Thin Capitalization: An Introduction

Thin capitalization rules in Nigeria, introduced under the Finance Act 2019, limit the amount of interest companies can deduct on loans from foreign-related parties to 30% of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). The reform is designed to prevent excessive interest deductions that reduce taxable profits and erode Nigeria’s corporate tax base. While interest exceeding the 30% threshold is not deductible in the current year, it may be carried forward for up to five years, subject to the applicable limits. This article explains the impact of Nigeria’s thin capitalization rules, why they matter for multinational companies and tax professionals, and how businesses can remain compliant while optimizing their financing and tax strategies.