TAX RELIEFS IN NIGERIA
Dear Subscriber,
On the 31st Of March 2018, the Voluntary Asset and Income Declaration Scheme (VAIDS) will expire. VAIDS is an amnesty granted for taxpayers to regularize their tax status before the expiry date in exchange for forgiveness of overdue interest and penalties, and the assurance not to face criminal prosecution.
Currently records of defaulters are being pooled from Bank Verification Numbers (BVN), Land Registries, Payment Platforms, Nigeria Customs Service, the Corporate Affairs Commission (CAC) etc and there is a clear indication that after this date, tax defaulters would be named, shamed and prosecuted.
A lot of entrepreneurs are worried about this development because before now Individuals and Corporate Bodies were used to outright tax evasion due to the lax enforcement process. In continuation of our series on Doing Business in Nigeria, we now bring you a comprehensive overview of tax reliefs, grants or guarantees available to Businesses in Nigeria.
| INCENTIVE | PARTICULARS OF INCENTIVE | |
|---|---|---|
| PIONEER STATUS | Pioneer status is a 5 (five) year tax holiday granted to qualified industries anywhere in the Federation or 7 (seven) year tax holiday in respect of industries located in economically disadvantaged local government areas of the Federation. The grant of Pioneer Status to a company in Nigeria is aimed at enabling such company operating within the pioneer industry make significant capital expenditure and a reasonable level of return of profit within its formative years without having to pay companies tax. | Industries that currently qualify for this tax holiday include rubber plantation and processing, real estate development and utilities, manufacture of cement, pharmaceutical, iron and steel from iron ore, gas cylinders, solar energy powered equipment and gadgets and maintenance of aircrafts. The company must have a minimum share capital ofN10million and incurred a capital expenditure of not less than N5million. In addition, an application in respect of Pioneer Status must be submitted within one year the applicant company starts commercial production otherwise the application will be time-barred, |
| TAX RELIEF FOR RESEARCH AND DEVELOPMENT | Up to 120 percent of expenses on (R&D) are tax deductible. Where the research is long-term, it will be regarded as a capital expenditure and will be written off against profit. | Such R&D activities must be carried out in Nigeria and should be connected with the business from which income or profits is derived, |
| IN-PLANT TRAINING | 2% tax concession for a period of five years. | This is applicable to industrial establishments that have set up in – plant training facilities. |
| INVESTMENT IN INFRASTRUCTURE | Twenty percent (20%) of the cost of providing these infrastructural facilities, where they do not exist, is tax deductible. | This is a form of incentive granted to industries that provide facilities that ordinarily, should have been provided by government. Such facilities include access roads, pipe borne water and electricity. |
| MANUFACTURING | (a) 20% Tax rate for first 5 years of operation (b) Tax Free Dividend for the first five years of operation. (c)Tax exemption on Dividends | a. Manufacturing Companies with turnover of less than N1 million b.Manufacturing Companies with turnover of less than N1 million c.Manufacturing Companies in petrol chemical and liquefied natural gas sub-sector. |
| LOCAL VALUE ADDED | 10% tax concession for five (5) years. | This applies essentially to engineering industries, where some finished imported products serves as inputs. The concession is aimed at encouraging local fabrication rather than the mere assembly of completely knocked down parts. |
| AGRICULTURE | (a) 100 % Capital Allowance (b) Full tax exemption. (c) Enhanced capital allowances of up to 50%. (d) 100% tax-free period for 5 years (e) 1% duty. (f) Agricultural Credit Guarantee Scheme Fund (ACGSF) administered by the Central Bank of Nigeria (75% guarantee for all loans granted by commercial banks) (g) Interest Drawback Program Fund (60% repayment of interest paid by those who borrow from banks under the ACGS) | All Agro and Agro Allied Companies Agro Companies that make small or no profits Agro-allied plant and equipment Processors of Agricultural produce All agricultural and agro-industrial machines and equipment. For agricultural production and processing Cassava production and processing- provided such borrowers repay their loans on schedule. |
| SOLID MINERALS | (a) 3 to 5 years tax holiday; (b) Low income tax of between 20% and 30%; (c) Deferred royalty payments depending on the magnitude of the investment and the strategic nature of the project; (d) Possible capitalization of expenditure on exploration and surveys; (e) Extension of infrastructure such as roads and electricity to mining sites | Operators in the Solid Minerals Sector |
| PETROLEUM | (a) Guaranteed minimum margin of USS2.50 bl; (b) Accelerated capital allowances which provides that the capital allowances can be carried forward indefinitely (c) Graduated royalty rates approved for oil companies. (d) Investment tax allowances (ITA) | The incentives in this sector are granted to companies that are into joint ventures with the Nigerian National Petroleum Corporation |
| TELECOMMUNICATIONS | a) Manufacture/installation of telecommunications related equipment is considered as pioneer activity. As a result, they enjoy 3 to 5 years tax holiday. b) Taxes and duties do not exceed those charged on essential electrical goods. | |
| TOURISM | - Tax holiday, longer years of moratorium and import duty exemption on tourism related equipment. - Provision of land for tourism development at concessional rates. - Availability of soft loans with long period of moratorium. | Domestic and foreign investors’ in the tourism industry |
| ENERGY | Tax holiday of 3 – 5 years | Manufacturers of Transformers, meters, control panels, switchgears, cable and other electrical related equipment, which are considered pioneer products/industries: Power plants using gas are assessed under the company income tax act at a reduced rate of 30%. |
| TRANSPORT | 3 -5 years tax holiday depending on location. | Shipbuilding, repairs and maintenance of vessels, boat, barges, diving and underwater engineering services, aircraft maintenance and manufacturing are considered pioneer products. |
| TRADE LIBERALIZATION SCHEME (TLS) | The Objective of the scheme is to significantly expand the volume of intra-community trade in the sub-region via the removal of both tariff and non-tariff barriers to trade in good originating from ECOWAS countries. This affords preferential access to the ECOWAS market from Nigeria. | Exporters within ECOWAS sub-region |
| NIGERIA EXPORT PROCESSING ZONES | · Complete tax holiday for all Federal, State and Local Government taxes, rates, custom duties and levies; · One-stop approval for all permits, operating licenses and incorporation papers; · Duty-free, tax-free import of raw materials for goods destined for re-export; · Duty-free introduction of capital goods, consumer goods, components, machinery, equipment and furniture; · Permission to sell 100% of manufactured, assembled or imported goods into the domestic Nigerian Market; · 100% foreign ownership of investments; · 100% repatriation of capital, profits and dividends; etc · Complete tax holiday for all Federal, State and Local Government taxes, rates, custom duties and levies; · One-stop approval for all permits, operating licenses and incorporation papers; · Duty-free, tax-free import of raw materials for goods destined for re-export; · Duty-free introduction of capital goods, consumer goods, components, machinery, equipment and furniture; · Permission to sell 100% of manufactured, assembled or imported goods into the domestic Nigerian Market; · 100% foreign ownership of investments; · 100% repatriation of capital, profits and dividends; etc | Companies operating within the free trade zone |
| DOUBLE TAXATION AGREEMENTS | Nigeria has entered into double taxation agreements with a lot of countries including UK; France; Netherlands; Belgium; Pakistan; Canada; Czech Republic; Philippines; Romania etc. | |
| INVESTMENT PROMOTION AND PROTECTION AGREEMENT (IPPA) | The IPPA helps to guarantee the safety of the investment of the contracting parties in the event of war, revolution, expropriation or nationalization. It also guarantees investors the transfer of interests, dividends, profits and other incomes as well as compensation for dispossession or loss. Nigeria has concluded and signed IPPAs with UK; France; Netherlands; Pakistan; Canada; Romania etc. | |
| LIBERALIZATION OF OWNERSHIP STRUCTURE | By virtue of Nigerian Investment Promotion Commission Act 1995 Foreigners can now own 100% shares in a Company | |
| REPATRIATION OF PROFIT | Under the provisions of the Foreign Exchange (Monitoring & Miscellaneous Provision Act No. 17 of 1995), foreign investors are free to repatriate their profits and dividends net of taxes through an authorized dealer in freely convertible currency. | |
| GUARANTEES AGAINST EXPROPRIATION | The Nigerian Investment Promotion Commission Act guarantees that no enterprise shall be nationalized or expropriated by any government in Nigeria. |
The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion. If you require specific legal advice on any of the matters covered in this article please contact a professional.
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