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Nigeria Fiscal Guide

Investment rules

Investment in Nigeria is regulated by the Nigeria Investment Promotion Commission Act 1995. Few restrictions are placed on investors.

Foreigners are able to invest and participate in any enterprise in Nigeria, except for those on the following ‘negative list’ (local investors are also precluded):

  • Production of arms and ammunition;
  • Production and dealing in narcotic drugs and psychotropic substances; and
  • Production of military and parliamentary wear and accoutrement.

A foreign investor is required to apply to the FMI for approval to establish a business and to employ expatriates. The investor should also apply for a Certificate of Capital Importation (CCI) in respect of equity investment in a Nigerian company to ensure remittance of dividends and repatriation of capital.

Generally, there are no restrictions on foreign repatriation of profits as long as the documentation requirements are met and the appropriate taxes paid.

Investment incentives − General

  • Nigerian companies with a minimum of 25% foreign equity are exempt from payment of minimum tax (tax paid by a company that has no taxable profit or whose taxable profit is lower than the minimum tax).
  • Income/interest earned from federal government short-term securities is exempted from CIT and PIT. Income/interest earned from bonds issued by the federal, state and local governments, and corporate bodies (including supra-nationals) is also exempted from the taxes.
  • Proceeds from the disposal of the bonds and securities listed in (b) above are exempted from VAT.
  • Investment allowance of 10% on qualifying expenditure on plant, machinery and equipment.
  • Rural investment allowance of between 15% and 100% of the cost incurred in providing facilities/ infrastructure in rural areas.
  • Capital allowance of 95% in the first year in respect of plant and machinery purchased to replace old ones.
  • Tax exemption of between 40% and 100% of the interest earned on foreign loans advanced to
  • companies in any industry, where the terms and tenure of the loan satisfy the conditions specified in the law.

Incentives for ‘pioneer companies’

Under certain circumstances, pioneer status – which carries fiscal incentives – may be granted to companies (including foreign-owned companies registered in Nigeria) involved in designated industries.

Exemption from income tax for three years with a possible extension of two years.

  • Capital expenditure on qualifying assets incurred during the tax relief period is treated as having been incurred on the first day following the tax relief period. Pioneer companies are therefore able to fully claim capital allowances on such assets.
  • Tax free dividends during the holiday period.
  • Losses in the relief period may be set off against profits after the end of the period.

Incentives for the agricultural sector

  • Companies engaged in agricultural trade or business are not liable for minimum tax.
  • Non-restriction of the capital allowance claimable by the companies to 66% of assessable profit.
  • Tax exemption of the interest earned from agricultural loans, provided the moratorium is not less than 18 months and the rate of interest is not more than the base lending rate at the time of the loan.

Export and mining enterprises incentives

  • A wholly-export-oriented company established outside an export processing zone (EPZ) is exempted from companies income tax for its first three tax years, provided the export proceeds constitute at least 75% of its turnover and it repatriates at least 75% of the export earnings to Nigeria.
  • Plant, machinery, equipment and accessories imported exclusively for mining operations in Nigeria are exempted from customs and import duties.
  • A new company engaged in the mining of solid minerals will enjoy a tax holiday of three years.
  • Free trade zones (FTZs) and EPZs are designated from time to time and enterprises operating in such designated zones enjoy tax exemption and considerably relaxed exchange control measures.
    The Federal Inland Revenue Service (FIRS) has the discretion to assess non-resident companies to corporation tax at the higher of actual assessable profit (determined based on audited accounts) and deemed profit (currently 20% of revenue).

    The Federal Inland Revenue Service (FIRS) has the discretion to assess non-resident companies to corporation
    tax at the higher of actual assessable profit (determined based on audited accounts) and deemed profit
    (currently 20% of revenue).

The above data are excerpts from the Nigeria Fiscal Guide 2014. To download the full version and similar data for other African countries, please click here

David Okwara

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