Nigeria

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

Tax holidays

The NTA expanded the scope of income and capital gains tax exemptions, also, it introduced the Economic Development Tax Incentive (EDTI), which replaces the Pioneer Status Incentive (PSI). These incentives are intended to encourage investment in key sectors of the economy.  

Income, profit, or gain from the following are not subject to income tax or tax on chargeable gains:  

• Statutory or registered friendly societies, co-operative societies, trade unions, and entities engaged in educational, religious, or charitable activities of a public character, provided such income is not from trade or business.  

• Federal, State, or Local Governments, their MDAs, and public institutions (except income from trade or business).  

• Government purchasing authorities established by law.  

• Dividends from authorised collective investment schemes.  

• Dividends or rental income received by real estate investment companies that distribute at least 75% within 12 months.  

• Compensating payments in regulated securities lending transactions.  

• Consular fees and certain diplomatic income.  

• Pension funds, retirement benefits, gratuities, and related exemptions under the Pension Reform Act.  

• Disability pensions, death gratuities, and redundancy payments.  

• Gains from disposal of assets by angel investors, venture capitalists, etc., held for at least 24 months.  

• Income from Federal or State bonds.  

• Emoluments of military personnel in combat zones.  

• Agricultural business income for the first five years.  

• Dividends from wholly export-oriented businesses.  

• Profits from sporting activities.  

• Foreign-sourced dividend, interest, rent, or royalty brought in through approved channels.  

• Employment income at or below the national minimum wage.  

• Wages and salaries of military officers.  

• Gains on disposal of pension fund assets or decorations awarded for valour.  

Additional deductions:  

• 50% of costs incurred in years 2023  to 2025 for wage awards, salary increases, transport subsidies for low-income workers (less than ₦100,000/month), and salaries of new employees (subject to some conditions).  

Donations:  

• Deductible if made to public funds, statutory bodies, religious/charitable/educational institutions, bodies under Diplomatic Immunities Act, or for pandemic/natural disaster interventions. 
• Donations in any year of assessment cannot exceed 10% of the company’s profit before tax for that year.  
• For non-cash donations, the deductible value is the lower of market value at donation date or acquisition cost.  
• Deduction for Research & Development (R&D) is capped at 5% of the company’s turnover for that year.  
• If the R&D outcome is later sold or transferred for commercial use, proceeds are taxable under Chapter Two of the NTA.  

The Economic Development Tax Incentive   

EDTI was introduced to replace the PSI. Below is a summary of what EDTI entails:  

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.    

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.    

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.    

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%.

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. In this regard, full tax credits are usually provided for in the DTTs.