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 what I call “rest stops” on the journey to paying taxes or using the general term “tax incentives”.

In my article, I have described some of the tax incentives available to incorporated companies in different industries in Nigeria. This article relates to tax incentives for incorporated companies. 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 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 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)

 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

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

 Plant, machinery and equipment purchased for gas utilisation are exempt 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 development

 Investment required to separate crude oil and gas from the reservoir into usable products is also considered as 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 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 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 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.

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