The mining sector in Nigeria enjoys Pioneer Status with attendant tax holiday to all companies operating in the sector.A comprehensive package of incentives has been put in place to create a favorable environment for investment in the solid minerals and mining sector, some of which are:
- Deferred royalty payments.
- Capital allowances of up to 95% of qualifying capital expenditure.
- Exemption from customs and import duties for plant, machinery and equipment for mining operations.
- Three (3) to five (5) years tax holiday as applicable; and tax concessions.
- Low corporate tax rate of between 20% and 30%.
- Possible capitalization of expenditure on exploration and surveys.
- Extension of infrastructure such as roads and electricity to mining sites.
- Expatriate quota and resident permits in respect of expatriate personnel engaged by mining companies.
- Personal remittance quota for expatriate personnel, free from any tax imposed by any enactment for the transfer of external currency out of Nigeria.
- The Nigerian Investment Promotion Commission Act allows 100% ownership of companies by foreigners, while the Foreign Exchange Miscellaneous Act, guarantees 100% Repatriation of Capital, Profit, & Dividends through authorized means.
The holder of a mining lease shall be entitled to:
- i) Depreciation or capital allowance of 75% of the certified true capital expenditure incurred in the year of investment and 50% in subsequent years
ii) Investment allowance of 5%
iii) Exemption from payment of customs & import duties
iv) Expatriate quota & resident permit for approved expatriate personnel
(g) In addition to roll-over relief under the capital gains tax (CGT), companies replacing their plants and machinery are to enjoy a once-and-for-all 95% capital allowance in the first year with 5% retention value until the assets is disposed, 15% will be granted for replacement of an asset.
OTHER TAX INCENTIVES
- Exemption from tax of companies profits in respect of goods exported from Nigeria provided the proceeds are repatriated to Nigeria and used exclusively for purchase of raw materials, plants equipment and spare parts.
- Exclusion from taxes the profits of companies whose supplies are exclusively from input to the manufacturing of products for exports.
- All new industrial undertakings including foreign companies and individual operating in an Export Processing Zone (EPZ) are allowed full tax holidays for three consecutive years.
- As a means of encouraging industrial technology, companies and other organizations that engage in Research and Development activities for commercialization enjoy 20% investment tax credit on their qualifying expenditure.
- Dividends distributed by Unit in Nigeria are free of tax and no withholding tax is deducted therefrom since such incomes have already suffered tax in the first instance.
- All companies engaged wholly in fabrication of tools, spare parts and simple machinery for local consumption and export are to enjoy 25% investment tax credit on their qualifying capital expenditure while any tax payer who purchases locally manufactured plants and machinery are similarly entitled to 15% investment tax credit on such fixed assets bought for use.
KEY 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.
- 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.