Nigeria

Development Levy

A 4% Development Levy is applied to the assessable profits of all Nigerian companies subject to tax, except for small companies and non-resident companies. Assessable profits are defined as profit before tax, adjusted for tax items, before taking deduction for tax losses, capital allowances, and chargeable gain considerations. This single 4% levy replaces several previous corporate levies, including the Tertiary Education Tax (3%), the NITDA IT levy (1%), the NASENI levy (0.25%) for specific sectors, and the Police Trust Fund levy (0.005%), all previously based on profit before tax. The Development Levy does not apply to assessable profits calculated under Hydrocarbon Tax rules.   

Distribution of the 4% Development Levy

Surcharge

A 5% surcharge is to be imposed on chargeable fossil fuel products provided or produced in Nigeria.  

The surcharge base is the retail price of the products, and it is collected at the time of supply, sale, or payment, whichever occurs first.  

Exemptions include clean or renewable energy products, household kerosene, cooking gas, and Compressed Natural Gas (CNG).  

The effective date of commencement for the administration of the surcharge is to be indicated by the Minister of finance by an order issued in the official Gazette.   

Related Party Transactions (Transfer Pricing)

A company involved in arrangements with a related party must ensure that the terms and conditions are carried out at arm’s length.  

The relevant tax authority may make necessary adjustments if it determines that an arrangement with a related party is not at arm’s length, in line with the Transfer Pricing Regulations.  

Where the Nigerian Tax Authority believes a disposition or transaction that reduces or may reduce the tax liability is artificial or fictitious, it may disregard the transaction or direct adjustments to counter the tax reductions.  

Taxation of Waived or Refunded Liabilities

Where a deduction was previously allowed for a liability or expense and liability is later waived, released, or refunded (in whole or in part), the amount waived or refunded becomes income on the day of the waiver, release, or refund and will be subjected to income tax. 

If the waived liability or expense was capital in nature, it will constitute a chargeable gain.  

Treatment of Business Restructuring

In a merger, for the purpose of taxation, the cessation rules relating to income and capital gains do not apply to the merging trades. Assets are transferred at their tax residue and unabsorbed losses, unutilised WHT credit notes and unutilised capital allowances can be carried forward to the new or surviving entity.  

In an outright sale or transfer leading to cessation, tax shall apply to the chargeable asset sold and unutilised capital allowances and losses of the old business will not be available for use by the new business.  

Value-added tax (VAT)

The standard VAT rate is 7.5% (increased from 5% on 1 February 2020).

Zero-rated items include goods and services purchased by diplomats and goods purchased for use in humanitarian donor-funded projects, basic food items (based on a specific list), medical products and services, pharmaceutical products, books and educational materials, and exported services. Exempt items include plants and machinery for use in export processing zones (EPZs) or free trade zones (FTZs). 

MTN, Airtel, government agencies, banks, and oil and gas companies are required to deduct at source VAT charged by their suppliers and remit it to the tax authority. All other organisations except small businesses are required to collect VAT charged on their invoices from their customers for filing and payment to the tax authority.

The Finance Act 2019 has introduced a reverse-charge mechanism for services from which no tax invoice was received. VAT returns are filed on a cash basis.

Non-resident digital companies (as appointed by the tax authorities) rendering services to Nigerian customers are required to charge, collect VAT, and remit to the NRS in the currency of transaction.

Input VAT Claim

Expanded VAT rules now allow the recovery of input VAT incurred on services and fixed assets tied to taxable supplies against output VAT.   

Where input VAT is incurred in making both taxable and non-taxable supplies, only the proportion relating to the taxable supplies can be deducted.   

Input VAT is claimable within 5 years after the end of the period in which the tax was incurred. 

Input VAT on exported services

Exported services are classified as a zero-rated item, that is, companies can now recover input VAT incurred to generate income on exported services

Deductibility of expenses and capital allowance claim

Expenses are only deductible for income tax purposes and Capital allowance is only claimable on qualifying assets where VAT and import duty (where applicable) has been paid.   

VAT Refund

A taxable person shall be entitled to a refund of excess VAT not utilised as a credit, upon request to the tax authority and provision of information or documents required by the tax authority.   

Refund request must be initiated within 12 months from transaction. Refund by the government must also be completed within 30 days after which the amount can be offset against any other tax liability due to the Federal Government.

VAT Fiscalisation and electronic invoicing

The New Tax Act empowers the NRS to deploy Electronic Fiscal System (EFS) for recording / reporting taxable supplies.   

Taxable persons must implement fiscalisation system for VAT purposes and must render real-time or scheduled returns when technology is deployed by the NRS.  

Customs duties

Customs duties in Nigeria are levied only on imports. Rates vary for different items, typically from 5% to 35%, and are assessed with reference to the prevailing Harmonised Commodity and Coding System (HS code).

Airlines registered in Nigeria and providing commercial air transport services are entitled to duty-free importation of their aircraft, engines, spare parts, and components, whether purchased or leased.

Excise duties

Excise duty is applicable on beer and stout, wines, spirits, cigarettes, and homogenised tobacco manufactured in or imported into Nigeria at 20%.

Excise duties on tobacco and alcoholic beverages have increased effective 1 June 2022, whilst excise duties have been introduced on non-alcoholic beverages and all services. The new regime applies only to tobacco and its products (such as cigarettes), alcoholic beverages (beers and stouts, spirits, and wines), non-alcoholic beverages, and telecommunication services (only) as follows:

Tobacco

From 1 June 2022, in addition to the 30% ad valorem rate, a specific rate of NGN 4.2 will be paid on each cigarette stick (NGN 84 per pack of 20 sticks).

In 2023, the specific rate will increase to NGN 4.7 per stick (NGN 94 per pack of 20 sticks). In 2024, the specific rate will increase to NGN 5.2 per stick (NGN 104 per pack of 20 sticks).

Beer and stout

With respect to alcoholic beverages, no ad valorem rate is applicable.

In 2022, NGN 40 per litre is payable on beer and stout. In 2023 and 2024, NGN 45 per litre and NGN 50 per litre will be payable, respectively.

Wines

From 1 June 2022, in addition to the 20% ad valorem rate, a specific rate of NGN 50 per litre will be paid.

In 2023, the specific rate will increase to NGN 60 per litre. In 2024, the specific rate will increase to NGN 70 per litre.

Spirits

From 1 June 2022, in addition to the 20% ad valorem rate, a specific rate of NGN 50 per litre will be paid.

In 2023, the specific rate will increase to NGN 65 per litre. In 2024, the specific rate will increase to NGN 75 per litre.

Non-alcoholic, carbonated, and sweetened beverages

Excise duty will apply to non-alcoholic, carbonated, and sweetened beverages (including fruit juices and energy drinks) at a specific rate of N10 per litre.

Property taxes

Property taxes in Nigeria are usually levied annually by the state government with varying rates depending on the state and the location of the property within the state. The two major property taxes are governor’s consent fee and land registration fee. In Lagos (which is the economic hub of Nigeria), governor’s consent fee, land registration fees, and other levies payable to the state give rise to a total levy of 3% of the fair value of the land.

Also, Right of Occupancy fee and tenement rates are chargeable by state and local government authorities.

Stamp duties

Stamp duty is payable on any agreement executed in Nigeria or relating, whatsoever, to any property situated in or to any matter or thing done in Nigeria. Instruments that are required to be stamped under the Stamp Duties Act must be stamped within 30 days of first execution.

Stamp duty is chargeable either at fixed rates or ad valorem (i.e. in proportion to the value of the consideration), depending on the class of instrument. Stamp duty is imposed at the rate of 0.75% on the authorised share capital at incorporation of a company or on registration of new shares.

All deposit banks and financial institutions are required to charge stamp duties of NGN 50 on every eligible transaction above NGN 10,000. There are exemptions for transactions between accounts held by the same bank customer and for salary accounts.

The 2020 Finance Act has modified section 89(3) of the Stamp Duties Act to remove electronic transfer from the scope of stamp duty and introduced an electronic money transfer levy, which is applicable on electronic receipts or electronic transfer for money deposited in a financial institution, on any type of account. The applicable levy is NGN 50 on any transfer of NGN 10,000 or more.

Payroll contribution

Under the Employee Compensation Act, all employers were required to contribute 1% of their payroll cost in the first two years of commencement of the Act (2010 to 2012). Subsequently, assessments were expected to be issued by the Nigeria Social Insurance Trust Fund, the body empowered to administer and implement the Act. In practice, a contribution of 1% of payroll continues to apply.

Pension contributions

Employers with at least 15 employees are required to participate in a contributory pension scheme for their employees. The minimum contribution is 18% of monthly emolument (with a minimum contribution of 10% by the employer and 8% by the employee). If the employer decides to bear all the contribution, the minimum contribution is 20% of monthly emolument. Mandatory and/or voluntary contributions by the employers are deductible for CIT purposes.

National Housing Fund (NHF) contributions

NHF contributions are applicable to Nigerian employees earning a minimum of NGN 30,000 per annum. The employer is required to deduct 2.5% of gross income from employees earning more than NGN 30,000 per annum and remit it to the Federal Mortgage Bank of Nigeria within one month of deduction. The levy is voluntary for employees in private employment.

Cabotage levy 

The Coastal and Inland Shipping (Cabotage) Act restricts the use of foreign vessels in domestic coastal trade with the purpose of promoting indigenous tonnage, to establish a cabotage vessel financing fund, and for related matters. The levy is applied as a 2% surcharge of the contract sums earned by vessels engaged in coastal trade in Nigeria.

Levy on contracts awarded in the upstream oil and gas sector

The Nigerian Content Development Act was introduced to increase the level of Nigerian participation in the oil and gas industry. The Act imposes a levy of 1% on every contract awarded in the upstream oil and gas sector of the economy. Any violation of the Act is liable for a fine of 5% of the contract value and may result in outright cancellation of the contract.