Nigeria: A Corporate/Commercial Overview

Key Regulatory Shifts Reshaping Private Equity and Venture Capital in Nigeria

Nigeria remains a choice destination for venture capital (VC) and private equity (PE) investments in Africa despite macroeconomic challenges. VC and PE funding are vital to Nigeria’s growing economy, supporting early-stage start-ups and expanding high-growth companies. Between 2020 and 2024, Nigeria recorded a total of 404 private capital deals with an aggregate reported value of approximately USD3 billion.

Recent legislative reforms have significantly reshaped Nigeria’s private capital landscape. The enactment of the Investment and Securities Act (ISA) 2025 alongside the introduction of a new tax regime under the Nigerian Tax Act (NTA) 2025 marks a pivotal shift in the regulatory and fiscal framework governing private equity and venture capital investments in Nigeria. This article seeks to highlight these recent regulatory updates, their impact on PE and VC funds, as well as investors in such funds, in Nigeria.

The Investment and Securities Act 2025

Statutory classification of PE and VC funds as collective investment schemes

Section 150 of the ISA 2025 broadens the definition of collective investment schemes (CIS) to cover almost all types of pooled investment structures, whether open-ended or closed-ended, and regardless of whether participation is limited to qualified or sophisticated investors. Consequently, most PE and VC funds would fall within the CIS framework unless they are expressly exempted by applicable regulations. The Securities and Exchange Commission (the “Commission”) is also empowered under Section 151 to approve fund structures beyond the traditional ones – such as contractual fund arrangements, limited partnerships and trust-based vehicles.

Regulated fundraising and disclosure obligations

Under Section 95, CIS are permitted to raise funds from the public, provided that the required registration and disclosure obligations set out in the laws have been met. This implies that fundraising is permitted, but only within a regulated framework that ensures transparency and investor protection.

The ISA also recognises private equity and venture capital as valid commercial investment activities. By doing so, it confirms that PE and VC funds are entitled to participate in regulated fundraising activities within Nigeria’s capital market framework.

Permitted investments and foreign exposure restrictions

Section 168 of the ISA broadens the range of assets that CIS can invest in, covering areas such as infrastructure projects, private debt instruments, unlisted company equity, commodities, derivatives and digital assets. The provision also sets a limit of 20% on investments in foreign securities listed in jurisdictions that are members of the International Organization of Securities Commissions (IOSCO) unless the Commission grants specific approval to exceed this threshold.

By clarifying the types of investments that CISs can undertake, this section effectively formalises the asset strategies commonly used by private equity and venture capital funds in Nigeria.

Impact of the Nigerian Tax Act 2025

Expanded definition of “Nigerian company”

One of the most consequential reforms introduced by the NTA 2025 is the expansion of the definition of a “Nigerian company” to include not only entities incorporated in Nigeria, but also foreign-incorporated companies whose central or effective place of management or control is located in Nigeria. This represents a significant departure from the previous legal framework, under which tax residence was largely determined by place of incorporation. For years, the PE and VC sectors relied on offshore holding companies typically domiciled in Mauritius, the Netherlands or Delaware, to insulate international returns from the Nigerian tax net. Under the NTA, if the critical strategic decisions, board meetings or investment committee approvals for these offshore vehicles occur within Nigeria, such an entity may now be classified as a Nigerian company for tax purposes and, consequently, become subject to Nigerian tax on its global income, subject to applicable treaty reliefs. Where the “controlled foreign company” does not distribute its profits in a given year, the portion of profits attributable to the Nigerian company that could have been distributed without harming the business is deemed distributed and taxed in Nigeria.

Impact of expanded tax residence on exist strategies

Section 34 of the NTA defines chargeable assets to include “any form of asset, shares, options, rights, debts, digital or virtual assets…”, and with the expanded definition of tax residence, selling an offshore parent company to exit a Nigerian start-up now triggers local Capital Gains Tax (CGT). With the CGT rate for large companies is 30%, the “tax leakage” on successful exits has grown considerably, directly impacting the Internal Rate of Return (IRR) for investors. Fund managers are now forced into a “flight to substance”, where they must either ensure that the “mind and management” of their funds are demonstrably located outside Nigeria or prepare for a much higher domestic tax burden.

Reinforcement of labelled start-up incentives

The NTA reinforces the incentives of the Nigeria Startup Act (NSA) 2022, shielding “labelled start-ups” and their investors from the broader corporate tax hikes. Under Section 163(m), capital gains from the sale of assets by angels, VCs and PE funds are entirely tax-exempt, provided the assets are held for at least 24 months. For earlier exits, Section 29(2) and (3) of the NSA provides a 30% Investment Tax Credit (ITC) on the amount invested, which can be applied against taxable gains to reduce the overall tax liability.

Beyond exit incentives, the NTA reduces operational costs by setting a final withholding tax of 5% for non-resident companies providing technical, professional or management services to these start-ups. By explicitly preserving these exemptions, the NTA ensures that the start-up ecosystem remains a highly tax-efficient vehicle. For fund managers, this creates a clear strategic path; while the new tax residence rules increase the burden on general offshore structures, the “labelled start-up” status offers a robust framework of credits and exemptions that can effectively neutralise those costs.

Recommendations and Conclusion

To navigate this new landscape, fund managers should prioritise four key strategies.

• Solidify offshore substance – to avoid the tax residence restriction, funds must ensure that strategic management, specifically board and investment committee meetings, occurs physically outside Nigeria. Documenting this “mind and management” is now essential to defending non-resident status.
• Mandate start-up labelling – investors should make “labelled” status a condition for funding to secure the Section 163(m) exit exemptions and the 30% Investment Tax Credit.
• Regulatory realignment – given that most funds are now CISs, fund managers must ensure compliance with the Commission’s rules and explore the “Limited Partnership” structures to optimise for both regulatory and tax efficiency.
• ETR monitoring – large holding companies should model the 15% minimum effective tax rate. This requires a shift from simple optimisation to active ETR management, especially regarding non-cash gains like asset revaluations.

These regulatory reforms signal a shift toward local economic substance. While the ISA 2025 modernises the capital markets regime through enhanced regulation, investor protection and expanded oversight of private capital activities, the tax reforms introduce fundamental changes to corporate residence, capital gains taxation and the scope of taxable income. These developments have far-reaching implications for fund structuring, investment management, exit strategies and investor returns.