Incentives for Investors
The Nigerian government has put in place a range of incentives
for investors looking to set up shop in the country
Nigeria’s investment regime has been geared towards encouraging private sector involvement in the country’s economy. The corporate tax rate is 30% in all sectors except petroleum, which is taxed separately under the Petroleum Industry Bill.
Generous annual capital allowances are available, including 10% on buildings, 25% on plant and 20% on furniture and fittings. Added to this, companies can avail of special allowances in their first year, including 50% on plant and 15% on buildings and automotives.
Capital allowances may only reduce taxable income by two thirds in any given year, except in manufacturing and agriculture. Losses can be carried forward by four years, except in agriculture, where losses can be carried forward indefinitely.
Pioneer Status and other Incentives
Many industries qualify for ‘pioneer status’, a special designation allowing them to take advantage of a tax holiday of up to seven years for those locating their business in economically disadvantaged areas, and five years for others. Sixty-nine industries so far have been declared pioneer industries, in agriculture, agro-processing, mining, manufacturing, tourism, construction and utilities. To qualify for pioneer status, indigenous companies need to invest minimum capital of around USD2’500, while foreign companies have to invest at least USD40’000. Capital allowances start at the end of the pioneer period, and losses can also be carried forward, so that qualifying companies are entitled to further years of tax relief when their period of pioneer status expires. Companies wishing to claim pioneer status must apply within one year of starting commercial operations.
Industries engaging in Research & Development (R&D) are allowed to deduct up to 120% of the cost of R&D carried out in Nigeria. When R&D is carried out on local materials, 140% of materials expenses are deductible. A tax credit of 20% is given to businesses using local raw materials; in order to qualify for this credit, industries must meet a minimum local sourcing requirement of 70% for agro-processing and petrochemicals and 60% for engineering and chemicals. To encourage re-investment, businesses engaged in manufacturing can avail of an allowance on capital expenditure incurred in expanding production capacity, modernising facilities and diversifying output. Any company located 20km or more away from electricity and water facilities and other essential infrastructure is entitled to deduct 20% of the cost of providing these services themselves from their tax.