Wednesday, 14 March 2018

Tax Incentives for Nigerian Businesses




In response to a comment on Not too Young to Run or Not ready? I did some research on Tax Incentives available to businesses and some additional information about Taxation in Nigeria an decided to share.
1. Agriculture

The agricultural industry currently has the following tax incentives:

• An agricultural company with a turnover of less than 1 million will pay CIT at 20% (instead of 30%) for the first five years in which its turnover is less than this amount.
• Exemption from minimum tax.
• Non-restriction of the capital allowance claimable on property, plant and equipment purchased.
• 10% Investment Allowance on plant and machinery.

2. Manufacturing

A lot of manufacturing activities are under the pioneer industries and products. However, there are still other tax incentives available to companies in the manufacturing sector.
• A manufacturing company with a turnover of less than 1 million will pay CIT at 20% (instead of 30%) for the first five years in which its turnover is less than this amount.
• Rural Investment Allowance of between 15% and 100% of the cost incurred in providing facilities/infrastructure in rural areas.
• 15% Investment Tax Credit on replacement of obsolete plant and machinery.
• 10% Investment Allowance on plant and machinery.
• Accelerated capital allowance of 95% in the first year in respect of replacement of industrial plant and machinery.

3. Gas 

• Gas Utilisation (Downstream Operations).
  • ž Enhanced investment allowance of 35% on assets acquired, or a 3-year tax holiday which is renewable for an additional period of 2 years, subject to satisfactory performance.
  • An annual allowance of 90% plus an additional investment allowance of 15% after the tax-free period. Where a gas company opts for the enhanced allowance, it will not be entitled to the 15% investment allowance.
  • žTax-free dividends during the tax holiday, subject to certain conditions.
  • ž Plant, machinery and equipment purchased for gas utilisation are exempt from value-added tax (VAT).
  • ž Profit from gas utilisation operations is subject to tax under the CIT Act.
  • ž Pre-production costs and investment required to separate crude oil and gas from the reservoir are tax-deductible expenses.

• Gas Utilisation (Upstream Operations).
  • ž Capital investment in facilities and equipment required to deliver associated gas in usable form is treated as part of the capital investment for oil development.
  • ž Investment required to separate crude oil and gas from the reservoir into usable products is also considered as part of oil field development.
  • ž Gas transferred from a Natural Gas Liquid facility to the gas-to-liquids facilities is subject to 0% Petroleum Profits Tax and 0% royalty.
4. Export 

• A company engaged in wholly export trade with a turnover of less than 1 million will pay CIT at 20% (instead of 30%) for the first five years in which its turnover is less than this amount.
• Export Expansion Grant.
• The profits of a company whose supplies are exclusively inputs to the manufacturing of products for export are exempt from CIT.
• The profits of a company established within an export processing zone are exempt from CIT.
• Tax-free dividends from investment in wholly-export-oriented business.

5. Mining

• A mining company with a turnover of less than 1 million will pay CIT at 20% (instead of 30%) for the first five years in which its turnover is less than this amount.
• A new company engaged in the mining of solid minerals will enjoy a tax holiday of three years.
• Plant, machinery, equipment and accessories imported exclusively for mining operations in Nigeria are exempted from customs and import duties.

6. Services Industry

• 25% of incomes in convertible currencies derived from tourists by a hotel shall be exempt from tax, subject to certain conditions.
• Interest payable on any loan granted by a bank for the purpose of manufacturing goods for export shall be exempted from tax.
• Tax exemption of the interest earned from agricultural loans subject to certain conditions.
• Companies engaged in research and development activities for commercialization are entitled to 20% investment tax credit.
7. General Tax Incentive

• Companies with approved business in the free trade zones/export processing zones are exempt from tax.
• Exemption from minimum tax for new companies.
• Income from investment in bonds and treasury bills is exempt from tax.
• Interest earned on foreign currency domiciliary account in Nigeria is exempt from tax.
• Investment (dividend, rent, interest and royalty) income derived by the beneficiary from outside Nigeria and brought into Nigeria through government-approved channels are tax-exempt.
Companies in different industries are encouraged to take advantage of these tax incentives. It is important that you engage with a tax professional to confirm your eligibility and the application process (if any) for enjoying these incentives.

Additional Notes


  • At the end of a business year, if your business did not yield a profit, you can file that you made no profits and you won't pay any tax for that year. 
  • After registration, there is still an 18 months tax-exempt window for you.  
  • You can pay taxes yourself without any professional. Even though it is advisable to have a professional with proper knowledge of the system on ground, anybody can still do it.  Research, read and go file your taxes.
First of all, upon registering your company, a tax identification number is assigned to you. This unique code is instrumental to the taxpaying process. For federal taxes, which are paid to the Federal Inland Revenue Service(FIRS), log on to the Remita website, fill your details and the kind of tax you want to pay. After a code is generated, head on to a bank near you to complete the process or pay with your card details on the Remita website. Paying taxes to the state where your business resides is easier. Walk into any bank with your Tax Identification Number(TIN), there is a special reserved payment teller for taxes. After payment, you take the documents to the necessary authority.

Penalties for not paying Taxes:

There are various penalties for not paying tax, every single tax evaded carries its own punishment. Generally, under Section 66 of the Federal Inland Revenue Service’s Companies Income Tax Act tax collectors the power to seize/auction off the goods and even premises of defaulting taxpayers to recover monies owed.

So it is perfectly legal for the authorities to seize assets if taxes are default on; it is the law.

Section 40 of the 2006 Federal Inland Revenue Service Act deals with ‘Failure to deduct or remit tax’ and states that;

Any person who being obliged to deduct any tax under this Act or the laws listed in the First Schedule to this Act, but fails to deduct, or having deducted fails to pay to the Service within 30 days from the date the amount was deducted or the time the duty to deduct arose, commits and offence, and upon conviction be liable to pay the tax withheld or not remitted in addition to a penalty if 10 percent of the tax withheld or not remitted per annum at the prevailing Central Bank of Nigeria minimum re-discount rate and imprisonment for a period of more than 3 years
.
For further information, you can download the PWC 2015 Tax Data Card.

Thank you for reading. Please share your thoughts in the comment section. 

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