Nigerian companies could face a higher cost of accessing foreign debt as changes introduced under the Nigeria Tax Act 2025 increase the tax burden on cross-border financing, Kreston Pedabo has warned.

The advisory firm said the removal of previous withholding tax exemptions on interest from certain foreign loans could reduce the returns available to overseas lenders, potentially raising the overall cost of borrowing for Nigerian businesses.

In its September 2026 report on related-party financing, Kreston Pedabo said interest on foreign loans, including financing provided by related companies, is now generally subject to a 10 per cent withholding tax.

The rate may fall to 7.5 per cent where an applicable double taxation agreement provides for the lower rate.

The change comes alongside broader restrictions on how companies structure and deduct interest expenses.

Under the new regime, interest deductibility limits that previously focused mainly on loans from foreign connected parties have been extended to both foreign and domestic transactions involving connected persons, except for banking and insurance companies.

Kreston Pedabo said the reforms also give tax authorities greater scope to examine shareholder loans, parent-subsidiary financing, affiliate lending, guarantees and other intra-group funding arrangements.

Companies will consequently be expected to demonstrate that their financing structures reflect genuine commercial transactions.

Interest rates, loan tenures, repayment schedules and collateral arrangements must be supportable under the arm’s-length principle, while businesses are expected to maintain documentation showing the commercial rationale for their financing decisions.

The firm warned that arrangements lacking sufficient commercial substance or documentation could attract closer tax scrutiny, potentially resulting in adjustments and additional liabilities.

It advised multinational and domestic corporate groups to reassess their intercompany loan agreements, debt-to-equity structures and transfer pricing policies as the new rules reshape the economics of related-party financing.

The reforms form part of a wider overhaul of Nigeria’s corporate tax framework, with the Nigeria Tax Act 2025 taking effect on January 1, 2026.