How Should Contracts Signed Under Old Tax-Exempt Status Be Renegotiated?

 “How should a company adjust a contract originally signed under tax-exempt status, now that its tax-exempt status has been removed?’

Nothing unsettles corporate leaders more than a shift in tax policy which alters long-standing financial projections. For years, many companies in Nigeria benefited from tax-exempt privileges, pioneer status incentives, special economic zone benefits, industry-specific waivers, and various forms of relief that made operations smoother and more predictable.

But now, the tax policy has changed. Incentives have expired. Exemptions have been withdrawn, and regulatory frameworks have been tightened. Suddenly, organisations find themselves locked into old contracts drafted under assumptions of tax exemption that no longer exist. Margins shrink. Obligations feel heavier. Partners resist change. Disputes loom. Cash flow tightens.

For many Nigerian businesses, this is a pressing worry. Thus, the inevitable question becomes:

• How do you manage contracts, e.g. supplier agreements, joint venture terms, licensing deals, and other long-term commitments when the financial foundation they were built upon has disappeared?

Renegotiating Contracts as a Strategic Solution

Contract renegotiation goes beyond being a mere legal necessity. It is a strategic business response to shifting tax realities. Where a contract was established under the assumption of tax-exempt operations, such exemption directly influenced pricing, profit-sharing, timelines, deliverables, and risk allocation. The removal of this tax exemption therefore, means the original terms of the contract no longer reflect today’s commercial reality.

To solve this problem, businesses must:

1. Understand how losing these tax exemptions impacts costs, profitability, and supply chains. This assessment becomes the factual backbone for negotiations.
2. Review pricing terms, payment schedules, cost-sharing arrangements, tax-gross-up clauses, timelines, and termination provisions to identify vulnerabilities.
3. Commence renegotiation grounded in data, fairness, and shared interests. This often yields better cooperation from all parties.
4. Ensure all changes are captured in an addendum or full contract revision for enforceability and regulatory compliance.

Many businesses struggle more not in recognising the issues at hand but in navigating the legal and commercial complexities of this renegotiation. This is where our expertise at OAL comes into play.

Over the years, we have successfully assisted numerous corporations, multinationals, private equity entities, manufacturing companies, logistics firms, and high-growth ventures in restructuring and renegotiating contracts affected by Nigeria’s evolving tax landscape.

In one notable instance, an international manufacturing client faced a staggering 40% increase in operational costs following the loss of tax-exempt status. Renegotiating without professional expertise would have strained the company’s regional partnerships, but with OAL’s guidance, the company successfully:

• Reworked supplier contracts based on updated tax models
• Adjusted joint venture revenue-sharing formulas without inciting any dispute
• Introduced flexible pricing structures linked to fiscal policy changes
• Preserved long-term relationships while restoring profitability

The outcome not only heightened financial stability but also renewed trust among partners. This demonstrates that when guided by experts, renegotiation works to enhance business relationships, rather than strain them.

Conclusion: 

Tax realities may shift, but with the help of legal experts, strong businesses adapt. Renegotiating outdated contracts to overcome the removal of tax exemptions is not a sign of weakness; it is strategic foresight in business.

Need support reviewing or renegotiating contracts affected by tax changes?

Reach out today!