Companies seeking to extend benefits under Nigeria’s new Economic Development Tax Incentive (EDTI) may have to forgo dividend payouts and retain earnings for expansion, as the country’s new tax framework requires beneficiaries to reinvest 100 per cent of profits generated during the initial incentive period to qualify for an additional five years of tax relief.
“The incentive is valid for five years and is also expandable for an additional five-year period,” said Oluwatobi Olafaji, senior manager, tax and regulatory services at Forvis Mazars, during a webinar on the implementation of the incentive.
The provision, introduced under the Nigeria Tax Act 2025, marks a significant shift in the country’s investment incentive framework, moving away from broad tax holidays towards a performance-based system that rewards continued investment and business expansion.
Under the EDTI, eligible companies receive annual tax credits equivalent to 5 per cent of qualifying capital expenditure for an initial five-year period. However, access to a further five-year extension depends on whether profits generated during the incentive period are fully reinvested into the expansion of the same qualifying business activity.
“The expandable period is on the condition that 100 percent of the profits that you earned during the incentive period have been reinvested into the expansion of the same products that gave you that credit in the first place,” Olafaji said.
The new framework replaces the long-standing Pioneer Status Incentive (PSI), which granted qualifying companies tax holidays for up to five years. Unlike PSI, which exempts qualifying profits from corporate income tax, EDTI ties incentives directly to actual capital investment and continued business expansion.
According to Olafaji, the reform is designed to ensure incentives generate measurable economic outcomes.
“The Economic Development Tax Incentive is a more performance-based approach,” he said. “You can only get out what you have put in.”
He added: “It’s simply you get credit for what you have invested.”
Government officials say the objective is to ensure that tax incentives contribute directly to industrialisation, job creation, foreign direct investment and economic diversification.
Ajibola Sogunro, tax partner at Forvis Mazars, said the success of the framework would be judged by its impact on economic activity rather than the volume of approvals granted.
“We are basically looking at the contribution of the applicant to investment and, ultimately, economic development,” Sogunro said.
The tougher conditions come as policymakers seek to improve the effectiveness of tax incentives amid concerns over their fiscal cost.
Estimates from a House of Representatives ad hoc committee reviewing tax incentives show the federal government could forgo about N12.4 trillion in revenue between 2023 and 2026 through various incentive programmes.
At the same time, Nigeria is intensifying efforts to attract long-term capital. Data from the National Bureau of Statistics show the country attracted about $14 billion in capital inflows in the first nine months of 2025, with foreign direct investment recording a sharp quarter-on-quarter increase during the third quarter.
While policymakers see the reinvestment requirement as a tool for promoting long-term capital formation, analysts say its impact may differ across companies.
Eyitope Osinowo, director at the Federal Ministry of Industry, Trade and Investment, said the extension is not automatic.
“The extension itself is not automatic, as it is tied to actual reinvestment and measurable use of the incentive,” Osinowo said.
He added, “For you to qualify for the extension, you must have demonstrated that you have reinvested 100 percent of the profit in expanding the same product or services.”
The provision raises questions about how listed companies and investors will respond. Firms such as Dangote Cement, BUA Cement, and MTN Nigeria have historically rewarded shareholders through dividends, making the reinvestment requirement a potential consideration when assessing whether to pursue an extended incentive period.
Olayinka Orelaja, a tax expert at Forvis Mazars, said the impact may vary depending on a company’s business structure.
“EDTI is granted based on activity or products. Which means if a particular activity or product is approved, the priority company has to maintain a separate book of accounts for that product or activity,” Orelaja said.
“So if that company wishes to get the additional five-year extension, then it needs to reinvest 100 percent of its profits from that product or activity.”
According to her, larger conglomerates may find it easier to comply with the requirement because they can generate distributable profits from other business lines.
“Big companies like Dangote may not really mind reinvesting the profits from that activity to get another five-year credit because they have other activities from which dividends can be paid to shareholders,” she said.
“I think those that will be affected the most are small or medium-sized companies who only focus on a single type of product or activity.”
Orelaja noted that the extension remains optional rather than mandatory.
“Application for extension is actually not compulsory. But if any priority company wishes to apply for extension, then it has to reinvest 100 percent of its profit,” she said.
“I believe this is to ensure economic growth. It may create more investment from big companies who have the capacity. But for small and medium companies, they may decide not to apply for extension if they’re not able to reinvest 100 percent of the profits earned during the first five years.” Orelaja explained
Whether the reinvestment requirement succeeds in attracting long-term investment and industrial expansion or limits participation in the extended incentive scheme will become clearer as companies begin applying under the new framework.
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