Time to Invest (2): Significant Sectors of the Nigerian Economy
Nigeria’s economy is largely services based as the Services sector accounts for over 50% of total GDP. One of the biggest contributors to the Services sector is Information and Communications, which accounts for about 10% of the total output. Agriculture accounts for about 23% of GDP, while Industries contributes about a quarter of the total output. The two major segments of the Industries sector are Crude Oil and Natural Gas (accounts for about 10% of GDP) and Manufacturing (accounts for about 9% of GDP).
Key Investment Incentives
(i) On income
- Nigerian companies with a minimum of 25% imported 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).
- Tax exemption of between 40% and 100% of the interest earned on foreign loans advanced to companies in any industry, where the terms and tenor of the loan satisfy the conditions specified in the law.
- The WHT deducted from dividend, interest, rent and royalties earned by foreign companies and remitted to the FIRS, is the final tax on the income. A 10% WHT rate ordinarily applies, but this is reduced to 7.5% for bona fide recipients in countries that have DTTs with Nigeria.
- Companies set up as approved enterprises in any of the free trade zones in the country are exempt from Federal, State and Local Government taxes, as well as foreign exchange regulations.
- Exemption of profits of companies investing in gas utilization from income tax for up to 5 years or, alternatively, up to 145% capital allowance on plant and machinery.
- Income/ interest earned from Federal Government short-term securities is exempted from CIT and PIT. Income earned from bonds issued by the Federal, State and Local governments and corporate bodies (including supra-nationals) is also exempted from both taxes. Proceeds of disposal of bonds, stocks and shares are VAT-exempt and CGT-exempt.
- Tax losses can be carried forward to future tax years without any restrictions (other than tax loss incurred during the commencement period, which has a four-year timeline after which it lapses).
(ii) On qualifying expenditure/assets
- Investment allowance of 10% is granted on qualifying expenditure on plant and equipment, in addition to the general capital allowances (CA) granted on all classes of qualifying expenditure.
- CA of 95% in the first year in respect of plant and machinery purchased to replace old ones.
- No restriction is applied on the CA claimable by companies in the manufacturing and the agro-allied industries.
- Rural investment allowance of between 15% and 100% of the cost incurred in providing facilities/ infrastructure in rural areas are granted to the qualifying companies.
(iii) Pioneer incentives
Under certain circumstances, pioneer status may be granted to companies (including foreign-owned companies registered in Nigeria) involved in designated pioneer industries and/or producing pioneer products. The fiscal incentives available to pioneer companies include:
- Exemption from income tax for three years, with a possible extension for additional 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 claim CA fully on such assets post-pioneer.
- Tax-free dividends during the tax relief period.
- Losses during the tax relief period may be set off against profits after the end of the period.
Please read Part 1 of the article here: Time to Invest (1): Focus on Nigeria
Co-authored by Ayo Luqman Salami, Partner and Akinwale Alao, Manager, KPMG Advisory Services, Nigeria.