Nigeria’s thin capitalization rules are a critical aspect of corporate tax compliance for companies financed through foreign-related party loans. Introduced under the Finance Act 2019, the rules limit the deductibility of interest on debt from connected foreign persons to 30% of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), with any excess interest carried forward for up to five years on a First-In, First-Out (FIFO) basis. The reforms were designed to curb excessive debt financing and profit shifting that erode Nigeria’s corporate tax base while promoting fair taxation and stronger capital structures. This article provides a practical overview of Nigeria’s thin capitalization regime, explains the treatment of related-party financing under the Companies Income Tax Act (CITA), and highlights the continued relevance of transfer pricing rules under the Tax Act 2025 for businesses seeking to remain compliant and avoid tax disputes.
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