By Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)


Navigating the intricate terrain of mergers and acquisitions (M&A) within Nigeria demands a keen comprehension of the associated tax implications. The success of these strategic business maneuvers is significantly influenced by the prevailing legal and regulatory framework, with tax laws and overseeing agencies playing a pivotal role in determining their outcomes. This study delves into the repercussions of non-compliance with tax regulations during M&A activities. By examining the interplay of legal obligations, regulatory oversight, and the potential pitfalls of inadequate tax adherence, this analysis aims to shed light on the critical importance of tax compliance in driving successful mergers and acquisitions in the Nigerian business landscape.

Top of Form

Merger and Acquisition

In the realm of business, the terms “merger” and “acquisition” are often used interchangeably, yet they bear distinct meanings. A merger constitutes a strategic arrangement involving the amalgamation of two or more extant companies, intending to establish a larger entity driven by economic or strategic motivations.[1]

Conversely, an acquisition transpires when one entity, the acquirer, assumes control over another, the target, achieved by procuring a substantial stake in the share capital or the entirety of the assets and liabilities of the target. Typically, the acquired company dissolves, its operations becoming assimilated into those of the acquiring entity. Nonetheless, there are instances where the acquisition grants the acquirer indirect control over the operations of the acquired business.[2]

From the definitions above, it is evident that the demarcation between mergers and acquisitions is subtle. Mergers involve the amalgamation of two entities into a single unit, with one relinquishing its identity. Conversely, acquisitions empower one entity to secure controlling interests in another, with the acquired entity retaining its distinct identity as a subsidiary of the acquiring entity.[3]

Within the legal framework of Nigeria, the Federal Competition and Consumer Protection Act (FCCPA) stands as the preeminent legislation governing M&A activities, signifying a concerted effort to align the country’s competition and merger control practices with global standards. Prior to the enactment of the FCCPA, the Investment and Securities Act (ISA), the regulations of the Securities and Exchange Commission (SEC Rules), and the Companies and Allied Matters Act (CAMA) regulated the review and assessment of M&A undertakings.[4]


Tax administration is fundamentally the execution of a nation’s diverse tax laws to fulfil its intended goals. Each level of government in Nigeria employs dedicated mechanisms established to carry out tax administration functions. The various types of tax in Nigeria include;

  1. Companies Income Tax (CIT): Companies Income Tax is levied on the profits of incorporated companies from all sources. Administered by the Federal Inland Revenue Service (FIRS), it is regulated by the Companies Income Tax Act (CITA) of 2004 (as amended). The tax rate is 30% of the company’s total profit after accounting for all relevant expenses incurred in generating taxable profit.[5]
  2. Personal Income Tax (PIT): Personal Income Tax is imposed on individuals, corporate sole entities, communities, families, trustees, or executors of any settlement. It encompasses taxation of sole traders, partnerships, and estates. Regulated by the Personal Income Tax Act of 2004 (as amended), the tax authority responsible may vary from FIRS to various State Boards of Internal Revenue.[6]
  3. Value Added Tax (VAT): VAT is a 7.5% tax charged on specified goods and services, primarily borne by the final consumer. Administered by FIRS, it is regulated by the VAT Act LFN 2004 as amended. Recently, the Federal Government approved a 50% increase in VAT, raising it from 5% to 7.5%, effective from 2020.[7]
  4. Capital Gains Tax (CGT): CGT is levied on the disposal of assets. It applies when capital sums are derived from the sale, lease, transfer, or any disposition of properties classified as chargeable assets. Regulated by the Capital Gains Tax Act of 2004 (as amended), it is typically charged at a flat rate of 10% on chargeable assets.[8]
  5. Withholding Tax (WHT): WHT is an advance tax deduction on income or disbursement due to a taxable entity, which is subsequently remitted to the relevant government authority. Rates range from 2.5% to 10% for companies and 5% to 10% for individuals, depending on the nature of the transaction.
  6. Stamp Duties: Stamp Duties, regulated by the Stamp Duties Act of 2004 (as amended), apply to both individuals and corporate bodies. Individuals pay to their respective State Governments, while corporate bodies pay to the Federal Government. Rates can be flat charges or ad valorem charges.[9]
  7. Custom and Excise Duties: These duties are imposed on certain imported and exported goods at Nigeria’s ports of entry. Administered by the Nigerian Customs Service under the Customs and Excise Management Act, they are aimed at generating revenue and regulating the consumption of specific products.[10]
  8. Education Tax (EDT): EDT is imposed on all registered companies in Nigeria, with a rate of 3% on assessable profit as stated by the Finance Act 2023. it is administered by FIRS and distributed between Universities, Polytechnics, and Colleges of Education.[11]
  9. Petroleum Profit Tax (PPT): PPT is levied on the income of companies engaged in petroleum operations (Upstream). Governed by the Petroleum Profits Tax Act, companies liable to PPT are not subject to Companies Income Tax on the same income.[12]


Before the consummation of a business merger or acquisition, it is imperative to adhere to the stipulations of Section 29(12) of the Companies Income Tax Act (CITA). This provision mandates the notification of the Board that is, the Federal Inland Revenue Service, and the acquisition of their guidance and clearance regarding potential tax liabilities under the Capital Gains Tax (CGT) Act.[13]

Regarding Capital Gains Tax (CGT), it is explicitly stated that the sale of shares is exempted from this tax by the Finance Act 2023. Similarly, in the event of shares being acquired as part of a business sale through a Merger and Acquisition (M&A) process, such transactions are exempted from CGT.[14]

In relation to transaction taxes such as Value Added Tax (VAT), Withholding Tax (WHT), and Stamp Duties, pertinent legislation and amendments govern the applicable tax implications. For instance, VAT does not apply to the sale or transfer of an asset to a Nigerian company for business considerations, provided the companies are related and the asset is not resold within 365 days after the restructuring. Conversely, intangible assets, including intellectual property rights and contractual rights, are now subject to VAT following the resolution provided by the Finance Act 2023.[15]

In the case of Withholding Tax, it is important to note that it does not apply to the purchase consideration of a business. However, WHT will be deducted from legal fees, professional fees, etc., related to the M&A at the applicable rate and remitted to the relevant tax authority.[16]

The Stamp Duty Act mandates that all contractual agreements incurred during the M&A process are liable to stamp duty at the prevailing rate. Notably, certain exemptions apply under Sections 104 and 105 of the Stamp Duty Act, on property and share transfers between related parties, contingent upon business reconstruction or amalgamation.[17]

Under the purview of the Companies Income Tax, specific provisions (Section 29(9)) offer discretionary application of the commencement and cessation rules, contingent upon the companies being related and the asset not being resold within 365 days following reorganization. Assets are also transferred at their Tax written-down value between related entities, affecting initial allowance or investment allowance eligibility for the acquiring company.[18]

Implications of non-compliance with Tax Due – Diligence

The implications that arise from failing to meet tax obligations during mergers and acquisitions are legal, financial, and operational implications.

  1. Legal Implications

Failure to meet tax obligations during mergers and acquisitions constitutes a breach of Nigerian tax laws, potentially resulting in significant legal consequences. Additionally, neglecting to secure necessary approvals from regulatory bodies directly contravenes established legal requirements, leading to potential penalties and, in extreme cases, the complete annulment of the transaction. In cases of egregious non-compliance, regulatory authorities have the power to void the merger or acquisition, rendering the transaction legally invalid. These potential legal ramifications underscore the critical importance of adhering to tax regulations in M&A activities.[19]

  1. Financial Implications

Neglecting tax obligations during mergers and acquisitions can result in substantial financial consequences. The accumulation of accrued tax liabilities over time creates a significant financial burden for the parties involved. Additionally, late payment of taxes further compounds the issue, incurring additional costs in the form of interest and penalties. Moreover, the resolution of tax non-compliance issues requires legal representation and advisory services, leading to additional expenses in the form of legal fees and costs. These financial implications highlight the critical importance of adhering to tax regulations in M&A activities to safeguard the financial well-being of the companies involved.[20]

  1. Operational Implications

Failing to comply with tax laws can have significant operational implications for businesses engaged in M&A activities. The key implications include the diversion of crucial resources away from core operations, potential damage to reputation leading to trust erosion among stakeholders, and financial constraints due to outstanding tax liabilities. Prioritizing compliance and obtaining necessary approvals from regulatory bodies is not only a legal requirement but also a fundamental business imperative for successful M&A endeavours. This approach safeguards reputation and ensures long-term growth prospects for companies involved in M&A transactions.[21]


In conclusion, it is important to be abreast of the necessary taxes before finalizing any M&A transaction. In addition, conducting comprehensive tax due diligence on both companies is crucial to ascertain potential tax liabilities. Moreover, seeking professional advice is paramount to mitigate unwarranted tax exposures in the process.

 Snippet: Section 29(12) of the Companies Income Tax Act (CITA). This provision mandates the notification of the Board that is the Federal Inland Revenue Service, and the acquisition of their guidance and clearance regarding potential tax liabilities under the Capital Gains Tax (CGT) Act.

Keywords: Mergers and Acquisitions, Value Added Tax, Capital Gains Tax, Company Income Tax, Stamp Duty Tax, Business Restructuring, and Withholding Tax.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Corporate and Commercial Law and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at

CONTRIBUTOR: Cyril Samuel Dandison

Cyril is a member of the Corporate and Commercial Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Corporate and Commercial Law.

He can be reached at

[1] O. Olafaju & F. Ogunyemi, “Tax Considerations and During Mergers and Acquisitions in Nigeria (2021) Available @ Tax Considerations During Mergers And Acquisitions In Nigeria – Corporate and Company Law – Nigeria ( accessed 18th September, 2023.

[2] Ibid

[3] Ibid

[4] Ibid

[5] Resolution Law Firm, “Brief Overview of Company Tax in Nigeria” Available @ Brief Overview Of Company Income Tax In Nigeria – Tax Authorities – Nigeria ( accessed 20th September, 2023.

[6] Marcus Okoko & Co., “Personal Income Tax Act 2011; Understanding the Concept” Available @ Personal Income Tax Act, 2011: Understanding The Concept Of P.A.Y.E – Tax Authorities – Nigeria ( accessed 20th September, 2023.

[7] Available @ Value Added Tax (VAT) – FIRS accessed 21st September, 2023.

[8] SimmonCooper Partners, “Capital Gain Tax in the Nigeria Capital Market and Stock Investment Under the Finance Act 2021” Available @ Capital Gains Tax In The Nigerian Capital Market And Stocks Investment Under Finance Act 2021 – Tax Authorities – Nigeria ( accessed 22nd September, 2023.

[9]  Adesanya & Partners, “Stamp Duty Tax in Nigeria” Available @ Stamp Duties Tax in Nigeria | The official Blog of Adesanya & Partners (Chartered Accountants) ( accessed 22nd  September, 2023.

[10] Available @ Customs and duties – Nigeria – tax, import, system ( accessed 22nd September, 2023

[11] Available @ nigeria-finance-act-2023.pdf ( accessed 22nd September, 2023.

[12] PWC: Corporate – Taxes on corporate income. Available @ Nigeria – Corporate – Taxes on corporate income ( accessed 21st September, 2023.

[13] Vanguard: Tax matters: Tax implication of mergers and acquisitions. Available @ Tax matters: Tax implication of mergers and acquisitions – Vanguard News (  accessed 22nd September, 2023.

[14] Ibid

[15] Ibid

[16] O. Olafaju & F. Ogunyemi, “Tax considerations during Mergers and Acquisitions in Nigeria” Available @ Tax Considerations During Mergers And Acquisitions In Nigeria – Corporate and Company Law – Nigeria ( accessed 21st September, 2023.

[17] Ibid

[18] Ibid

[19] E.E. Udoaka & G.A. Ene, “Nigeria Tax Laws, Taxation and Development” Available @ (PDF) Nigerian Tax Law, Taxation and Development ( accessed 22nd September, 2023.

[20] Ibid

[21] Ibid

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