All businesses in agro-allied, manufacturing and mining sectors enjoy Pioneer Status in Nigeria. Pioneer status is a tax holiday granted to industries anywhere in the Federation and five to seven (5-7) year tax holiday in respect of industries located in economically disadvantaged local government area of the Federation.
The grant of Pioneer Status to an industry is aimed at enabling the industry concerned to make a reasonable level of profit within its formative years.
The amount of capital allowance to be enjoyed in any year of assessment is restricted in Nigeria to 75% of assessable profit in case of manufacturing companies and 66% in case of others, except such companies in agro-allied industries that are not affected by this restriction. If leased assets are used in agro-allied ventures, the full (100%) capital allowance claimed will be granted. Moreover, where the leased assets are agricultural plants and equipment, there will be an additional investment allowance of 10% on such expenditure.
OTHER INCENTIVES, BENEFITS AND GUARANTEES
- Trade Liberalization Scheme (TLS) of Economic Community of West African States (ECOWAS)
This is an export liberalization incentive that focuses on the ECOWAS sub-region. The Scheme is an incentive primarily geared towards export activities within the ECOWAS sub-region. The objective is to significantly expand the volume of intra-community trade in the sub-region via the removal of both tariff and non-tariff barriers to trade in goods originating from ECOWAS countries. This affords preferential access to the ECOWAS market from Nigeria.
Liberalization of Company Ownership Structure
The Nigerian Investment Promotion Commission Act has liberalized the ownership structure of businesses in Nigeria. The implication of this is that foreigners can own 100% shares in any company without having Nigerian shareholders.
- Repatriation of Profits
Under the provisions of the Foreign Exchange (Monitoring & Miscellaneous Provision Act No. 17 of 1995), foreign investors are free to repatriate all their profits and dividends net of taxes through an authorized dealer in freely convertible currency.
- Guarantees Against Expropriation
The Nigerian Investment Promotion Commission Act Cap. N117 Laws of the Federation 2004 guarantees the none nationalization or expropriation of any enterprise or foreign-owned investment by any government in Nigeria.
- Incentives for Special Investment
For the purpose of promoting identified strategic or major investment, the Nigerian Investment Promotion Commission shall, in consultation with appropriate Government agencies, negotiate specific incentive packages for the promotion of investment as the Commission may specify.
- Investment Promotion and Protection Agreement (IPPA)
As part of additional effort to foster foreign investors’ confidence in the Nigeria economy, Government continues to enter into bilateral investment promotion and protection agreements (IPPAs) with countries that do business with Nigeria.
The IPPA helps to guarantee the safety of the investment of the contracting parties in the event of war, revolution, expropriation or nationalization. It also guarantees investors the transfer of interests, dividends, profits and other incomes as well as compensation for dispossession or loss.
- Investment in Economically Disadvantaged Areas
Without prejudice to the provision of the pioneer status enabling law, a pioneer industry sited in economically disadvantaged Local Government Area is entitled to 100% tax holiday for seven (7) years and an additional 5% capital depreciation allowance over and above the initial capital depreciation allowance.
- Labour-Intensive Mode of Production
Industries with high labour/capital ratio are entitled to tax concessions. These are industries with plants, equipment and machinery, which essentially are operated with minimal automation. Where there is automation, such automation should not be more than one process in the course of production.
The rate is graduated in such a way that an industry employing 1,000 persons or more will enjoy 15 percent tax concession, while an industry employing 200 will enjoy 7 percent and those employing 100 will enjoy 6 percent and so on.
- Local Value Added
10% tax concession for five (5) years. This applies essentially to engineering industries, where some finished imported products serves as inputs. The concession is aimed at encouraging local fabrication rather than the mere assembly of completely knocked down parts.
- Re-Investment Allowance
This incentive is granted to companies engaged in manufacturing which incur qualifying capital expenditure for the purposes of approved expansion, etc. the incentive is in the form of a generalized allowance of capital expenditure incurred by companies for the following:
- Expansion of production capacity
• Modernization of production facilities
• Diversification into related products
- Minimum Local Raw Materials Utilization
A tax credit of 20% is granted for five years to industries that attain the minimum level of local raw material sourcing and utilization. The minimum levels of local raw materials sourcing and utilization by sectors are: –
Agro-allied – 70%
Engineering – 60%
Chemicals – 60%
Petrochemicals – 70%
- In-Plant Training
This is applicable to industrial establishments that have set up in-plant training facilities. Such industries enjoy a two (2) percent tax concession for a period of five (5) years.
- Investment in Infrastructure
This is a form of incentive granted to industries that provide facilities that ordinarily, should have been provided by government. Such facilities include access roads, pipe borne water and electricity. Twenty percent (20%) of the cost of providing these infrastructural facilities, where they do not exist, is tax deductible.
NORMAL TAX RATE
These following rates apply to businesses which are not covered by Pioneer Status or tax holiday.
- Corporate tax rate is 30%.
- Education tax is 2%.
- Withholding tax (WHT) of 5%, chargeable on unearned income.
WHT is applicable to specified transactions and at specific rates depending on beneficiary of payment. It is final tax for dividends, interests or loans. Otherwise its advance payment of tax and available as credit against ultimate tax liability.
For foreign investors, it is 10% withholding tax on dividend earned as final tax.
Whole or partial exemption from WHT apply on foreign loans depending on tenor.
- Top personal income tax rate is 25%.
- Value added tax (VAT) is 5%.
VAT is levied as consumption tax on supply of goods and services, unless VAT exempt or zero rated items.
- Capital Gains Tax rate is 10% of net earned.
Shares and stocks in companies are exempt from capital gains tax. This is a very significant tax relief for investors.
- Stamp duty is at flat or ad valorem rates up to a maximum of 2% of the value involved. Chargeable on applicable instrument or deed, depending on the nature of the instrument.
- Large population of over 180 million
- Revolutionary business and tax incentives
- Minimum Investment Risk
- High return on investment
- Huge local resource of cost effective workforce
- Vibrant small and medium enterprises in various value chains
- Industry Specific Intervention Fund packaged to support manufacturing e.g 220 Billion Naira MSMEs Intervention, Textile 100 Billion Intervention Fund, etc.