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.
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
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.
• 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.
• 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
• 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.