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For years, keeping money in a domiciliary (Dom) account was seen as a safe haven from Naira inflation and tax scrutiny. However, as of January 1, 2026, the landscape has changed. Under the Nigeria Tax Act 2025/2026, a 10% withholding tax is now applied to interest earned on foreign currency deposits. This move is part of a broader government effort to increase non-oil revenue and discourage ‘idle’ dollar hoarding.
How the Tax Works
The 10% tax is a ‘Withholding Tax’ (WHT). This means your bank is required to automatically deduct 10% of any interest credited to your account and remit it to the Federal Inland Revenue Service (FIRS). It is important to note: The tax is only on the interest, not your principal. If you have $10,000 and earn $100 in interest, the bank will take $10 as tax. This is a significant update to how you should structure your foreign currency account.
Key Features of the 2026 Rule:
- Automatic Deduction: You don’t need to file papers; the bank handles it.
- Scope: Applies to all foreign currencies, including USD, GBP, EUR, and even USDT (if held in regulated wallets).
- Net Returns: When comparing investment options, you must now calculate your ‘net-of-tax’ yield.
Impact on Business Strategy
For SMEs that hold dollars for future imports, this tax reduces the ‘passive’ growth of your reserves. However, the 2026 tax reforms also increased the tax-free threshold for small businesses to ₦800,000. This means that while your interest is taxed, your overall corporate tax burden might be lower. To balance this, businesses should look into FX risk management strategies that focus on hedging rather than just saving.
Step-by-Step: Managing Your USD Holdings under the New Law
- Review Your Interest Rates: Check if your bank is paying enough interest to justify the WHT. Some ‘non-interest’ Dom accounts may now be more attractive if you want to avoid tax paperwork.
- Diversify Your Portfolio: Consider moving some funds into Eurobonds or the iDICE fund, which may have different tax treatments.
- Keep Clean Records: Ensure your bank provides a WHT credit note, which you can use to offset other tax liabilities.
- Consult a Pro: Use the regulatory compliance checklist to ensure your total tax strategy is optimized.
Practical Example: The Tech Exporter
‘Lagos Dev Hub’ earns $5,000 monthly from US clients. In 2025, they kept it all in a savings Dom account. In 2026, after seeing the 10% tax on their interest, they shifted their strategy. They now keep only 2 months of operating expenses in the Dom account and use the rest to buy raw materials or invest in growth-focused domestic assets, effectively reducing their ‘passive’ tax exposure.
External Resources
For the official tax circular, visit the Federal Inland Revenue Service (FIRS). For global context on taxing foreign income, the International Monetary Fund (IMF) provides comparative data on emerging market tax reforms. Understanding the new rules ensures you aren’t surprised by ‘shrinking’ interest payments.
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