An Overview of Tax Incentives in Nigeria

Many governments have various ways of providing an ideal business environment in their respective countries. Sometimes, they even offer tax incentives to relevant companies.

As expected, the Nigerian Government also offers tax incentives. With this measure, the country attracts increased investment to preferred parts of the economy. Besides, it also develops the economy.

Are you interested in knowing more about tax incentives in Nigeria? If yes, this post will give you an overview of tax incentives in Nigeria.

An Overview of Tax Incentives in Nigeria

Now, here are the various tax incentives in Nigeria.

1. Tax holidays

Tax holidays are one of the common tax incentives offered by the Nigerian Government. Under this arrangement, specific companies have a tax holiday of three years. If the concerned company meets some conditions, it can extend the holiday by two years.

In Nigeria, tax holidays are offered to pioneer companies that perform specific industrial activities. These practices include mining and manufacturing of various items (textiles, building materials, electrical parts, glassware e.t.c). Other activities include raising and processing livestock, manufacture of medical equipment.

If you want a complete list of industries that qualify for tax incentives in Nigeria, you can check a gazetted list on the Nigerian Investment Promotion Commission’s website.

2. Rural location incentives

This tax arrangement is granted to companies in rural communities. Here, the business enjoys reduced taxes at favorable rates. Before a business can enjoy this tax exemption, it should be situated in an area with a minimal distance of 20km from public infrastructure, such as government supplied water, power, and roads.

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3. Agricultural production income tax exemption

If your business focuses on agricultural produce, it could get an agricultural production income tax exemption. With this measure, the enterprise will not pay income tax for five years.

It is possible to extend the period of this tax incentive to 8 years. But to enjoy this exemption, your business will have to perform well within the first five years.

4. Export Incentives

In Nigeria, export incentives are also used to attract investment from various businesses. With this measure, you can have two types of incentives – free trade zones (FTZ) and export processing zones (EPZ).

You can trade without having to deal with foreign exchange in a free trade zone or export processing zone. You can also do business while enjoying tax exemptions.

Also, manufacturing companies located in an EPZ can get up to 100% capital allowance in the assessment year. However, the allowance covers the building and equipment of the qualified business.

If an export-based enterprise is situated outside an EPZ, it gets a tax holiday of three years. To enjoy this incentive, the firm must be “new” (not established from the breakup of older companies). Besides, the firm should make most of its revenue – at least 75% – from exporting its products.

Moreover, if the company spends its turnover on producing goods for foreign trade, it will not pay tax. But the company will require a certificate of purchase to enjoy such a privilege.

If the company moves its factory and equipment to a new firm, the tax written down value -original value less than the capital allowance – should stay at a maximum of 25% of the total cost of the factory and equipment of the new one. Also, the company must keep a minimum of 75% of the export profits in a Nigerian domiciliary account.

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Nigerian enterprises that export their products can also get this type of tax exemption. But they will have to keep their profits in Nigeria and spend it on raw materials and the factory itself. Furthermore, they will also use the money to get parts for equipment used during the manufacturing process.

In FTZs and ETZs, the Free Zone Tax Administration Unit handles tax-related issues. This organization was created in 2015 by the Oil and Gas Free Zone Authority (OGFZA).

5. Export Expansion Grant (EEG) Scheme

Under this arrangement, the company receives an Export Credit Certificate from the EEG scheme. With this measure, the government can deal with bonds, credit facilities, and debts.

The Export Expansion Grant also classifies companies based on the type of products exported. These groups with their accompanying rates include fully manufactured products (15%), semi-manufactured products (10%), processed/intermediate products (7.5%) and merchants/primary agricultural commodities (5%)

6. Gas Utilisation Incentives

If your company is involved in the production of natural gas, you can apply for this incentive. Features of this initiative include a five-year tax-free period, enhanced capital allowance, and tax-free dividends.

7. Tourism Incentives

This measure allows hotel owners to keep 25% of their profits from the revenue service. However, the money should be in convertible currency and must be used to build more hotels, restaurants, and other amenities for the hospitality industry. They can keep the reserve fund for a maximum of five years.

8. Interest Incentives

If a  foreign investor has a deposit account in a Nigerian bank, the interest is entitled to tax exemptions. To enjoy this incentive, the deposit should be made on or before the first day of 1990. Besides, the depositor will have to file returns as a resident in Nigeria, especially after making the payment.

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Asides local deposit accounts, the interest on domiciliary accounts – in Nigerian banks – with foreign currency are also free from taxation.

Even interest accrued from foreign loans or loans for the production of goods for export is tax-free. Below are the exemption rates offered on these loans:

 Repayment  Period Moratorium Exemption (%)
 Over 7 years Not less than 2 years 70
 5 to 7 yearsNot less than 1.5 years40
2 to 4 yearsNot less than  1 year10

If a bank grants a loan to an enterprise in agriculture or fabrication of equipment, any interest accrued is free from taxation by 100%. However, the loan should come with at least an 18- month moratorium period while the interest rate should not exceed the base lending rate.

9. Investment allowances

Companies can also get investment allowances as 10% on the funds spent on the factory and equipment. Moreover, entrepreneurs in agriculture, mining, and manufacturing have unlimited full claims of capital allowance at any time.

10. Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme

Here, investors involved in this scheme can recover their expenses spent on repairing or building roads. They can also have additional deductions that equal a total of the CBN’s Monetary Policy Rate and 2% of the road construction/rehabilitation projects’ expenses.

11. Foreign tax credit

This tax incentive follows the rules based on Double Taxation Treaties (DTT). Under this measure, Commonwealth citizens have tax credits at half the Nigerian company income tax rate.