For Nigeria to experience meaningful and enduring economic growth and development, its ability to attract substantial foreign direct investment (FDI) is crucial, as it permits transfer of technology and skills to facilitate improvements in productivity, which in turn translates to an increase in the country’s per capita income and an overall standard of living.

The uniqueness of the Nigerian business environment requires prospective investors, especially foreign investors, to understand the regulatory framework prior to commencing business operations. Industries such as energy, mining, telecoms and other viable investment vehicles have distinct rules and regulations which require careful adherence. There are also general regulatory issues such as formal registration for all companies and individuals intending to do business, tax requirements and liaising with various government agencies. All of these issues may require the service of a professional adviser.

One main area that investors should pay particular attention is the proper understanding of the Nigerian tax system, as non-compliance with tax rules and regulations could erode investments.

Corporate Tax

Taxation of companies in Nigeria, other than those involved in oil exploration and production is governed by the provisions of the Companies Income Tax Act (CITA), Cap. C4, LFN 2004. Companies Income Tax (CIT) is chargeable on the profits of a company accruing in, derived from, brought into, or received in Nigeria. The highlights of the provisions of the act include:

• CIT is usually levied on profit at 30%. However, a lower rate of 20% is applicable to manufacturing or agricultural production companies, and companies engaged wholly in exports within the first five years of operation and where the turnover does not exceed N1m ($3230).

• CIT is payable by all companies doing business in Nigeria (both resident and non-resident).

• Companies doing business in Nigeria, other than non-resident companies (NRCs) are assessed to the tax based on the preceding year basis. NRCs are assessed to tax on actual basis, except in the commencement and cessation years.

• NRCs are assessed to tax on actual basis without recourse to commencement rules. However, with effect from the 2016 financial year, NRCs are to file their returns on the actual basis alternative versus filing returns based on deemed income.

• Every company must file a return based on income for the accounting year with the tax authority within six months of the end of the accounting year.

Exempted Incomes

Income in the ordinary course of business are subjected to CIT. However, CITA grants exemptions on certain income derived in the ordinary course of business. Some examples are:

• Profits derived from exports, provided the proceeds from the exports are repatriated to Nigeria and are used exclusively for the purchase of raw materials, plant, equipment and spare parts;

• Dividend received from companies net of withholding tax (WHT);

• Profits of pioneer companies earned during the tax holiday;

• Income earned from bond and short-term securities;

• Dividend distributed by a pioneer company during the tax-exempt period; and

• Dividend distributed from profits that have suffered tax.

Reliefs & Deductions

The reliefs and deductions are as follows:

• All expenses wholly, exclusively, necessarily and reasonably incurred in the production of those profits are deductible.

• Capital allowances are granted in lieu of depreciation on qualifying capital expenditures at an accelerated rate.

• Losses incurred by a company in any year can be carried forward and relieved against future profits indefinitely. However, losses incurred by an insurance company and losses incurred by a company during its commencement years can only be carried forward for four years.

• Companies carrying out agricultural trade or business, companies with at least 25% imported equity and companies within the first four years of commencement of business are exempted from minimum tax.

Tertiary Education Tax (TET)

TET is payable by all Nigerian companies on assessable profit, that is, tax-adjusted profit before capital allowances. The relevant law is the Tertiary Education Trust Fund (Establishment, etc.) Act 2011. The highlights of the provisions of the act include:

• Tax is at the rate of 2% of assessable profit.

• All companies registered in Nigeria are liable to pay TET.

• NRCs and unincorporated entities are exempted from TET.

• The tax is on a self-assessment basis and usually assessed and filed together with company income tax.

• Failure to pay tax after two months of service of notice of assessment attracts a penalty of 5% of the tax. If failure continues, N1m ($3230) or six months’ imprisonment, or both, applies for first-time offenders, while a penalty of N2m ($6470) or 12 months’ jail term, or both, applies for second-time offenders.

Personal Income Tax

The Personal Income Tax Act (PITA), Cap. P8, LFN 2004 governs the taxation of individuals. PITA subjects individuals to tax in Nigeria based on their place of residence. Generally, an individual may be deemed to be resident if he or she is domiciled, resides in, or sojourns in Nigeria. Furthermore, an individual may also be deemed to be a resident in Nigeria if they exercises their duties of employment partly or wholly in the country.

Non-residents will be liable to tax in Nigeria, where they hold Nigerian employment. A foreign national will become liable to tax where he exercises the duty of his employment in Nigeria and satisfies the following conditions jointly:

• Their remuneration is borne by a fixed base of his employer in Nigeria.

• They are in Nigeria for 183 days or more in any 12-month period (including annual leave or temporary period of absence).

• Their income is subjected to tax in a country which does not have a double taxation treaty with Nigeria. Some of the highlights of the provisions of PITA are as follows:

• Self employed individuals are to pay tax by undertaking a self-assessment, while individuals in paid employment pay tax through the pay-as-you-earn system.

• The tax is levied on a graduated rate, with an effective rate of 19% due to available relief.

• Reimbursement expenses, removal expenses, compensation for loss of employment, and gratuities are exempted incomes under the act.

• The consolidated relief allowance is granted to all individuals at 20% of gross income plus higher of N200,000 ($647), or 1% of gross income as relief.

• Other allowable deductions are contributions to the National Housing Fund, National Health Insurance Scheme, life assurance premiums, pension contributions, gratuities, and interest on loan for developing an owner-occupier residential house.

• Every employer is required to file a return for the preceding year showing all emoluments paid to employees, on or before January 31 of every year.

Individuals in self-employment are required to file a tax return for the preceding year within 90 days of the fiscal year (i.e., not later than March 31 of the corresponding year). Late filing of returns will attract a penalty of 10% and interest at the ruling bank lending rates.

Withholding Tax

WHT is an advance payment of income tax and is not a type of tax. WHT credit can be used to offset income tax liabilities. Tax withheld on interest, dividend, rent and royalty paid by a NRC or individual is final tax.

WHT provisions are contained in all income tax acts (CITA, PITA, Petroleum Profits Tax Act [PPTA]), and other relevant regulations issued by the tax authority.

WHT rates range between 5% and 10%, depending on the nature of the transaction and the legal status of the entity involved.

Petroleum Profits Tax (PPT)

The PPTA governs the taxation of companies involved in oil exploration and production in Nigeria. The PPT is levied on the profits of a company engaged in petroleum operations (upstream activities) during an accounting period. The tax is administered by the Federal Inland Revenue Service (FIRS). Some highlights of the provisions of PPTA include:

• PPT is levied at 85%. A lower rate of 65.5% and 50% applies to companies engaged in petroleum operations and still in their first five years of operations, and those involved in production-sharing contracts (PSCs) respectively.

• Chargeable incomes under the act include proceeds and value of chargeable oil and related substances disposed by the company, except gas, plus any other incidental income arising from the company’s petroleum operations.

• Tax is payable on an actual yearly basis in 12 equal monthly instalments with a 13-month instalment payable in the case of an underpayment.

• The submission of estimated returns for an accounting period usually precedes the actual returns and must be submitted in a form prescribed by FIRS within two months of the fiscal year (i.e., not later than the end of February). Actual returns must be filed no later than May 31 of the fiscal year.

• Late submission of returns attracts a penalty of N10,000 ($32.33) in the first instance, and N2000 ($6.47) for each day failure continues. Furthermore, late payment of tax attracts a penalty of 5% of the tax payable.

• Niger Delta Development Commission levy is payable at the rate of 3% of the annual budget of oil and gas companies operating onshore and offshore in the Niger Delta. The exemptions and/or incentives are as follows:

• Dividend distribution is not liable to withholding tax.

• Graduated royalty rates and lower PSC tax rates to encourage offshore production;

• TET is treated as a tax deductible expense for petroleum companies.

• Gas income is taxable at a CIT rate of 30% while capital investment for gas are deductible as capital allowances against crude oil income at a higher PPT rate.

• Investment and annual allowances are capital allowances granted in lieu of depreciation.

IT Tax

IT Tax is payable by specified companies with turnover of N100m ($323,000) and above. The tax, when paid, is tax deductible for company income tax purposes. The tax is governed by the National Information Technology Development Agency Act 2007. The provisions are as follows:

• Tax is levied at 1% of profit before tax. Taxable companies include:

• GSM service providers and all telecoms companies;

• Cyber companies and internet providers;

• Pension managers and pension related companies;

• Banks and other financial institutions; and

• Insurance companies. IT tax is assessed by FIRS and is payable within 60 days of service of notice of assessment. Non-payment of tax within the specified period attracts a penalty of unpaid tax plus 2% of the tax payable. Furthermore, where a penalty is not stated for an offence, then a penalty of N200,000 ($647) or one-year imprisonment, or both, applies in the first instance, while a penalty of N500,000 ($1620), or three years’ imprisonment, or both, applies in subsequent instances.

Value-Added Tax (VAT)

VAT is an indirect tax governed by the VAT Act (VATA), Cap. V1, LFN 2007, as amended. VAT is administered by FIRS and it is charged at the rate of 5%. VAT is chargeable on supply of goods and services (including imported goods), except for items exempted in the first schedule of the act.

VAT is substantially invoice-based. VAT payable is the difference between VAT on sales (output VAT), and VAT incurred on purchases or imports meant for resale (input VAT). By comparison, VAT incurred on fixed assets and administrative expenses are not allowable inputs, and should be capitalised or expensed.

A company is expected to register as a VAT collection agent within six months of commencement of the act or business, whichever is earlier. NRCs carrying on business in Nigeria are expected to register for tax using the address of the party they have a subsisting contract with in Nigeria. VAT on imported goods are to be paid at the port of entry, while the recipient of an imported service in Nigeria should self-charge the tax and remit.

VAT returns must be filed within 21 days following the month of transaction using the prescribed form. Failure to file VAT results in a penalty of N5,000 ($16.16) for each month the default continues.

Customs & Excise Duties

Customs duties are levied on goods coming into Nigeria at varying rates, with the lowest rate at 5% and a maximum rate of 70% of import value at each port of entry. They are imposed by Customs, excise tariff, etc. (Consolidation) Act, Cap. C49, LFN 2007.

A detailed list of excisable items such as wines and spirits, tobacco and cigarettes and alcoholic beverages including the excise factories are available at the Nigeria Customs Service.

Tax Treaty with Spain

The year 2018 opened with a significant milestone in the tax space as the Nigerian government announced the ratification of the Nigeria-Spain avoidance of a double taxation agreement (DTA). The DTA has been awaiting ratification since 2009, when it was first negotiated. It was, however, presented to the National Assembly in 2016. The DTA applies to all taxes on income and capital gains. It includes other provisions such as a six-month threshold for employees before a permanent establishment is created in Nigeria and a reduced tax rate of 7.5% for income earned as dividend, interest, and royalties. The ratification of the DTA is a welcome development as we believe it will improve the flow of FDI into Nigeria.

Excise Duty Regime

The Federal Government of Nigeria (FGN) approved the changes to the rates and bases for levying excise duties on alcoholic beverages and tobacco. The new regime was communicated through a circular referenced 17642/II/172 and dated March 6, 2018. It became effective from June 4, 2018 and the increase in taxes has been designed to be phased on a graduated scale from June 2018 to 2020.

The new excise duty regime for alcoholic and tobacco products (currently the only excisable products in Nigeria) has shown a shift from ad valorem to specific rate taxation for beer, stout, wines and spirits. Cigarettes and tobacco would still be taxed on an ad valorem basis but would as well be subject to specific rates of duty.


For 2018, in addition to the 20% ad valorem rate, a specific rate of N1 ($0.003) will be paid on each cigarette stick (N20 [$0.06] per pack of 20 sticks). In 2019 the specific rate will increase to N2 ($0.006) per stick (N40 [$0.13] per pack of 20 sticks) and N2.90 ($0.009) per stick (N58 [$0.19] per pack of 20 sticks) in 2020. With respect to alcoholic beverages, no ad valorem rate is applicable.

Beer & Stout 

In 2018, N0.30 ($0.001) per cl would be payable and N0.35 ($0.001) per cl for both 2019 and 2020.


N1.25 ($0.004) per cl is payable in 2018 and N1.50 ($0.005) per cl for both 2019 and 2020.


N1.50 ($0.005) per cl was approved in 2018, N1.75 ($0.006) per cl in 2019 and N2 ($0.006) per cl in 2020.

One of the major impacts that this new tax regime would likely have is that the profit margins of companies playing in this industry would be reduced as all of the manufacturers involved may not be able to pass the extra cost resulting from the new rates to its final consumers.

Extension of Amnesty

In April 2018 the FGN extended the Voluntary Assets and Income Declaration Scheme (VAIDS) amnesty programme, which was originally intended to elapse by June 30, 2018, meant to provide additional three months of grace to enable tax defaulters to file their returns. By this extension, the window period for compliance was increased to 12 months. Several companies and individual taxpayers took advantage of this window and remedied their tax compliance status in Nigeria.

It should be recalled that the VAIDS, which was conceived via an executive order on June 29, 2017 with an effective date of July 1, 2017, was designed to encourage defaulting taxpayers to voluntarily disclose previously undisclosed assets and income for the purpose of payment of all outstanding taxes in exchange for waiver of penalties, interest, tax audit and possible prosecution. The scheme was implemented by FIRS in collaboration with the 36 states’ Internal Revenue Services (IRS) and the Federal Capital Territory-IRS.

Bank Verification Number, Corporate Affairs Commission and land registry were among the sources from which FIRS obtained information about defaulting tax payers and circularised them afterwards. The scheme enjoyed appreciable success as about 4m taxpayers were brought into the tax net, and N30bn ($97m) was generated from the scheme.

Tax Appeal Tribunal (TAT)

The TAT was reconstituted on July 12, 2018. TAT is an administrative body established by the FIRS (Establishment) Act 2007 to hear and resolve tax disputes. The TAT is the first point of call for aggrieved taxpayers before approaching the Federal High Court (FHC).

The tribunal operates in eight zones across the federation, with an office in each of the six geopolitical zones (Ibadan, Benin, Enugu, Kaduna, Jos and Bauchi), as well as Lagos and Abuja.

The tenure of the last set of commissioners expired in mid-2016, and since then, no cases were heard by the tribunal. However, with the recent development, it is expected that the aggrieved tax payers will have their cases resolved faster.

FIRS Issuance

FIRS issued a letter of substitution to banks in 2018, a year which also witnessed a strong drive by FIRS to increase its revenue, by writing to and appointing banks as collection agents of alleged tax defaulters in exercise of its powers as under section 31 of the FIRS (Establishment) Act.

This indicates that FIRS is increasingly committed to driving up tax revenue and compliance. There have been strong concerns expressed by stakeholders around the appropriateness in relation to due process and the uncertain effects this approach could have on the ambience of the business environment.

Ruling on VAT Treatment

With respect to transactions between resident companies and NRCs, on June 19, 2018, the FHC overruled the decision of the TAT in a case between Gazprom Oil and Gas Nigeria and FIRS. The FHC ruled that a resident company is liable to self-charge VAT in Nigeria on any transaction involving the supply of goods and services by an NRC.

Prior to the ruling of the FHC on this case, the TAT had ruled that Gazprom had no obligation to account for the VAT on the services rendered by the NRC on the premise that the NRC did not include VAT on its invoice to the company and the activities were not carried out in Nigeria.

Executive Order

The FGN and President Muhammadu Buhari had further confirmed its readiness for tax compliance and discouraging tax evasion by signing into law Executive Order No. 8 – Voluntary Offshore Assets Regularisation Scheme. This order became effective as of October 8, 2018 and it shall remain effective for the next 12 months.

It is aimed at expanding the tax net through encouraging wilful tax defaulters/evaders who hold offshore assets and generate offshore incomes to voluntarily and truthfully declare those assets and incomes for which no taxes have previously been paid.

Under the scheme, tax defaulters who hold offshore assets and generate offshore incomes are encouraged to make a one-off payment of 35% of the total value of the assets or undergo a forensic audit of the offshore assets and pay all outstanding taxes, together with the accrued interest and penalties. Furthermore, tax defaulters who take advantage of this scheme will enjoy immunity from prosecution for tax offences, and misdeeds related to the holding of such an offshore asset.

The scheme is therefore open to persons, companies and their intermediaries holding offshore assets that are in default of tax obligations, including those persons or companies that are not currently undergoing investigation by law enforcement agencies.

It is important for affected persons, companies and their intermediaries to take advantage of the scheme, otherwise, such persons or companies upon conviction shall face investigation and enforcement procedures at the expiration of the scheme.

Transfer Pricing (TP) Rules

FIRS in the exercise of powers conferred on it by section 61 of the FIRS (Establishment) Act No. 13 recently published its revised TP regulations that became effective March 19, 2018. This clearly indicates that it is of retrospective application. The revised TP regulations automatically revoke the TP regulation of 2012 and closely aligns it with the OECD TP guidelines of July 2017. The regulation introduces several changes to the TP regime, geared towards increasing the tax compliance of multinational enterprises in Nigeria. The regulation brings within its coverage the VATA and Capital Gains Tax Act, in addition to the already covered PITA, CITA and PPTA.

Intragroup Service Charge

The regulations introduced the evaluation of an intragroup service charge for compliance with the arm’s length principle by focusing on actual service rendered rather than the arbitrary allocation of cost.

Tax Deductability

The regulations seek to restrict tax deduction for payments made as consideration for the right of exploitation of an intangible to 5% of earnings before interest, tax, depreciation and amortisation derived from the commercial activity in which the rights transferred are exploited.

Associated Risks

Highly capitalised equity companies who fund investment activities of associated companies but do not have the capacity to manage the risk associated with such funding shall now be entitled to a risk-free return. The profits or losses associated with the financial risks will now be allocated to the entity (or entities) that manage those risks and have the capacity to bear them.

Customs Valuation

Customs duty valuation for imports and exports will no longer be automatically accepted by FIRS as a representation of arm-length price for TP purposes. Exports and imports shall now be priced at the price quoted in a recognised exchange (domestic or international), at the date of the transaction for income tax purposes, where there is a variance between the agreed price with the connected person and the quoted price. The exception to this rule will be where the person can provide evidence needed to show that adjustments are appropriate to the quoted price to be consistent with the arm’s length principle.

TP Declaration 

Regulations provide that a connected person is expected to submit an updated declaration where there is a merger or acquisition of 20% of the parent or a change in the entity’s structure.

Connected persons are to maintain both a master file and a local file for their TP documentation. Also, the N250m ($808,000) materiality threshold for participation in the advanced pricing arrangement has been removed.

Companies with less than N300m ($970,000) related parties’ transaction may elect not to maintain a contemporaneous TP documentation. However, the documentation must be provided to FIRS within 90 days of request. The penalties are as follows:

• Failure to file TP declaration will attract a fine of N10m ($32,300) in the first instance and N10,000 ($32.33) for every day the failure continues.

• Failure to file updated TP declaration/provide notification about directors attracts a fine of N25,000 ($80.82) for every day the default continues.

• Failure to file TP disclosure will attract a fine of more than N10m ($32,300) or 1% of the value of related party transaction not disclosed and N10,000 ($32.33) for every day the default continues.

• Incorrect disclosure of transaction will attract a fine of more than N10m ($32,300) or 1% of the value of related party transaction not disclosed.

• Failure to file TP documentation upon request will attract a fine of more than N10m ($32,300) or 1% of the value of related party transaction not disclosed; and N10,000 ($32.33) for every day the default continues.

• Failure to furnish information/documentation will attract a fine of 1% of the value of the related party transaction for which information/documentation relates and N10,000 ($32.33) for every day the default continues. However, the administrative penalties as prescribed in the new TP regulations shall not take effect until after December 31, 2018, as communicated by FIRS through a public notice and the guidelines recently released. It is therefore advisable for relevant taxpayers with any outstanding TP returns to take advantage of the brief grace period to avoid being hit with any or all of the subsequent TP declaration and documentation penalties.


In 2018 we have seen FIRS increase its aggressiveness towards expanding its tax base, which has been demonstrated by various changes witnessed during the year. Changes witnessed include:

• Extension of VAIDS programme by an additional three months;

• Introduction of new TP policy with a penalty of at least N10m ($32,300); and

• The freezing of tax defaulters’ bank accounts. These are clear indications that the days of non-compliance and oil revenue dependency may just be over.

The government has demonstrated its readiness to simplify tax administration and ease of doing business in Nigeria through increased adoption of technology solutions and the reconstitution of the tax appeal tribunal. These should, in the long run, reduce the cost of tax administration and enable aggrieved taxpayers to get speedy redress.

In the coming years we expect to see the tax authorities further strengthen their effort to increase tax revenue, as currently the tax-to-GDP ratio remains low, at around 8% after VAIDS. Furthermore, we also expect to see the implementation of the recommendations of the national tax policy, especially the reduction of the corporate tax rate to 25%.

It is worth mentioning that FIRS commenced the full automation of the tax system as Nigerian taxpayers can now file returns from anywhere through the e-filing system and pay their taxes through the various electronic platforms available. We expect to see more effort to stabilise the system and make it more functional in the coming year and beyond.