Nigeria

Nigeria has various tax incentives intended to encourage investment in key sectors of the economy, as follows.

Tax holidays

Pioneer companies investing in specified industrial activities may, on application, be granted a tax holiday for three years initially, which may be extended for up to two years upon satisfaction of specified conditions. Examples of economic activities that may be granted a tax holiday include glass and glassware manufacturing, manufacturing of fertilisers, and steel manufacturing.

A new company that engages in the mining of solid minerals is exempt from tax for the first three years of its operation.

Small or medium sized companies engaged in primary agricultural production are eligible for an initial tax-free period of four years, which may be extended for an additional two-year period, subject to satisfactory performance.

Rural location incentives

Certain incentives are available to companies located in rural areas. The incentives take the form of tax reductions at graduated rates for enterprises located at least 20 kilometres from available electricity, water, and tarred roads. This incentive has been deleted effective 1 September 2023. However, there is scope to claim the incentive for expenditure incurred on or before the effective date.

Export incentives

Export processing zones (EPZs) and free trade zones (FTZs) are locations within Nigeria designated by the government as free areas where export trade activities can be carried on free of tax and foreign exchange restrictions.

A company that is engaged in an approved manufacturing activity in an EPZ and incurs expenditures in its qualifying building and plant equipment is entitled to 100% capital allowance in that year of assessment.

In addition, a company that is 100% export oriented but located outside an EPZ will enjoy a three-year tax holiday, provided the company is not formed by splitting up or reconstruction of an already existing business and the export proceeds form at least 75% of its turnover.

Profits of companies whose supplies are exclusively inputs to the manufacture of products for export are exempt from tax. Such companies are expected to obtain a certificate of purchase of the input from the exporter in order to claim tax exemption.

Where plant and machinery are transferred to a new company, the tax written down value of the asset transferred must not exceed 25% of the total value of plant and machinery in the new company. The company should also repatriate at least 75% of the export earnings to Nigeria and place it in a Nigerian domiciliary account in order to qualify for a tax holiday.

Profits of any Nigerian company in respect of goods exported from Nigeria are exempt from tax, provided that the proceeds from such exports are repatriated to Nigeria and are used exclusively for the purchase of raw materials, plant, equipment, and spare parts. This exemption does not apply to companies in the oil and gas industry (upstream, midstream, and downstream).

In order to streamline the administration of permissible taxes within the tax-free zones, the Oil and Gas Free Zone Authority (OGFZA) has established the Free Zones Tax Administration (FZTA) Unit with effect from January 2015. Going forward, all tax matters relating to the free zones will be coordinated by the FZTA.

The tax exemption for FTZ companies is subject to such companies filing income tax and transfer pricing (where applicable) returns to the FIRS.

Export Expansion Grant (EEG) Scheme

The EEG Scheme grants the Export Credit Certificate (ECC) as an incentive that can be used to settle all federal government taxes, such as VAT, WHT, CIT, etc. It can also be used to purchase government bonds and repay government credit facilities and debts due to the Assets Management Company of Nigeria (AMCON).

To encourage export of value added and processed/manufactured products, exporters are divided into four categories with maximum applicable EEG rates as indicated below:

• Fully manufactured products: 15%.
• Semi-manufactured products: 10%.
• Processed/intermediate products: 7.5%.
• Merchants/primary agricultural commodities: 5%.

Gas utilisation incentives

Companies engaged in gas utilisation are entitled to:

• A tax-free period for up to five years.
• Accelerated capital allowance after the tax-free period.
• Tax-free dividends during the tax-free period.

Investors in gas pipelines can obtain an additional tax-free period of five years.

On 28 February 2024, his Excellency, President Bola Ahmed Tinubu, GCFR, signed three Executive Orders as part of the Federal Government of Nigeria’s commitment to improve the investment climate and position Nigeria as the preferred investment destination for the Petroleum Sector in Africa. The Executive Orders (hereinafter referred to as the Orders) became effective 28 February 2024.

Under one of the Orders, the Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order 2024, a gas company shall be granted a 25% investment allowance on actual qualifying expenditure on plant and equipment incurred on any new and ongoing project. The allowance shall be granted as an allowable deduction from the assessable profits of the company from the year of purchase of the relevant plant and equipment. The allowance shall not be considered in ascertaining the residue of qualifying expenditure incurred on such plant and equipment. A company shall only be granted the allowance upon the expiration of the tax-free period granted under section 39(1) of the Companies Income Tax Act.

Tourism incentives

25% of the income derived from tourism by hotels in convertible currencies is exempt from tax if such income is put in a reserve fund to be utilised within five years for expansion or construction of new hotels and other facilities for tourism development. This incentive has been deleted effective 1 September 2023. However, there is scope to utilise reserved funds prior to the effective date of the Act until the funds are fully utilised or the five years limit has elapsed, whichever occurs first.

Interest incentives

Interest accruing on deposit accounts of a non-resident company is tax-exempt, provided the deposits are made by transfer of funds to Nigeria on or after 1 January 1990 and the depositor does not become non-resident after making the deposit while in Nigeria.

Interest on foreign-currency domiciliary accounts is also tax-exempt.

Interest on any foreign loans, and interest on any loan granted by a bank for the purpose of manufacturing goods for export, is exempt from tax as follows:

Interest on any loan granted by a bank to a company engaged in primary agricultural trade, fabrication of local plant and machinery, or as working capital to any cottage industry is 100% tax free if the loan has a moratorium of not less than 12 months and the rate of interest is not more than the base lending rate at the time the loan was granted, refinanced, or otherwise restructured.

Investment allowances

An investment allowance of 10% on the cost of qualifying expenditures in respect of plant and machinery is available as a deduction from assessable profits in the year of purchase. This incentive has been deleted effective 1 September 2023. However, there is scope to claim the incentive for expenditure incurred on or before the effective date.

There is no restriction to the full claim of capital allowance in any year of assessment for companies in the mining, manufacturing, and agricultural sectors, and upstream and midstream gas operations.

Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme

Participants in the Road Infrastructure Development and Refurbishment Investment Tax Scheme are entitled to recover the cost incurred by them in the construction or refurbishment of eligible roads as credit against CIT payable. Participants are also entitled to a single uplift, equivalent to the Central Bank of Nigeria (CBN) Monetary Policy Rate plus 2% of the project cost. This uplift will not be taxable in the hand of the participant. The tax credit can be carried forward to subsequent years until it is fully utilised. A participant may sell or transfer its tax credit to other companies, as a form of security or otherwise.

Foreign tax credit

Nigeria does not grant automatic tax credits to Nigerian companies for foreign tax on income derived from other countries. The Nigerian tax laws already provide for tax exemption for dividends, interest, and royalties.

Foreign tax credits are only granted based on the provisions of existing DTTs and partial credits as applicable to Commonwealth countries. In this regard, full tax credits are usually provided for in the DTTs. Tax credits for members of Commonwealth countries are granted at up to half the Nigerian CIT rate.