1 Basic framework
1.1 Is there a single tax regime or is the regime multi-level (eg, federal, state, city)?
The tax regime in Nigeria is multi-level. There are three levels: federal, state and local government.
1.2 What taxes (and rates) apply to corporate entities which are tax resident in your jurisdiction?
Companies are liable to company income tax (CIT) at the rate of 30%. For small companies in the manufacturing industry and wholly export-oriented companies with a turnover not exceeding NGN 1 million, the CIT rate is reduced to 20% in the first five calendar years of operation.
Companies engaged in upstream petroleum operations are liable to petroleum profit tax (PPT) at varying rates, as follows:
- 50% for petroleum operations under production sharing contracts (PSCs) with the Nigerian National Petroleum Corporation;
- 65.75% for non-PSC operations, including joint ventures, in the first five years during which the company has not fully amortised all pre-production capitalised expenditure; and
- 85% for non-PSC operations after the first five years.
All resident companies are liable to tertiary education tax at 2%. Banks, insurers, pension-related companies and telecommunications and internet providers are liable to information technology tax at a rate of 1% of pre-tax profits.
Capital gains tax at 10% is applicable to chargeable gains arising from the disposal of assets.
1.3 Is taxation based on revenue, profits, specific trade income, deemed profits or some other tax base?
Corporate income tax is based on accounting profits adjusted for tax purposes. Capital gains tax is based on chargeable gains from the disposal of assets.
1.4 Is there a different treatment based on the nature of the taxable income (eg, gains on assets as opposed to trading income or dividend income)?
There is a different tax treatment based on the nature of taxable income. For instance:
- gains on the disposal of assets are subject to capital gains tax, rather than CIT;
- dividend income is taxable at source by way of withholding tax at 10% and is not subject to further tax; and
- trading income forms part of a company's business income and is subject to CIT.
1.5 Is the regime a worldwide or territorial regime, or a mixture?
A company resident in Nigeria is taxable on its worldwide income.
1.6 Can losses be utilised and/or carried forward for tax purposes, and must these all be intra-jurisdiction (ie, foreign losses cannot be utilised domestically and vice versa)?
Losses may be utilised and carried forward indefinitely. However, in the case of insurers, losses may be carried forward for four years only. The losses of a Nigerian company can be utilised domestically regardless of the jurisdiction in which they arose. This does not apply to losses of a foreign subsidiary or other foreign legal entity in which a Nigerian entity has an interest.
1.7 Is there a concept of beneficial ownership of taxable income or is it only the named or legal owner of the income that is taxed?
Only the named or legal owner of income is taxed in Nigeria. However, the concept of beneficial ownership may be applied in the event of a transfer pricing audit.
1.8 Do the rates change depending on the income or balance-sheet size of the taxpayer?
Corporate income tax rates are generally fixed for all taxpayers, regardless of income or balance-sheet size. The only exception is for small companies in certain sectors with turnover below NGN 1 million.
1.9 Are entities other than companies subject to corporate taxes (eg, partnerships or trusts)?
Entities other than companies such as partnerships and trusts are subject to personal income tax and not corporate taxes.
2 Special regimes
2.1 What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
Companies engaged in upstream petroleum operations are liable to tax under the Petroleum Profit Tax Act (see question 1.2). Approved enterprises operating in free trade zones are regulated by the Nigeria Processing Zones Act and are exempt from all taxes.
Also, any company considered as operating in a pioneer industry and providing pioneer goods and services may be granted an income tax-free period of up to five years from commencement of business.
2.2 Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.
Under Section 29(9) of the Company Income Tax Act, the tax authorities may grant some relief where there is an intra-group transfer of assets. There is no express provision for relief with respect to value added tax on assets transferred.
2.3 Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?
A taxpayer cannot elect for alternative taxation regimes in terms of the taxable base. Profits-based calculation is used to determine the tax payable for all entities. However, the tax authorities are empowered to use revenue-based calculation in the event of best of judgement assessments.
2.4 What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?
Income tax is assessed in the currency in which the transaction giving rise to the assessment was carried out. In practice, all companies (other than petroleum companies) convert their foreign currency transactions into naira at the prevailing Central Bank of Nigeria rate and pay their taxes in the local currency.
2.5 How are intangibles taxed?
Intangible assets which meet the requirements of qualifying capital expenditure may be capitalised or expensed for tax purposes. For instance, computer software that forms an integral part of a computer is treated as qualifying plant expenditure, while standalone software is treated as an intangible asset and amortised over the useful life of the asset. Disposal of intangible assets is subject to capital gains tax at 10% on the chargeable gains.
2.6 Are corporate-level deductions available for contributions to pensions?
Yes, contributions to pensions (mandatory or voluntary) by employers are deductible for company income tax purposes.
2.7 Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?
All corporate taxpayers are subject to the same company income tax rate of 30%, with the exception of companies in the petroleum upstream sector. Additional taxes may apply, such as the information technology tax, which is applicable to certain companies, including telecommunications, banking, insurance and internet service providers.
2.8 Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?
Other surtaxes – such as education tax, information technology tax and the Nigerian content development levy – may apply to companies operating in Nigeria.
2.9 Are there any deemed deductions against corporate tax for equity?
There are no deemed deductions against corporate tax for equity.
3 Investment in capital assets
3.1 How is investment in capital assets treated – does tax treatment follow the accounts (eg, depreciation) or are there specific rules about the write-off for tax purposes of investment in capital assets?
Tax treatments do not fully follow the accounts. For instance, depreciation is not allowed, while capital allowances are granted for investments in capital assets in lieu of depreciation. Other adjustments to accounting profits include provisions (asset impairments) and unrealised gains or losses.
3.2 Are there research and development credits or other tax incentives for investment?
Based on Section 26 of the Company Income Tax Act, companies and other organisations engaged in research and development activities for commercialisation are entitled to a 20% investment tax credit on qualifying expenditure for that purpose. In addition, Nigeria has various tax incentives intended to encourage investment, including the pioneer status incentive and road infrastructure development and refurbishment investment tax credits.
3.3 Are inventories subject to special tax or valuation rules?
There is no special tax for inventories. The valuation rules follow accounting principles, but general provisions on obsolescence or stock losses are not allowed, unless they are specific or actual.
3.4 Are derivatives subject to any specific tax rules?
There are no specific rules on the taxation of derivatives in Nigeria.
4 Cross-border treatment
4.1 On what basis are non-resident corporate entities subject to tax in your jurisdiction?
Non-resident corporate entities are subject to company income tax on their Nigeria-source income (ie, profits attributable to the business or trade carried on in Nigeria).
4.2 What withholding or excise taxes apply to payments by corporate taxpayers to non-residents?
Payments by corporate taxpayers to non-residents are subject to withholding tax at rates ranging from 5% to 10%, depending on the nature of the payment. Investment income such as interest, dividends and royalties is subject to 10% withholding, which is reduced to 7.5% for recipients based in a tax treaty country.
4.3 Do double or multilateral tax treaties override domestic tax treatments?
Yes. For arrangements covered under double/multilateral tax treaties, the treaties will override domestic tax provisions.
4.4 In the absence of treaties, is there unilateral relief or credits for foreign taxes?
Yes, unilateral relief is available by way of deduction for tax suffered on income earned abroad and taxable in Nigeria.
4.5 Do inbound corporate entities obtain a step-up in asset basis for tax purposes?
There is no step-up in asset basis for tax purposes specifically for inbound corporate entities. However, all entities benefit from a 10% step-up on investment in plant and equipment for tax purposes.
4.6 Are there exit taxes (for disposed-of assets or companies changing residence)?
There are no exit taxes, but assets of a capital nature disposed of by a company will be subject to capital gains tax at a rate of 10%. Also, a company is required to compute its tax on a cessation basis in the year of cessation based on the provisions of the Company Income Tax Act.
5.1 Are there anti-avoidance rules applicable to corporate taxpayers – if so, are these case law (jurisprudence) or statutory, or both?
Yes, anti-avoidance rules exist under the tax laws, such as:
- Section 17 of the Personal Income Tax Act;
- Section 22 of the Company Income Tax Act;
- Section 15 of the Petroleum Profit Tax Act; and
- Section 7 of the Capital Gains Tax Act.
5.2 What are the main ‘general purpose' anti-avoidance rules or regimes, based on either statute or cases?
The general purpose anti-avoidance rule provides that:
transactions shall be deemed to be artificial or fictitious between persons one of whom has control over the other or between persons both of whom are controlled by some other person which, in the opinion of the tax authority, have not been made on the terms which might fairly have been expected to have been made by independent persons engaged in the same or similar activities dealing with one another at arm's length.
5.3 What are the major anti-avoidance tax rules (eg, controlled foreign companies, transfer pricing (including thin capitalisation), anti-hybrid rules, limitations on losses or interest deductions)?
The Income Tax (Transfer Pricing) Regulations 2018 include specific requirements on anti-avoidance. Nigeria has no specific thin capitalisation or controlled foreign corporation rules.
5.4 Is a ruling process available for specific corporate tax issues or desired domestic or cross-border tax treatments?
Yes, rulings can be obtained from the Federal Inland Revenue Service.
5.5 Is there a transfer pricing regime?
Yes, the Income Tax (Transfer Pricing) Regulations 2018.
5.6 Are there statutory limitation periods?
Yes, the statutory limit is six years from the relevant tax year. This applies to assessments for income tax and capital gains tax.
6.1 What are the deadlines for filing company tax returns and paying the relevant tax?
The due date for filing company tax returns is six months after the company's accounting year end. However, a new company must file its company tax returns within 18 months of the date of incorporation or six months after the end of its first accounting period, whichever is earlier.
The due date for payment of company income tax is two months after filing for a lump-sum payment. In the case of instalment payments approved by the Federal Inland Revenue Service, the due date shall not exceed three instalments.
6.2 What penalties exist for non-compliance, at corporate and executive level?
The penalties for a company's failure to file tax returns are NGN 25,000 in the first month in which the failure occurs and NGN 5,000 for each subsequent month in which the failure continues.
A responsible officer (ie, a director, manager, secretary or other similar officer or servant/agent) of the company may, upon conviction for non-compliance, be liable to a fine of up to NGN 100,000 or two years' imprisonment.
6.3 Is there a regime for reporting information at an international or other supranational level (eg, country-by-country reporting)?
Yes, on 17 August 2017 Nigeria signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and the Common Reporting Standard Multilateral Competent Authority Agreement. Nigeria also has country-by-country reporting regulations.
7.1 Is tax consolidation permitted, on either a tax liability or payment basis, or both?
Tax consolidation is not permitted in Nigeria.
8 Indirect taxes
8.1 What indirect taxes (eg, goods or service tax, consumption tax, broadcasting tax, value added tax, excise tax) could a corporate taxpayer be exposed to?
Value added tax is applicable to goods and services at a standard rate of 5%. Customs and excise duties apply to imports and specific locally produced items.
8.2 Are transfer or other taxes due in relation to the transfer of interests in corporate entities?
Transfers of interests in other entities by way of shares are exempt from tax. Only a nominal amount of stamp duty is payable.
9 Trends and predictions
9.1 How would you describe the current tax landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The current tax landscape is subject to various changes, due to the tax authorities' focus on increasing the tax revenue and widening the tax base. Efforts are also ongoing to improve the ease of tax compliance through technology and innovation. The tax laws are being comprehensively rewritten, but it will take about two years before any major progress is recorded.
10 Tips and traps
10.1 What are your top tips for navigating the tax regime and what potential sticking points would you highlight?
The current tax regime requires companies to take proactive steps to identify and manage tax risks. They are advised to comply fully with the laws, seek clarification from trusted advisers where there are grey areas, and keep proper documentation of all contracts and transactions. Any concessions granted must be in writing and supportable by law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.