Impact of the Nigeria Finance Act 2021 on Foreign Direct Investment (FDI)


Nigeria has always been an attractive destination for foreign direct investment (FDI) due to its abundant natural resources, growing population, and vast potential for economic development. To foster an investor-friendly environment and stimulate economic growth, the Nigerian government introduced the Finance Act 2021. This landmark legislation aimed to address crucial aspects of the economy and significantly impact foreign direct investment in the country. In this article, we will explore the key provisions of the Nigeria Finance Act 2021 and analyze its potential effects on FDI inflows.

1. Tax Reforms:

The Nigeria Finance Act 2021 introduced various tax reforms, which have significant implications for foreign investors. One of the most notable changes was the reduction of corporate income tax for small and medium-sized companies. The Act also provided incentives for investments in the agricultural sector and exempted small companies from minimum tax requirements. These measures are expected to attract more foreign investors to the Nigerian market, particularly in sectors such as agriculture and technology, fostering job creation and economic development.

2. Capital Allowances and Capital Gains Tax:

The Act brought about changes in capital allowances and capital gains tax, aimed at stimulating investments in critical sectors of the economy. It introduced an additional 50% capital allowance on qualifying plant and machinery investments, further encouraging businesses to expand and modernize their operations. Additionally, the Act clarified the definition of “connected persons” for capital gains tax purposes, promoting transparency and minimizing tax evasion, which can enhance investor confidence.

3. Digital Economy and E-commerce:

Recognizing the importance of the digital economy and e-commerce in the modern global landscape, the Finance Act 2021 introduced specific provisions to regulate and tax these sectors more effectively. It mandated non-resident digital service providers to register for tax purposes, ensuring that they contribute their fair share to the Nigerian tax system. This move will not only generate additional revenue for the government but also level the playing field for domestic businesses and foreign digital service providers, encouraging a more competitive environment for FDI.

4. Withholding Tax:

The Nigeria Finance Act 2021 introduced amendments to the withholding tax regime, impacting cross-border transactions. The Act extended the withholding tax to cover services rendered by non-resident companies, which could affect foreign businesses providing services to Nigerian companies. However, it also provided exemptions for specific services, ensuring a balanced approach to taxation and creating certainty for foreign investors.

5. Stamp Duty:

In a bid to enhance revenue generation, the Act expanded the scope of chargeable transactions for stamp duty purposes. While this may increase compliance costs for businesses, it could also create a more stable fiscal environment that attracts responsible foreign investors looking for a transparent and predictable regulatory landscape.


The Nigeria Finance Act 2021 represents a proactive step by the government to strengthen the country’s economic foundation and attract foreign direct investment. By implementing comprehensive tax reforms, providing incentives for key sectors, and regulating the digital economy, Nigeria aims to become a more attractive and competitive investment destination. However, with any significant legislative change, there will be both challenges and opportunities. Foreign investors and businesses seeking to capitalize on the benefits of this Act should carefully navigate its provisions and seek professional guidance from reputable accounting firms familiar with the Nigerian tax landscape. Overall, the Act’s potential positive impact on FDI in Nigeria is promising, and it is essential for both the government and investors to collaborate in ensuring its successful implementation and utilization.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at You can also reach us via WhatsApp at +2348038460036.