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.
Table of Contents
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.
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.
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.
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 years | Not less than 1.5 years | 40 |
| 2 to 4 years | Not less than 1 year | 10 |
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.