Some parts of the Nigeria Tax Act sound complicated until you put them into real life situations. Foreign carrier rules, foreign dividends, and business deductions all belong to that category.

This section is a good example.

It covers three very different things: foreign shipping and airline companies doing business through Nigeria, dividends paid to foreign investors, and the business deductions companies are allowed to claim before tax is calculated.

They may not seem connected at first, but they all answer the same basic question. When money is made in or through Nigeria, how much of it should actually be taxed?

What happens when a Foreign Ship or Plane Picks Up Business in Nigeria?

A foreign shipping company’s vessel stops at Lagos Port.

Simply entering Nigeria is not enough to create a tax charge on everything the ship is carrying. The key question is what the ship or aircraft actually picks up here.

If a non-resident company operates ships or aircraft and one of them calls at a Nigerian port, the company can be taxed on profits earned from passengers, mail, livestock or goods loaded in Nigeria. So if a Nigerian exporter loads goods onto a foreign vessel in Lagos for delivery overseas, the income connected to carrying those goods can fall within the Nigerian tax net.

But there is an important exception. Goods or passengers that simply pass through Nigeria for trans-shipment are excluded.

For example, a container arrives in Lagos from another country and is only being transferred onto another ship heading somewhere else. That container isn’t treated the same way as goods that actually started their journey from Nigeria. The same applies when passengers, mail, livestock or goods are simply being transferred from one aircraft to another, or between an aircraft and a ship.

The basic idea is fairly sensible. Nigeria taxes genuine transport business that starts here, but it doesn’t automatically tax traffic that is only passing through.

How Do You Work Out the Nigerian Profit?

This is where things get more technical. An international airline or shipping company obviously doesn’t make all its money in Nigeria. It may operate across dozens of countries. So the Act needs a way to work out what portion of its overall profit should be connected to Nigeria.

Where the tax authority is satisfied that the company’s home country calculates profits on a basis that is not materially different from Nigeria’s approach, the Act uses two global ratios.

The first is called the global adjusted profit ratio. This compares the company’s worldwide profit or loss before depreciation with its total global revenue from transporting passengers and goods.

The second is the global depreciation ratio. This compares the company’s depreciation allowances with that same global transport revenue.

Those percentages are then applied to the revenue the company earns from passengers, mail, livestock and goods loaded in Nigeria. The adjusted profit ratio is used to work out the company’s assessable Nigerian profit. The depreciation ratio takes the place of the capital allowances that would otherwise be claimed under the First Schedule.

It sounds technical, but the idea is simple. Nigeria looks at how profitable the transport company is globally and uses that pattern to estimate the profit connected to its Nigerian business.

What Happens If That Formula Can’t Be Used?

The Act also provides a backup. If the normal calculation cannot be applied properly when the tax assessment is being made, the tax authority can calculate the profit using the company’s Nigerian turnover multiplied by the profit margin provided under Section 17.

The Service may also apply what it considers a fair percentage of the company’s Nigerian gross revenue.

There is also a minimum amount of tax. No matter what the other calculations produce, the tax payable for the year cannot be less than 2 per cent of the gross revenue earned from transport out of Nigeria. That minimum tax is calculated, assessed and paid monthly.

So even where a carrier’s profit calculation produces a very small amount, the law still creates a floor.

More Records May Be Required

Some international carriers may not prepare separate financial statements for their Nigerian operations. Where that happens, they must provide detailed statements showing the gross revenue earned from Nigeria. Those statements must be certified by a director and the company’s external auditors. The relevant contracts must also be provided.

In other words, saying “our Nigerian operation isn’t separately accounted for” doesn’t mean the tax authority simply has to accept an estimate. The company still needs to show where the figures came from.

Not Every Shipping or Airline Income Falls Under This Rule!

There is another distinction worth knowing. Income from leasing ships, aircraft related assets or containers is not automatically treated under these special transport rules. Neither are non-freight activities or other incidental sources of income. Those amounts are taxed under the ordinary provisions of the Act.

So the special calculation mainly deals with the actual business of carrying passengers, mail, livestock and goods.

Tax Compliance Can Affect Permits Too

The law also gives shipping and aviation regulators a role. Before certain approvals or permits are granted, the relevant regulatory agencies must request evidence that the operator filed its tax return for the previous year. They must also request evidence that tax connected to the intended shipment has been declared and paid.

That turns tax compliance into more than an accounting issue. For some operators, it can directly affect whether a shipment gets the approval it needs.

What Happens When a Foreign Investor Receives a Nigerian Dividend?

The Act then moves to dividends paid to non-resident shareholders. This rule is much simpler. If a person living outside Nigeria receives a dividend from a Nigerian company, the tax deducted at source under the Nigeria Tax Administration Act is treated as the final Nigerian tax on that dividend.

So once the required tax has been deducted before the dividend is paid, the foreign shareholder isn’t supposed to face another Nigerian tax assessment on that same dividend. For an overseas investor, that gives some certainty. If the Nigerian company pays a dividend and deducts the required tax first, the remaining amount received by the shareholder is not then followed by another Nigerian income tax bill on the same dividend.

But there is another side to the rule. The tax that has already been deducted cannot simply be claimed back. The Act specifically says that neither the non-resident shareholder nor the Nigerian company paying the dividend gains a right to a refund of the tax paid under Section 50 of the Nigeria Tax Administration Act. So the deduction really is final. No extra charge afterwards, but no automatic clawback either.

Now to the Part Most Businesses Care About: Business Deductions

Every business owner eventually asks the same question. “What expenses can I take away from my income before my tax is calculated?”

The general rule for business deductions is that an expense can be deducted when it was incurred wholly and exclusively for the purpose of producing the income. In plainer terms, the expense should genuinely relate to making money for the business.

The Act then gives examples of expenses that can qualify. Interest paid on money borrowed for the business may be deductible, subject to the rules in the Third Schedule. Rent and premiums paid for land or buildings used by the business can also qualify. Salaries, wages and other employee payments are deductible too. That includes the cost of certain allowances and benefits provided to employees. Repairs to business premises, machinery, plant and fixtures may also be deducted, together with certain costs of renewing or altering business equipment and tools.

Protecting a Business Asset Can Count Too

The Act also allows certain costs connected with establishing, preserving or defending ownership of an asset. For example, if a business has to spend money protecting its legal title to an asset used in generating income, that expense may fall within the deductible categories.

Approved contributions to employee pension and retirement benefit schemes are also common business deductions. The same applies to proven losses of stock or inventory. Research and development expenditure for the relevant period is included too. There are also provisions covering certain distributions made by real estate investment companies approved by the Securities and Exchange Commission, as well as certain payments connected with regulated securities lending transactions.

Easy to Miss Business Deductions

There is also an interesting provision relating to disability support. Business spending on assistive devices and disability related products can qualify. That can include things such as hearing aids, wheelchairs and braille materials.

It is the kind of provision that could easily be missed in a long tax law, but it can matter for businesses supporting employees or others who need those products.

What About Customers Who Never Pay?

Bad debts can also be deducted in certain circumstances. Say your business supplied goods worth ₦2 million to a customer. You recorded the sale as income, but after genuine attempts to collect the money, it becomes clear that the customer will not pay.

The Act can allow that bad debt to be deducted, provided it genuinely arose from the business and was not created through a related party arrangement.

There are safeguards. You cannot claim the same amount twice if it was already allowed in an earlier period. And if the customer eventually pays after the debt has already been deducted, the money recovered must be added back to the business’s profits for the period in which it is received. So you don’t get to claim the loss and later keep the recovery outside the tax calculation.

Business Deductions Before the Business Even Opens

Another useful rule deals with money spent before a business officially starts trading. A business often spends money before earning its first naira. You may be paying for professional services, preparing premises or setting up systems before opening.

Under the Act, qualifying expenditure incurred within six years before the business begins can be treated as though it was incurred on the first day of business. The key point is that the expense must have been something that would normally have qualified for a deduction if it had been incurred after the business started.

This gives new businesses some recognition for genuine setup costs incurred before trading begins, and treats them as valid business deductions.

And What If You Paid the Expense in Dollars, Pounds or Euros?

There is one final rule that matters for businesses dealing internationally. If an expense is paid in a currency other than naira, the business cannot simply choose whatever exchange rate suits its accounts.

The deductible amount is limited to the naira equivalent calculated using the official exchange rate published by the Central Bank of Nigeria for the relevant date or period. So if your Nigerian business pays a supplier in dollars, the tax deduction is based on the official naira value under the rule, not necessarily the amount you would get using an informal or alternative exchange rate.

What Business Deductions and Carrier Rules Mean in Real Life

There are really three big lessons from this part of the Act.

Foreign shipping and airline companies can face Nigerian tax when they earn money from passengers or goods loaded here, but simply passing through Nigeria does not automatically create the same tax charge.

Foreign shareholders receiving dividends from Nigerian companies generally have their Nigerian tax settled through the amount deducted at source.

And for businesses operating in Nigeria, expenses can reduce taxable income, but only where they meet the rules and are genuinely connected to producing that income.

For business owners, that last point is probably the one worth remembering most. Spending money doesn’t automatically make something a business deduction. The real question is what the money was spent on, why it was spent, and whether the business can prove it. For context on how the same Act treats company profits and dividends more broadly, see our earlier posts on the Nigeria Tax Act 2025, Nigerian dividend and foreign earnings rules, and hoarded profits.

Feeling overwhelmed?

We know the terminology can feel dense, and it’s easy to read something like this and still not be sure where your own situation lands. If you’d like to talk it through, someone on our team would be genuinely happy to sit with you. Book a consultation and we’ll go through your specific circumstances, what applies to you, and what your next step looks like.

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