliance systems and train your team on the new requirements, including electronic invoicing, real-time digital reporting, and monthly filing obligations.

Our Market Entry Services team provides additional support for foreign investors establishing new Free Zone operations, ensuring compliance from day one.

Step 5: Ongoing Monitoring & Support
Tax compliance isn’t a one-time exercise. We help you monitor compliance, stay current with regulatory changes, and refine your systems over time—particularly as the 2028 sunset clause approaches.

We provide ongoing support through our Tax Strategies and Planning service, ensuring your Free Zone Enterprise remains compliant and competitive.

Key Takeaways

The legal basis for taxing enterprises in Nigeria’s Free Trade Zones has fundamentally changed.

The historical framework (pre-2025):

Based on the NEPZA Act and OGFZA Act

Broad, blanket exemptions from all federal, state, and local taxes

Exemptions arose by operation of law once an enterprise was licensed

No statutory mechanism tying export performance to continued eligibility

The new framework (NTA 2025):

Conditional exemptions tied to export performance

25% domestic sales limit (with full taxation from 2028)

15% minimum effective tax rate for large multinationals

Enhanced compliance and filing obligations

Clearer distinction between export and domestic activities

The key compliance obligations:

Monthly VAT returns

Monthly WHT returns

Monthly PAYE returns

Annual returns even when no tax is due

Maintain records to demonstrate export performance

The critical distinction:

Free Zone status provides exemption from certain taxes

It does not provide blanket immunity from all tax mechanisms

WHT obligations apply to payments to taxable vendors

VAT may apply to sales into the customs territory

The bottom line: The era of unconditional tax exemptions for Free Zone Enterprises in Nigeria has ended. The NTA 2025 introduces a performance-based, conditional incentive regime that ties tax benefits to genuine export activity. While the Free Zones themselves are not abolished, the legal basis on which incentives are accessed and the administrative architecture through which they are verified have fundamentally changed.

Let’s Talk About Your Free Trade Zone Tax Compliance

Navigating the new tax regime for Free Trade Zones can be complex. At Qeeva Advisory, we understand the challenges Free Zone Enterprises face under the NTA 2025—from understanding conditional exemptions to managing compliance obligations and preparing for the 2028 sunset clause.

Whether you need help with:

Understanding your tax obligations under the NTA 2025

Compliance with filing requirements (VAT, WHT, PAYE, annual returns)

Managing the 25% domestic sales threshold

Planning for the 2028 sunset clause

Representation in tax disputes with the Nigeria Revenue Service

Restructuring your operations to maintain tax incentives

We’re here to support you every step of the way.

📞 Call us: (+234) 802 320 0801, (+234) 807 576 5799

📧 Email: info@qeeva.com

📍 Visit us: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria

Contact us today to schedule a consultation. Let us help you navigate Nigeria’s new Free Trade Zone tax landscape with confidence.

Related Services

We offer specialised services to help Free Zone Enterprises navigate Nigeria’s new tax regime:

Company Formation & Registration – We are experts in rendering company registration and formation services in Nigeria with over 12 years of experience working with clients across manufacturing, food, oil and gas, financials, construction, and non-governmental organisations. We help Free Zone Enterprises navigate the licensing and registration requirements with NEPZA and the Corporate Affairs Commission.

Tax Strategies and Planning – Our tax professionals help Free Zone Enterprises structure their operations to maintain tax incentives, manage the 25% domestic sales threshold, and prepare for the 2028 sunset clause. We provide strategic tax planning that balances compliance with business objectives.

Tax Disputes Support – When disputes arise with tax authorities, our team provides expert representation and support. We help Free Zone Enterprises navigate tax appeals and litigation, drawing on precedents such as the Nigerdock case to protect your interests.

Market Entry Services – For foreign investors establishing Free Zone operations in Nigeria, we provide comprehensive market entry services including research, strategy development, partner identification, and regulatory compliance support.

Corporate Restructuring – With the new tax regime and the approaching 2028 sunset clause, many Free Zone Enterprises require restructuring to maintain their tax incentives. We provide expert guidance on business restructuring and reorganisation.