Tax Incentives for Companies in Different Industries in Nigeria

Tax is one certain obligation for every company doing business in Nigeria. Tax may be a burden, but we have “rest stops” on the journey to paying taxes (i mean “tax incentives”).

This article describes some of the tax incentives available to incorporated companies in different industries in Nigeria. In a subsequent article, we will examine the incentives for unincorporated entities.

1. Agriculture

The agricultural industry currently has the following tax incentives:

• An agricultural company with turnover of less than ₦1 million will pay CIT at 20% (instead of 30%) for the first five years

• Exemption from minimum tax

• Non-restriction of the capital allowance claimable on purchased property, plant and equipment

• 10% Investment Allowance on plant and machinery

2. Manufacturing

A lot of manufacturing activities are under the pioneer industries and products. However, the companies in the manufacturing sector still have other tax incentives.

• A manufacturing company with turnover of less than ₦1 million will pay CIT at 20% (instead of 30%) for the first five years

• 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 of replacement of industrial plant and machinery.

3. Gas

• Gas Utilisation (Downstream Operations)

 Enhanced investment allowance of 35% on assets acquired, or a 3-year tax holiday which is renewable for 2 years if there is satisfactory performance.

 An annual allowance of 90% plus an additional investment allowance of 15% after the tax-free period. A company will not be entitled to the 15% investment allowance if it opts for the enhanced allowance.

 Tax free dividends during the tax holiday, subject to certain conditions

 Plant, machinery and equipment that are purchased for gas utilisation are exempted from value added tax (VAT)

 Profit from gas utilisation operations is subject to tax under the CIT Act

 Pre-production costs and investment required to separate crude oil and gas from the reservoir are tax deductible expenses

• Gas Utilisation (Upstream Operations)

 Capital investment on facilities and equipment required to deliver associated gas in usable form is treated as part of the capital investment for oil and gas development

 Investment required to refine crude oil and gas extracted from the reservoir into usable products is also considered part of oil field development

 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 turnover of less than ₦1 million will pay CIT at 20% (instead of 30%) for the first five years

• 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 is exempt from CIT

• Tax-free dividends from investment in wholly-export-oriented business

5. Mining

• A mining company with turnover of less than ₦1 million will pay CIT at 20% (instead of 30%) for the first five years

• 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 is exempted from tax, subject to certain conditions

• Interest payable on any loan granted by a bank for the purpose of manufacturing goods for export are exempted from tax

• Interest earned from agricultural loans are exempted from tax 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/export processing zones are exempted from tax

• New companies are exempted from minimum tax

• Income from investment in bonds and treasury bills is exempted from tax

• Interest earned on foreign currency domiciliary account in Nigeria is exempted from tax

• Beneficiary’s Investment (dividend, rent, interest and royalty) income derived from outside Nigeria and brought into Nigeria through government-approved channels are exempted from tax.

Conclusion

I encourage companies in different industries 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.

  • Quite useful article, thank you. However, I understand there were some recent exemptions in Entertainment and ICT industries, please clarify.