Foreign firms must register or risk losing Nigerian contracts

Foreign companies that consider withholding tax their final obligation in Nigeria are facing a new challenge, which is mandatory registration. Under the Nigeria Tax Administration Act 2025, local firms now risk a N5 million penalty for contracting unregistered entities, putting pressure on cross-border deals.

This means that even when withholding tax (WHT) fully settles a non-resident company’s income tax liability, failing to register can now delay contracts, disrupt payments, and strain commercial relationships.

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The pressure comes from Section 100(2) of the Nigeria Tax Administration Act, which states that “a statutory body or company that awards a contract to an unregistered person shall be liable to pay an administrative penalty of N5,000,000.”

By placing the fine on the Nigerian contracting party, the law effectively shifts compliance risk onto local businesses engaging foreign vendors.

In an article titled Tax Registration for Non-resident Companies in Nigeria: a Subtle but Significant Shift in Nigeria’s International Tax Landscape, EY noted that “withholding tax (WHT) constitutes a final tax for non-resident companies (NRCs) without a permanent establishment (PE) or significant economic presence (SEP), largely remains intact.”

However, the firm added that “the administrative expectations governing tax registration have expanded significantly under the Nigeria Tax Administration Act (NTAA).”

Under Section 17 of the Nigeria Tax Act, offshore services rendered to a Nigerian resident are subject to withholding tax, and “the WHT deducted on these payments should, however, constitute the final tax, unless the income is attributable to a PE or SEP of the NRC.”

The recent reforms ‘do not amount to a wholesale expansion of taxing rights over nonresident companies,’ EY stressed, adding that the principle of final WHT remains embedded in the law.”

The shift, advisers say, lies in administration rather than liability. EY observed that when read together with sections 4, 6, 100(2), and 147 of the NTAA, “tax registration and tax identification now operate on a parallel and increasingly independent compliance track.”

As a result, a non-resident company may have no additional income tax exposure beyond withholding tax and yet still fall within the expanded definition of a taxable person and be required to register.

This shifts the conversation from a passive concern about additional tax liability to a pressing commercial reality that the failure to register could jeopardize the ability to contract, receive payment, and maintain relationships with Nigerian customers.

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EY warned that foreign vendors who do not clarify their registration position may encounter “delayed contract execution, payment suspensions pending Tax ID confirmation, renegotiation of commercial terms, increased withholding exposure under the WHT Regulations, and reputational strain with Nigerian counterparties seeking to manage their own statutory risk.”

The compliance drive comes amid rising cross-border service payments. The Central Bank of Nigeria projects that the services account deficit will widen to $13.68 billion in 2026, from an estimated $12.80 billion in 2025, driven largely by business, digital, and technical services.
Nigeria’s digital economy revenue is projected to reach $18.3 billion in 2026, up from $9.97 billion in 2021, while the country has historically imported far more digital services than it exports.

At the same time, the reconstituted Nigeria Revenue Service has set a revenue target of N40.71 trillion for 2026, increasing pressure on authorities to tighten compliance among non-resident companies.

PwC, in its 2025 Nigerian Tax Reforms analysis, noted that non-resident companies play a significant role in sectors such as oil and gas, shipping, airlines, digital and financial services, manufacturing, and trade.

The firm observed that recent reforms introduced changes to how foreign companies and participants in the digital economy are taxed, widening the nexus for taxation and compliance.

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Aluko & Oyebode, in a post-webinar briefing on the taxation of non-residents, stated that “non-resident persons who supply goods, provide services, or derive income from Nigeria, except those receiving passive income, are required to register for tax purposes under Section 6 of the Nigerian Tax Administration Act.”

The firm added that failure to register attracts administrative penalties.

Taken together, the reforms signal a move toward compliance-based enforcement in cross-border transactions. Final withholding tax may continue to settle income tax liability in many cases, but it no longer shields foreign vendors from registration requirements.

For Nigerian companies, the risk is immediate. The N5 million penalty creates a strong incentive to demand proof of tax registration before awarding contracts or releasing payments.

For foreign vendors, the message is direct. Registration is no longer treated as a routine administrative step. As EY put it, it is becoming “a commercial gatekeeper for cross-border business with Nigeria.”