Is Interest on Shareholder Loans Tax Deductible in Nigeria? A ₦66 Million Case in Point

Interest on shareholder loans is deductible in Nigeria only up to 30% of EBITDA when the lender is a connected party. Anything above that is disallowed for the year, and the Nigeria Tax Act 2025 now applies the limit to local as well as foreign related-party debt. This case shows what that cost one Abuja company and how it was fixed.

This is an anonymised case. Details have been changed and no real client is described.

What was the situation?

An oil and gas services company in Abuja was funded by a ₦1.2 billion loan from its foreign parent. The loan carried 18% interest, so the finance team booked ₦216 million of interest expense and deducted all of it in the 2026 tax computation.

The company's EBITDA for the year was ₦500 million. The finance director only noticed the problem when a lender asked for a tax provision review ahead of a new facility.

What did the numbers show?

VOG Global rebuilt the computation in two days. Three things were wrong:

• The cap. 30% of ₦500 million is ₦150 million. The company had claimed ₦216 million, so ₦66 million was not deductible.
• The tax. At the 30% company income tax rate, the disallowed interest meant ₦19.8 million of unprovided tax.
• The withholding. Interest had been accrued to the parent but no withholding tax had been deducted or remitted. At 10%, that was ₦21.6 million.

The combined exposure was ₦41.4 million, before interest and penalties.

How was it resolved?

1. The tax computation was corrected and the ₦19.8 million provision booked before the accounts were signed.
2. The ₦21.6 million withholding tax was remitted, with the late-payment charge, before any query arrived.
3. We benchmarked the rate. Comparable naira borrowing for a company of this size priced well below 18%, so the parent agreed to reset the rate to 12% from the next quarter, backed by a written benchmarking note.
4. The parent converted ₦400 million of the loan to equity. The remaining ₦800 million at 12% costs ₦96 million a year, comfortably inside the ₦150 million cap.

The disallowed ₦66 million was not wasted. Excess interest can be carried forward and used when there is headroom under the cap. After the restructure, that headroom is about ₦54 million a year.

What does the Nigeria Tax Act 2025 say about related-party interest?

PwC's Nigeria tax summary states that interest on connected-party debt is limited to 30% of EBITDA, that the rule covers local and foreign debt guaranteed implicitly or explicitly, and that excess interest can be carried forward for up to five years (see PwC Worldwide Tax Summaries).

Reporting on a Kreston Pedabo newsletter, Arise News notes that the Act, effective 1 January 2026, extends the restriction to domestic connected-party transactions (banks and insurers excepted), widens the definition of debt to include finance leases and derivatives, and keeps interest on foreign loans generally subject to 10% withholding tax, or 7.5% where a double taxation agreement applies. Taxpayers must show that rates, tenures and collateral match market terms (see Arise News).

What this means for your business

• Test the cap every year. Compare connected-party interest with 30% of EBITDA before you finalise the tax computation, not after.
• Check who your lender really is. A bank loan guaranteed by your parent or a director can count as connected-party debt.
• Deduct withholding tax when interest accrues. Paying the lender later does not move the obligation.
• Keep the file. Signed loan agreement, rate benchmark and board approval. Without them the rate is hard to defend.

For related reading, see how one oil and gas firm handled a transfer pricing penalty, and our note on naira exchange rate risk for companies with foreign-currency loans.

FAQ

Is interest on a shareholder loan fully deductible in Nigeria? No. Interest on connected-party debt is capped at 30% of EBITDA. Interest above the cap is disallowed for that year and can be carried forward for up to five years.

Does withholding tax apply to interest paid to a foreign parent? Interest on foreign loans is generally subject to 10% withholding tax, or 7.5% where a double taxation agreement applies. Confirm the treaty position for your lender's country before you apply the lower rate.

Does the cap apply to loans from Nigerian related companies? Under the Nigeria Tax Act 2025 it does, except for banks and insurers. Before 2026 the cap applied mainly to loans from foreign connected parties.

Do you borrow from a parent, shareholder or sister company? Contact VOG Global in Area 10, Garki, Abuja, or visit vog.global to book a related-party financing review before you file your 2026 returns.