Dear Subscriber,

With a population of over 180 million and a gross domestic product (GDP) of $509 billion, Nigeria is one country that cannot to be overlooked. An indication that the country is open for business is the variety of business incentives and trade stimulants which the Government has put in place to support the development and growth of commercially viable and sustainable enterprises.

In continuation of our series on Doing Business in Nigeria, we highlight some of the incentives available to businesses in Nigeria.

PIONEER STATUS- Pioneer status is a 5 (five) year tax holiday granted to qualified industries anywhere in the Federation or 7 (seven) year tax holiday in respect of industries located in economically disadvantaged local government areas of the Federation. The grant of Pioneer Status to a company in Nigeria is aimed at enabling such company operating within the pioneer industry make significant capital expenditure and a reasonable level of return of profit within its formative years without having to pay companies tax.

TAX RELIEF FOR RESEARCH AND DEVELOPMENT- Up to 120 percent of expenses on (R& D) is tax deductible. Where the research is long-term, it will be regarded as a capital expenditure and will be written off against profit. Such R& D activities must be carried out in Nigeria and should be connected with the business from which income or profits is derived.

TAX RELIEF FOR IN-PLANT TRAINING- [/b]For industrial establishments that have established in-plant trainings there is a 2% tax concession for a period of five years.

[b]INVESTMENT IN INFRASTRUCTURE- Twenty percent (20%) of the cost of providing these infrastructural facilities, where they do not exist, is tax deductible. 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.

LOCAL VALUE ADDED- There is a 10% tax concession for five (5) years for engineering industries aimed at encouraging local fabrication rather than the mere assembly of completely knocked down parts.

MINIMUM LOCAL RAW MATERIALS UTILIZATION- Industries that attain the minimum level of local raw material sourcing and utilization are entitled to a tax credit of 20% for 5 years.

TRADE LIBERALIZATION SCHEME (TLS)- The Objective of this scheme is to significantly expand the volume of intra-community trade in the West African sub-region via the removal of both tariff and barriers to trade in goods originating from ECOWAS countries. This affords preferential access to the ECOWAS market from Nigeria.

NIGERIA EXPORT PROCESSING ZONES- Companies operating within the free trade zone are entitled to the following benefits

-Complete tax holiday for all Federal, State and Local Government taxes, rates, custom duties and levies;
-One-stop approval for all permits, operating licenses and incorporation papers;
-Duty-free, tax-free import of raw materials for goods destined for re-export;
-Duty-free introduction of capital goods, consumer goods, components, machinery, equipment and furniture;
-Permission to sell 100% of manufactured, assembled or imported goods into the domestic Nigerian Market;
-100% foreign ownership of investments;
-100% repatriation of capital, profits and dividends; etc

DOUBLE TAXATION AGREEMENTS- Nigeria has entered into double taxation agreements with a lot of countries including UK; France; Netherlands; Belgium; Pakistan; Canada; Czech Republic; Philippines; Romania etc.

INVESTMENT PROMOTION AND PROTECTION AGREEMENT (IPPA)- 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. Nigeria has concluded and signed IPPAs with UK; France; Netherlands; Pakistan; Canada; Romania etc.

LIBERALIZATION OF OWNERSHIP STRUCTURE- By virtue of the Nigerian Investment Promotion Commission Act 1995 Foreigners can now own 100% shares in a Nigerian Company.

REPATRIATION OF PROFIT- Under the provisions of the Foreign Exchange (Monitoring & Miscellaneous Provision Act No. 17 of 1995), foreign investors are free to repatriate their profits and dividends net of taxes through an authorized dealer in freely convertible currency.

GUARANTEES AGAINST EXPROPRIATION- The Nigerian Investment Promotion Commission Act guarantees that no enterprise shall be nationalized or expropriated by any government in Nigeria.

SECTORAL INCENTIVES

AGRICULTURE –

-100 % Capital Allowance
-Full tax exemption.
-Enhanced capital allowances of up to 50%.
-100% tax-free period for 5 years
-1% duty.

SOLID MINERALS

-Low income tax of between 20% and 30%;
-Deferred royalty payments depending on the magnitude of the investment and the strategic nature of the project;

TELECOMMUNICATIONS

Manufacture/installation of telecommunications related equipment is considered as pioneer activity. As a result, they enjoy 3 to 5 years tax holiday.

ENERGY

-Tax holiday of 3 – 5 years
-Manufacturers of Transformers, meters, control panels, switchgears, cable and other electrical related equipment, which are considered
pioneer products/industries:
-Power plants using gas are assessed under the company income tax act at a reduced rate of 30%.

TOURISM

Tax holiday
Import duty exemption on tourism related equipment.
Provision of land for tourism development at concessional rates.
Availability of soft loans with long period of moratorium.

TRANSPORT

Shipbuilding, repairs and maintenance of vessels, boat, barges, diving and underwater engineering services, aircraft maintenance and manufacturing are considered pioneer products which enjoy a tax holiday of 3- 5 years.

CONCLUSION

Despite the apparent problems Nigeria remains an attractive market to Entrepreneurs and Investors who look beyond the common perceptions and recognize the true market potential.

The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion. If you require specific legal advice on any of the matters covered in this article please contact info@ioclaw.com

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