FDI Inflows and Finance Act 2020: Evaluating the Investment Landscape for Nigerian Businesses.

From $24bn to $5bn, Nigeria faces investment drought - Businessday NG


Foreign Direct Investment (FDI) plays a pivotal role in the growth and development of Nigeria’s economy. It brings capital, technology, expertise and job opportunities, bolstering various sectors. However, the investment landscape for Nigerian businesses underwent significant changes with the enactment of the Finance Act 2020. In this article, we will delve into the implications of the Finance Act 2020 on FDI inflows and assess the investment environment for Nigerian businesses.

Understanding the Finance Act 2020:

The Finance Act 2020 was introduced to reform Nigeria’s tax system, enhance revenue generation and create a more conducive environment for business. While it aims to foster economic growth and fiscal responsibility, the act introduced several amendments that have ramifications for FDI.

Implications for FDI Inflows:

  1. Digital Services Tax: The Finance Act 2020 expands the scope of taxable goods and services to include digital services offered by foreign companies to Nigerian consumers. This implies that foreign digital service providers may now be subject to Value Added Tax (VAT) in Nigeria.
  2. Capital Gains Tax (CGT) Amendments: The act amends CGT provisions, potentially affecting the tax liability of foreign investors involved in asset sales, mergers, or acquisitions.
  3. Non-Resident Companies: Foreign companies without a physical presence in Nigeria are required to appoint a local tax representative for tax compliance purposes.
  4. Transfer Pricing Regulations: The act strengthens transfer pricing regulations, requiring related-party transactions to adhere to arm’s length pricing principles.

Evaluating the Investment Landscape:

  1. Compliance and Transparency: Nigerian businesses seeking FDI should prioritize compliance with the Finance Act 2020. Transparent communication of the tax implications to potential foreign investors is crucial for building trust.
  2. Transfer Pricing Compliance: Companies involved in related-party transactions should ensure strict compliance with transfer pricing regulations, as this can instill confidence in foreign investors regarding the fairness of transactions.
  3. Digital Economy Focus: Companies operating in the digital economy should assess the impact of the Finance Act 2020 on their operations and pricing structures. Understanding the tax implications can aid in negotiations with potential foreign investors.
  4. Tax Professional Engagement: Engage with experienced tax professionals who specialize in Nigerian tax law to navigate the complexities and ensure compliance.

Benefits of FDI Inflows:

  1. Economic Growth: FDI inflows stimulate economic growth by injecting capital, creating job opportunities and fostering technology transfer and innovation.
  2. Infrastructure Development: FDI often leads to improved infrastructure, benefiting both businesses and communities.
  3. Global Integration: FDI connects Nigeria to global markets, enhancing trade and opening up opportunities for Nigerian businesses to expand internationally.
  4. Knowledge Transfer: Foreign investors bring expertise, best practices and technology that can boost the competitiveness of local businesses.


The Finance Act 2020 has introduced a new tax landscape in Nigeria, impacting the investment environment for both domestic and foreign investors. To attract and retain FDI inflows, Nigerian businesses should prioritize compliance, transparency and effective communication regarding the tax implications of the act. By doing so, they can continue to benefit from FDI inflows that drive economic growth, innovation and global integration while ensuring alignment with the evolving tax regulations.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.