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Capital Allowances Under Nigeria’s New Tax Laws (2025): Complete Guide to Rates, Compliance, and Strategic Planning

Nigeria’s tax landscape has entered a decisive new phase with the enactment of the Nigeria Tax Act 2025 (NTA), which takes effect from 1 January 2026. One of the most significant changes introduced by the Act is the complete overhaul of the capital allowance regime, a development with far-reaching implications for corporate taxpayers, investors, and financial reporting.

This guide provides a comprehensive examination of the new capital allowance framework under the NTA 2025, covering the legal basis, structural changes, applicable rates, compliance requirements, and strategic implications for businesses.

The Pain Points: What Businesses Are Facing

Let’s be honest. If your business relies on significant capital investment, the new capital allowance regime under the NTA 2025 is probably causing you concern. Here are the specific frustrations many businesses are experiencing.

“We Used to Get Upfront Tax Relief—Now We Have to Wait Years”

Under the old system, you could claim an initial allowance in the first year of acquiring an asset, giving you immediate tax relief on major investments. That is now gone. Instead of claiming a large allowance in year one, you must now spread the deduction equally over the useful life of the asset.

For capital-intensive businesses, this means higher early-stage tax liabilities and tighter cash flow at the point of entry. Manufacturing, oil and gas, telecommunications, mining, and agriculture—sectors that typically depend on early-stage tax relief to offset high capital outlays—are particularly affected.

“We Don’t Even Know What Qualifies for Capital Allowance Anymore”

The old rules were based on four tests: wholly, exclusively, necessarily, and reasonably incurred. Those tests no longer apply. Instead, capital allowance is now allowable only where two statutory conditions are satisfied: the asset must be used in generating assessable profits, and the expenditure must qualify as qualifying capital expenditure with VAT or import duty paid.

If VAT was due but not charged, or import duty was not paid, the entire expenditure does not qualify—meaning no capital allowance at all. Many businesses are struggling to understand these new requirements.

“The Rates Have Changed, and We Don’t Know How to Classify Our Assets”

The new system groups assets into just three categories with uniform annual rates: 10 percent for buildings and agricultural assets; 20 percent for plant, machinery, and mining assets; and 25 percent for motor vehicles, software, and other capital expenditure. But the classification can be confusing. Where does your specific equipment fit? What about assets that don’t clearly fall into one category?

“We’re Worried About Losing Allowances We’ve Already Started Claiming”

If you’ve already begun claiming capital allowances under the old Companies Income Tax Act (CITA), you don’t have to restart your computation. The remaining useful life of the asset is recalculated by deducting the years already claimed from the total allowable period under the new regime. But many businesses are unsure how this transition works in practice.

“We Didn’t Know About CAFA, and Now We Might Lose Our Claims”

For companies in priority sectors, the Act now expressly requires obtaining and submitting a Certificate of Acceptance of Fixed Assets (CAFA) when claiming capital allowances. Many businesses are unaware of this requirement or don’t understand how to obtain the certificate.

“The 1% Notional Value Rule Is Confusing”

Companies must now retain a 1 percent notional residual value in their asset registers until disposal. This replaces earlier bookkeeping conventions, and many finance teams are struggling to implement it correctly.

“We Don’t Know If We Need to Prorate Our Allowances”

Under Section 27, capital allowance must be prorated where an asset is partly used to generate taxable income. But there’s relief: if non-taxable income is less than 10 percent of total income, proration is not required. Many businesses don’t know how to calculate this correctly.

Part 1: Legal Framework

The New Legal Basis

Capital allowance is now governed by Section 27 of the Nigeria Tax Act 2025, together with the First Schedule to the Act. The assessment, administration, and audit of capital allowance claims fall within the statutory powers of the Nigeria Revenue Service (NRS), established under the Nigeria Revenue Service (Establishment) Act 2025. With the repeal of the Companies Income Tax Act (CITA) framework, the new Act establishes a simplified and uniform system applicable to all qualifying capital expenditure.

The End of the Old Qualifying Tests

Under the repealed regime, capital allowance eligibility was tied to the well-known four tests: wholly, exclusively, necessarily, and reasonably incurred. These tests no longer apply.

The New Statutory Conditions

Pursuant to Section 27 of the Nigeria Tax Act 2025, capital allowance is now allowable only where two statutory conditions are satisfied. The first condition is that the asset must be used in generating the assessable profits of the taxpayer. The second condition is that the expenditure must qualify as qualifying capital expenditure, and Value Added Tax (VAT) must have been charged and paid where applicable, or import duty or levy must have been paid in respect of imported assets. Failure to satisfy either condition disqualifies the expenditure from capital allowance.

Part 2: Key Structural Changes

Repeal of Initial and Annual Allowances

A major reform under the new Act is the abolition of the Initial Allowance and Annual Allowance structure previously applicable under company income tax. Under the old rules, investors could combine initial allowance, which was a one-off upfront claim of varying percentages up to 95 percent, with annual allowance while also navigating the 66⅔ percent restriction on how much capital allowance could be claimed each year. This structure has been eliminated.

Introduction of Straight-Line Annual Allowance System

In its place, Section 27 and the First Schedule introduce a single straight-line annual allowance system. Key features include capital allowance being computed using one uniform annual rate with no initial allowance in the year of acquisition. The former balancing charge and balancing allowance system no longer applies. A notional residual value of 1 percent of the qualifying cost must be retained in the records until disposal.

Removal of the 66⅔ Percent Restriction

The Nigeria Tax Act 2025 has removed the 66⅔ percent restriction on the utilisation of capital allowances. Previously, most companies were restricted to claiming capital allowances up to two-thirds of assessable profit. Companies can now claim the full amount of capital allowance available in the year, subject to business usage and compliance. This means faster access to the benefit of available capital allowances and simplified compliance.

Proration Rules

Under Section 27, capital allowance is to be prorated where an asset is partly used to generate taxable income. However, the Act provides relief where non-taxable income constitutes less than 10 percent of total income, in which case proration is not required. Where assets relate to activities benefiting from economic development incentives, the allowance is restricted to profits from the qualifying business. The proration threshold has been lowered from 20 percent under the previous regime, reducing the number of companies subject to restricted capital allowance claims.

Transitional and Disposal Provisions

Where capital allowance had already been granted on an asset prior to 1 January 2026, any unutilised allowance continues under the new regime, and a 1 percent notional residual value must be retained until disposal. If capital allowance had been claimed under CITA for equal or more years than now allowed, the residue will be granted as a single catch-up relief, with 1 percent of qualifying capital expenditure retained for statistical purposes.

For assets on which capital allowances were granted prior to the commencement of the Act, the remaining basis periods shall be determined by deducting the number of years already claimed from the total allowable period prescribed under the new tax regime. The reform does not change the total relief available, but it spreads the benefit over a longer period, which has implications for liquidity planning and investment recovery timelines.

Part 3: Applicable Capital Allowance Rates

The Nigeria Tax Act 2025 groups qualifying capital assets into three statutory categories, each with a prescribed annual rate.

The 10 percent annual rate applies to permanent buildings, masts and communication infrastructure, heavy transportation assets, and agricultural plant and equipment. Also included are intangible assets and agricultural assets.

The 20 percent annual rate applies to plant and machinery, furniture and fittings, and mining plant and equipment.

The 25 percent annual rate applies to motor vehicles, software, intangible capital assets, and other qualifying assets not specifically listed under the lower-rate categories.

The applicable rate is applied annually on the qualifying cost, subject to the 1 percent residual retention. The Act replaces variable initial and annual allowance rates with these standardised annual rates of 10 percent, 20 percent, or 25 percent, depending on the asset type.

Part 4: Compliance Requirements

Certificate of Acceptance of Fixed Assets (CAFA)

The Certificate of Acceptance of Fixed Assets (CAFA) has long been a key component of Nigeria’s tax and regulatory system. Traditionally issued under the Industrial Inspectorate Act (IIA), CAFA confirms the value of Qualifying Capital Expenditure (QCE) and has supported capital allowance claims under prior tax regimes.

With the introduction of the NTA 2025, many businesses are reassessing the continued relevance of CAFA. The Act elevates CAFA by expressly incorporating it into the capital allowance framework for priority sectors. Under Section 27(2)(a) of the NTA, companies in these sectors must obtain and submit CAFA when claiming capital allowances on qualifying capital expenditure. The NTA also introduces a structured process requiring companies to obtain CAFA upon confirmation of their production date, with the Industrial Inspectorate Division (IID) mandated to issue the certificate within fourteen days after inspecting the assets, as provided in Section 172(3-6).

The CAFA requirement applies specifically to priority sectors listed in the Tenth Schedule to the Act. These priority sectors include crude oil and gas refining, renewable energy, mining, manufacturing of electrical equipment, electricity and gas supply, aquaculture, transportation, pharmaceuticals, media and entertainment, and music production.

CAFA remains both relevant and essential under the NTA 2025. As documentation requirements increase, CAFA continues to serve as a critical compliance and audit-defence tool.

VAT and Import Duty Requirements

Section 27(2) of the NTA provides that only capital expenditure on which VAT or import levies have been paid will qualify for capital allowances. Where VAT is due under the Act but not charged on an asset, or in the case of an imported item the applicable import duty or levy was not paid, the relevant expenditure shall not be eligible as qualifying capital expenditure.

Notional Residual Value

Companies must retain a 1 percent notional value in their capital allowance schedule until the asset is disposed of. This replaces the old N10 bookkeeping rule, but does not affect the total allowance claimable. The 1 percent notional value represents the residual value that must be retained in records until disposal.

Part 5: Economic Development Tax Incentives (EDTI)

A central feature of the Act is the introduction of Economic Development Tax Incentives (EDTI), which reward capital investment in designated priority sectors. Under the scheme, qualifying companies can claim a 5 percent annual tax credit on eligible capital expenditure for up to five years.

This new incentive replaces the Pioneer Status Incentive (PSI), adopting an investment-based approach by linking tax relief directly to qualifying capital expenditure. Eligibility depends on whether a company operates within designated priority sectors listed in the Tenth Schedule to the NTA.

Key sectors expected to benefit include manufacturing, agro-processing, mining, renewable energy, refining of crude oil and gas, electricity and gas supply, aquaculture, transportation, pharmaceuticals, media and entertainment, and music production.

For manufacturers, the Act shifts the focus from compliance alone to structuring operations to take advantage of incentives while managing new obligations. Companies that reinvest profits may qualify for longer incentive periods.

Part 6: Practical Implications for Businesses

Impact on Capital-Intensive Sectors

The reform has the greatest impact on sectors with heavy reliance on infrastructure and machinery, including manufacturing, oil and gas, telecommunications, mining, and agriculture. These industries typically depend on early-stage tax relief to offset high capital outlays, and the shift in timing may influence investment sequencing and financing decisions.

Investors who previously claimed a sizable deduction in the first year will now receive the same total relief, but spread out over a longer period. The impact is more of a timing difference than an actual removal, but it has significant implications for cash flow and liquidity planning.

Cash Flow Implications

Under the new regime, businesses face higher taxable profits in the first year and reduced cash flow at the point of capital deployment. The shift is increasing pressure on early-year cash flows for firms with significant investments in machinery and infrastructure.

Strategic Planning Considerations

Companies will need to incorporate the new capital allowance rules into their tax computation models. The abolition of the initial allowance and reduction of annual rates on plant and equipment from 25 percent to 20 percent delays tax relief on capital investments and increases first-year taxable income, impacting capital budgeting.

Record-Keeping and Documentation

Always keep proof of VAT and import duty payments when purchasing capital assets; this documentation is critical to claim capital allowances. Update accounting systems to track asset categories and apply the correct capital allowance rate of 10 percent, 20 percent, or 25 percent based on asset type. Plan investment and cash flow since initial capital allowance upfront deductions are no longer available, so relief is spread over time. Monitor your company’s ratio of taxable versus non-taxable income to understand when capital allowance proration might apply if non-taxable income exceeds 10 percent.

Key Takeaways

The NTA 2025 has fundamentally restructured Nigeria’s capital allowance regime.

The key changes include the abolition of the initial allowance and annual allowance system, the introduction of a single straight-line annual allowance system, three standardised rates of 10 percent, 20 percent, and 25 percent depending on asset classification, removal of the 66⅔ percent restriction on capital allowance utilisation, proration threshold lowered from 20 percent to 10 percent, introduction of 1 percent notional residual value requirement, CAFA mandatory for priority sectors, and capital allowance only on assets where VAT or import duty has been paid.

The benefits include a simplified and uniform system, full utilisation of available capital allowances where sufficient taxable profits exist, clearer compliance pathways, and Economic Development Tax Incentives offering 5 percent annual tax credit.

The challenges include delayed tax relief and reduced early-year cash flow, increased compliance documentation requirements, need for systems and process changes, and transitional complexities for existing assets.

The bottom line is that the reform preserves total deductions but alters cash flow dynamics for businesses already mid-cycle. Investors in capital-intensive sectors will face higher early-stage tax liabilities and tighter cash flow at the point of entry. Companies that prepare early, invest in systems and training, and engage with professional advisors will be best positioned to navigate the new regime successfully.

How Qeeva Advisory Steps In

We understand that navigating Nigeria’s new capital allowance regime can be complex. Many businesses are struggling to understand the new rates, comply with documentation requirements, and plan for the cash flow implications.

Our Advisory Services Nigeria help you understand the new capital allowance rules, classify your assets correctly, and develop strategies to maximise your tax relief. Our professionals specialise in investments, financials, taxation, corporate advice, acquisitions, and valuations. We help you structure your capital investments for optimal tax outcomes while ensuring full compliance with the NTA 2025.

Need accurate financial records for capital allowance claims? Our Bookkeeping Services ensure your financial data is accurate and complete. We provide day-to-day bookkeeping, assets and equipment ledger maintenance, annual accounts and tax returns preparation, and submission to Inland Revenue. Proper asset registers are essential to support your capital allowance claims.

For businesses in priority sectors, our Tax Strategies and Planning services help you navigate the CAFA requirements and claim the 5 percent Economic Development Tax Incentive. We offer tax advisory services in Company Income Tax (CIT), Value Added Tax (VAT), Withholding Tax (WHT), transfer pricing, and other relevant taxes.

Our Regulatory Compliance services ensure your business meets all filing requirements and maintains good standing with the Nigeria Revenue Service. Compliance is not just a legal requirement—it is a business strategy that fosters stability, trust, and growth. We help you maintain proper documentation of qualifying capital expenditure.

And because capital allowance is fundamentally about strategic planning, our Risk Management Services help you identify, quantify, and proactively manage risks across various domains, including regulatory compliance, fraud prevention, and tax governance. We help you manage the risks associated with capital allowance claims and tax audits.

Our Service Methodology

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

Step 1: Capital Allowance Review
We review your current capital assets, expenditure records, and tax filings. We identify qualifying capital expenditure and ensure compliance with the new NTA 2025 requirements. This step draws on our Advisory Services Nigeria expertise and our Bookkeeping Services to ensure your records are accurate and complete.

Step 2: Asset Classification
We help you classify your assets into the correct categories of 10 percent, 20 percent, or 25 percent and calculate the applicable capital allowance. Our Tax Strategies and Planning team ensures your asset classification is accurate and optimised for tax relief.

Step 3: CAFA Documentation
For businesses in priority sectors, we help you obtain and submit the Certificate of Acceptance of Fixed Assets (CAFA) required for capital allowance claims. Our Advisory Services Nigeria team guides you through the CAFA application process and ensures compliance with the Industrial Inspectorate Act requirements.

Step 4: Economic Development Tax Incentive Claims
We help you claim the 5 percent annual tax credit on eligible capital expenditure for up to five years under the EDTI scheme. Our Advisory Services Nigeria team ensures you maximise available incentives.

Step 5: Ongoing Monitoring & Support
Capital allowance compliance isn’t a one-time exercise. We help you monitor compliance, update asset registers, and stay current with regulatory changes. We provide ongoing support through our Advisory Services Nigeria and ensure your business remains compliant with our Regulatory Compliance and Risk Management Services support.

Let’s Talk About Your Capital Allowance Compliance

Navigating Nigeria’s new capital allowance regime can be complex. At Qeeva Advisory, we understand the challenges businesses face under the NTA 2025 — from understanding the new rates to complying with documentation requirements and planning for cash flow implications.

Whether you need help with understanding the new capital allowance rules under the NTA 2025, classifying your assets correctly for the applicable rate, obtaining and submitting CAFA for priority sector claims, claiming the 5 percent Economic Development Tax Incentive, planning your capital investments for optimal tax outcomes, or managing risks associated with capital allowance claims and tax audits, 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 capital allowance regime with confidence.

Related Services

We offer specialised services to help businesses navigate Nigeria’s new capital allowance regime.

Our Advisory Services Nigeria are staffed by professionals who specialise in investments, financials, taxation, corporate advice, acquisitions, and valuations. We help clients understand the new capital allowance rules, classify assets correctly, and develop strategies to maximise tax relief while ensuring full compliance with the NTA 2025.

We offer Tax Strategies and Planning advisory services in Company Income Tax, Value Added Tax, Withholding Tax, transfer pricing, and other relevant taxes. Our experts help you structure capital investments for optimal tax outcomes, navigate the CAFA requirements, and claim available incentives.

Accurate financial records are the foundation for any capital allowance claim. Our Bookkeeping Services provide day-to-day bookkeeping, assets and equipment ledger maintenance, annual accounts and tax returns preparation, and submission to Inland Revenue. Our services ensure your asset registers are properly maintained to support capital allowance claims.

We also offer Risk Management Services to help clients identify, quantify, and proactively manage risks across various domains, including regulatory compliance, fraud prevention, and tax governance. Our comprehensive offerings help you manage the risks associated with capital allowance claims and tax audits.