Nigeria's New Tax Shakes Foreign VCs
Nigeria introduced a new capital gains tax, sparking anxiety among foreign venture capitalists and raising concerns about exit mechanisms and capital repatriation. The policy shift serves as a cautionary signal for investors in emerging markets, highlighting the sensitivity of international LPs to sudden regulatory and tax risks.
- The Nigeria Tax Act 2025, effective January 2026, increased the capital gains tax (CGT) for companies from a flat 10% to as high as 30%. It also introduced an "economic nexus" rule, allowing Nigeria to tax offshore share sales where more than half the value is derived from Nigerian assets, closing a previous loophole. - According to Segun Cole, CEO of Maasai VC, this overnight shift from 10% to 30% fundamentally alters the Internal Rate of Return (IRR) for funds and could make markets with lower exit taxes, like Kenya or Egypt, more attractive. - A major concern for foreign funds that invest in dollars is the tax's application to gains measured in the local currency, the naira, which has depreciated significantly. This could lead to taxes being owed on investments that are actually at a loss when measured in dollar terms. - In response, some private equity and venture capital firms have reportedly frozen new investments while they lobby the government for concessions. Nigeria's Private Equity and Venture Capital Association (PEVCA), whose members include Actis and Norrsken22, has been in talks with authorities. - The new law includes key exemptions, notably for investors who reinvest their proceeds into other Nigerian companies, a move designed to encourage capital retention in the local market. Gains from the sale of shares in certified startups are also exempt if the investment is held for at least two years. - The policy contrasts with recent developments in Turkey's tech ecosystem, where the government announced the creation of a $10 billion venture fund to finance AI and data processing startups through 2030. This is part of a national initiative to boost the country's digital technology sector, which now includes over 1,200 AI startups.
