There
are several factors a foreign investor should consider before investing in a
country, one of such factors is the tax policy of the government of a country
the foreign investor desires to invest in. In considering the tax policies of a
government, a foreign investor should also consider the presence or absence of
tax incentives or benefits.
Tax
incentives are measures that provide for more beneficial tax treatment of
certain industries or sectors compared to what is granted to the general
industry. They are reliefs in form of allowances, exemptions, non-taxable
incomes etc. granted to foreign investors in Nigeria.
Tax
incentives have been set in place by the Nigerian government to attract
investments into certain sectors of the economy or into a geographical area,
through the use of industry-oriented incentives.
The
tax incentives available in Nigeria based on investment into certain sectors of
the economy, geographical areas, or as provided by some of Nigeria's tax laws
or treaties are as follows:
1. PIONEER
STATUS: This status under the Industrial
Development (Income Tax Relief) Act, 2004, grants tax holiday to a foreign
investor for between 3-5 and 7 years who invests in any of the approved pioneer
industries. The grant of pioneer status to an investor is aimed at enabling the
investor to make a reasonable level of profit within its formative years. The
profit made is expected to be ploughed back into the business.
2. TAX
RELIEF UNDER THE COMPANY INCOME TAX ACT (CITA), 2007
Under the CITA there are several tax
incentives available to foreign investors such as:
a.
15% investment tax
credit is permitted for a foreign investor who purchases locally manufactured
plants, machinery or equipment for use in its business. The tax credit is on
such fixed asset bought for use. Also, 25% investment tax credit is allowed on
the qualifying capital expenditure for a company engaged wholly in the
fabrication of spare parts and equipment for local consumption and export.
Section 38 CITA.
b.
Rural investment
allowance is granted to a foreign investor/company which incurs capital
expenditure on the provision of basic infrastructures/facilities such as
electricity, water, tarred road and telephone for the purpose of a trade or
business that is located at least 20 kilometers away from such facilities.
Section 34 CITA.
c. 20%
investment tax credit on qualifying expenditure is available to foreign
investors engaged in research and development activities for commercialization.
Section 26(3) CITA.
d. By
section 11 (1) of CITA, tax relief/ exemption is granted on foreign loans to a
foreign investor carrying on business in Nigeria.
e.
Section 23(1) CITA
grants tax exemption on profits to foreign investors involved in charitable or
educational activities of a public character, tax exemption on dividend
distributed by unit trust, tax exemption on dividend received from small
companies in the manufacturing sector in the first five years of operation, tax
exemption on dividend received from investments in wholly export-oriented
businesses, tax exemption on the profits of a company whose supplies are
exclusively inputs to the manufacturing of products for export etc.
f. A
tax credit of 20% is granted for five years to industries that attain the
minimum level of raw materials sourcing and utilization in their respective
sectors. The minimum levels are: agro-allied: 70%, engineering: 60%, chemicals:
60%, petrochemicals: 70%.
3. DOUBLE
TAXATION TREATIES: This is in form of
bilateral agreements between Nigeria and some countries. It allows for double
taxation relief to a foreign investor or a company that has paid taxes in any
such country that Nigeria has an agreement with. This means tax payable in
Nigeria on the profits of the company being remitted is reduced by the amount
of foreign tax paid abroad by the foreign investor. This applies to countries
that have a double taxation agreement with Nigeria.
4. TAX
RELIEFS BASED ON INVESTMENT IN CERTAIN SECTORS.
a. Solid
Minerals Sector: Tax incentives such as 3-5year tax holiday, 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 is granted to a foreign
investor who invests in the solid minerals sector of the Nigerian economy.
Also, a foreign investor who holds a mining lease shall where qualified, be
entitled to depreciation or capital allowance of 75% of the certified true
capital expenditure incurred in the year of investment and 50% in subsequent
years.
b. Gas
Industry: Capital allowance at the rate of 20% per annum in the first four
years, 19% in the fifth year and the remaining 1% in the books, investment tax credit
at the current rate of 5%, an initial tax free period of three years' renewable
for an additional two years, is available to any foreign investor engaged in
gas utilization in the gas industry.
c. Telecommunication:
Non-fiscal incentives are provided to private foreign investors who invest in
this sector, in addition to a tariff structure that ensures such investors
recover their investment over a reasonable period of time bearing in mind the
need for differential tariffs between urban and rural areas. A 3-5 years' tax
holiday is also granted to investors who engage in the manufacture and
installation of telecommunications related equipment, which is considered a
pioneer activity.
d. Energy
(Electricity): Tax holiday of 3-5 years is granted to foreign investors that
manufacture transformers, meters, control panels, switch gears, cables and
other electrical related equipment which are considered pioneer
products/industries. Power plants using gas are assessed under the CITA at a
reduced rate of 30%.
e. Transportation:
To encourage investment in the transport industry, incentives such as a 3-5
years' tax holiday for the manufacture and maintenance of aircrafts,
shipbuilding, repairs and maintenance of vessels, boats, barges, diving and
underwater engineering services, has been put in place as a result of such
activities being considered pioneer activities.
f. Tourism:
In 1999, the tourism sector was accorded preferred sector status, this
qualifies it for incentives which are available to similar sectors of the
economy such as tax holidays, longer years of moratorium and import duty
exemption on tourism-related equipment. These incentives are granted to foreign
investors who invest in the tourism industry in Nigeria.
5. Tax
concession is granted to industries with high labour/capital ratio. Such as
industries with plants, equipment, and machinery, which are operated with
minimal automation. A tax concession for five years at 15% is granted to a
company or foreign investor with 1000 employees.
6. Duty
drawback/ suspension scheme, export processing zone allowance etc. are also tax
incentives available to foreign investors in Nigeria. Section 35 CITA.
In
conclusion, the above- mentioned tax incentives are available to foreign
investors and companies (including Nigerian Companies) who desire to invest in
Nigeria. There are several more tax incentives available and we at Osuya &
Osuya Law Firm, are ready to provide all the assistance and guidance that will
be needed in applying for and obtaining the said incentives.
REFERENCE
1.
The
effectiveness of tax incentives in attracting investment: evidence from
developing countries, by Stefan Van Parys: https://www.cairn.info/revue-reflets-et-perspectives-de-la-vie-economique-2012-3-page-129.htm#no5
2.
Investment
incentives-invest Nigeria: https://www.nipc.gov.ng/investment-incentives/
3.
Ogbuanya,
C.S. Nelson, Essentials of Corporate Law Practice in Nigeria (2011) Novena
Publishers LTD, PG 204-231
Written by Meekness O. Ikeh (Miss).
No comments:
Post a Comment