New Year, New Charges: Nigerian Banks to Begin 10% Tax on Dollar Account Interest from 2026

Nigerian banks will begin deducting a 10 per cent withholding tax on interest earned from foreign currency deposits starting January 1, 2026, marking a significant shift in how savings and investment income from domiciliary accounts are treated in the country. The development was formally communicated to customers by Access Bank in an email circulated on Wednesday, alerting account holders to changes in banking operations that will take effect with the new year.

According to the notice, the deduction will apply automatically to interest accrued on foreign currency and domiciliary accounts, including those denominated in United States dollars, British pounds, euros and other major foreign currencies. Customers will no longer receive the full interest credited to their accounts, as the tax will be removed at source before the balance is reflected. The bank explained that this move is in compliance with the Nigeria Tax Act, 2025, which introduced taxation on interest income earned from foreign currency deposits.

Under the new framework, banks are mandated to deduct the 10 per cent withholding tax and remit it directly to the appropriate tax authorities, effectively making financial institutions collection agents for the government. This means customers are not required to file separate tax payments for such interest income, as the tax obligation would have already been settled before the funds are made available to them. The net interest, after deduction, is what account holders will ultimately receive.

The announcement has generated widespread attention among individuals and businesses that maintain domiciliary accounts, many of whom use such accounts as a hedge against naira volatility or as a means of preserving value. For years, interest earned on foreign currency deposits has largely been perceived as tax-free by many depositors, making domiciliary accounts attractive not only for foreign transactions but also for passive income. The introduction of a withholding tax now signals a clear policy direction by the government to broaden the tax base and capture revenue from previously untaxed or lightly taxed income streams.

Financial analysts say the move is part of a broader effort by the Federal Government to standardise the taxation of savings and investment income across different account types. Interest earned on naira-denominated savings and fixed deposit accounts has long been subject to withholding tax, and the inclusion of foreign currency deposits under a similar regime is seen as an attempt to close existing gaps in the tax system. By aligning the treatment of naira and foreign currency interest, policymakers aim to promote fairness and consistency in the financial sector.

Access Bank, in its communication, emphasised that the policy is not a discretionary decision by individual banks but a statutory requirement backed by law. Other commercial banks are expected to issue similar notices to their customers in the coming days and weeks, ensuring that depositors are adequately informed ahead of the January 1 implementation date. Industry insiders say the Central Bank of Nigeria and tax authorities have already provided guidance to financial institutions on how the deductions should be applied and reported.

For customers, the immediate implication is a reduction in the net returns earned on foreign currency deposits. While interest rates on domiciliary accounts are generally modest compared to naira investments, high-value account holders and businesses with significant balances may feel the impact more keenly over time. Some depositors may begin to reassess the role of foreign currency accounts in their overall financial planning, especially if interest earnings were a key consideration in maintaining such accounts.

Businesses that hold foreign currency accounts for trade, international payments or savings purposes will also be affected. For corporate entities, interest income from such accounts now becomes a taxed revenue line, which could influence treasury management strategies. However, tax professionals note that withholding tax deducted at source can, in some cases, be recognised for accounting and reporting purposes, depending on the structure of the business and applicable tax rules.

The timing of the policy, taking effect at the start of a new year, is seen as deliberate, allowing banks and customers to align their records and expectations from day one. It also gives depositors time to review account terms, interest rates and overall returns ahead of implementation. Some financial advisers are already urging clients to seek clarity from their banks on how the deductions will appear in account statements and whether any documentation will be provided to reflect the tax remitted on their behalf.

Public reaction to the announcement has been mixed. While some Nigerians view the move as another financial burden in an already challenging economic environment, others see it as a necessary step towards a more comprehensive and transparent tax system. Supporters argue that as government revenues come under pressure, especially amid declining oil earnings, expanding the tax net is unavoidable and foreign currency interest should not be exempt when other forms of income are taxed.

Critics, however, worry that the policy could discourage savings in the formal banking system, particularly in foreign currency, and potentially push some individuals towards informal or offshore alternatives. There are also concerns about how the tax might interact with existing charges and fees on domiciliary accounts, which some customers already consider high. Banks have sought to reassure customers that the withholding tax is separate from bank charges and that transparency will be maintained in how deductions are applied.

As January 1, 2026 approaches, attention will likely turn to how smoothly the policy is implemented across the banking sector and whether further clarifications will be issued by tax authorities. For now, the message from banks is clear: interest earned on foreign currency deposits will no longer be fully exempt, and account holders should expect to receive net interest after a 10 per cent withholding tax has been applied. The change marks a notable moment in Nigeria’s evolving tax landscape and underscores the government’s resolve to bring more income streams within the tax net as part of its wider fiscal reforms.