Nigeria's population of over 200 million and its continuously expanding consumer market have made it an investment destination of interest to foreign investors for some time. Nigeria is the largest economy in Africa, with a GDP of US$397.27 billion as at December 2018. The establishment of democratic structures during the past 19 years and the efforts of the government towards entrenching the rule of law may have improved the country's political risk profile. Some potential investors may see the country's relatively low corporate tax rates as a good incentive to do business in Nigeria, in spite of tremendous infrastructure deficits and the multiplicity of taxes at the different tiers of government, which can make running a business in Nigeria quite challenging.

The country is a federation of 36 states and 774 local government areas, each with power to impose tax on specified activities. Lagos State, one of the 36 states, is the fifth-largest economy in Africa.


i Corporate

The most common form of corporate business organisation is the private limited liability company. This may not have more than 50 shareholders and must restrict the transfer of its shares. There is also the public limited liability company (plc), which can have any number of shareholders starting from two. This is the required form for companies listed on the stock market. The unlimited liability company is also an available form, but is rarely used.

Most enterprises can only be carried on using a corporate vehicle. For instance, banking, and crude oil exploration and production, can only be carried out by registered companies. The company itself (not its owners) is taxed on its profits.

ii Non-corporate

Many small-scale businesses and petty traders carry on as unincorporated enterprises. Besides sole proprietorships, the most commonly used form of non-corporate business entity is the general partnership. Partnerships are not liable to tax – their profits are shared among the partners and taxed in the partners' hands.


i Tax on profits

There are two corporate income taxes: companies' income tax (CIT) pursuant to the CIT Act (CITA) and petroleum profits tax (PPT) pursuant to the PPT Act.

Determination of taxable profit

CIT is chargeable on the profits of all companies apart from those engaged in oil exploration and production. Expenses are deductible if they are 'wholly, exclusively, necessarily and reasonably' incurred in the making of profits. Donations to charities and educational institutions are deductible up to a prescribed limit. Instead of depreciation, capital allowance is allowed annually at specified rates that can be as high as 95 per cent in the first year.

PPT is chargeable on the profits of any company engaged in the exploration and production of petroleum (or crude oil). Under the PPT Act (PPTA), expenses are deductible if they are 'wholly, exclusively and necessarily' incurred in the making of the profits. The test for deductibility does not include reasonableness as is the case with companies in other sectors. In addition, instead of depreciation, capital allowance is allowed annually at specified rates. For the purposes of both CIT and PPT, taxable profits are arrived at by aggregating all trading income and then deducting exempt income, allowable expenses, capital allowance and carried-forward losses.

For the purposes of CIT, profits are taxed on an accrual basis. The tax is paid after the tax year (that is, on a preceding-year basis). PPT, however, is paid in advance, in monthly instalments based on forecasts of year-end profits and tax; in other words, PPT is paid on a current-year basis with reconciliation made at the end of the tax year to reflect actual profits made in that year. Profits of a Nigerian company are deemed to accrue in Nigeria regardless of where they arise. Nigerian companies are therefore subject to CIT on worldwide profits. Profits of a non-Nigerian company are taxable in Nigeria to the extent that they arise (or are deemed to arise) in Nigeria – the CITA prescribes various tests for determining this (see Section IV).

The CITA also sets out rules for taxation of a company at commencement of business, change of accounting date and cessation. The commencement rules and change of accounting date may lead to double taxation on a company.

Capital and income

Taxable profits consist solely of income or trading profits – these are profits that arise from business or trade. Profits that arise from the disposal of a capital asset are not included in income tax computations but are chargeable to tax under the Capital Gains Tax Act (CGT Act).


A company that makes trading losses is entitled to treat them as tax-deductible and to carry forward unrecovered losses indefinitely, even if the ownership of the company changes. Losses cannot, however, be carried back or offset against capital gains.


The CIT rate is 30 per cent of profits. Companies engaged in crude oil exploration and production are subject to PPT at rates that vary between 50 and 85 per cent depending on the nature of the taxpayer's operations. The CGT rate is 10 per cent.


Corporate taxes are administered by a single tax authority, the Federal Inland Revenue Service (FIRS). Every company is required to file a self-assessment return with the tax authority at least once a year. The filed return must contain the company's audited accounts, tax and capital allowances computation, and a duly completed self-assessment form. The company may pay the tax due and forward evidence of payment along with its return. For PPT purposes, at least two returns must be filed. The first is filed early in the tax year and is based on forecasts of profit and tax. The second is filed after the end of the tax year and reflects actual profits and tax. If forecasts change during the year, a company may amend the first returns from time to time.

Education tax of 2 per cent of assessable profits is imposed on all companies incorporated in Nigeria. Assessment and payment of education tax are done together with the assessment and collection of the CIT or PPT, whichever is applicable.

The Industrial Training Fund Act requires every employer with a staff strength of 25 or more to contribute 1 per cent of its annual payroll to the fund established by the Act. An employer may be refunded up to 60 per cent of the amount contributed if the Industrial Training Fund Governing Council is satisfied that the employer's training programme is adequate.

The Employees' Compensation Act directs every employer covered by the Act to make a minimum monthly contribution of 1 per cent of its monthly payroll. The scope of the Act extends to both the public and private sectors with the exception of members of the armed forces; however, staff of the armed forces employed in a civilian capacity are covered by the Act.

The Niger Delta Development Commission (Establishment) Act mandates every oil or gas company to pay 3 per cent of its annual budget to the Commission for tackling ecological problems in the Niger Delta, where most of Nigeria's oil is produced.

The National Information Technology Development Agency (NITDA) Act mandates telecommunications companies, cyber-related companies, pension-related companies, banks and other financial institutions with an annual turnover of 100 million naira or more to pay a levy of 1 per cent of their profits before tax to the NITDA Fund. In addition, the Nigerian Maritime Administration and Safety Agency imposes a 3 per cent levy on all inbound and outbound cargo from ships or shipping companies operating in Nigeria.

The FIRS has introduced an integrated tax administration system to enhance tax administration. Thus, taxpayers are now able to file tax returns and pay their taxes electronically. This has significantly reduced the complexity, time and cost of paying taxes.

Tax grouping

Nigerian law makes no provision for the tax treatment of a group of companies as one entity. Each company within a group is therefore taxable in Nigeria on an individual basis. Consequently, losses suffered by one member of a group of companies cannot be utilised to reduce the tax liability of another company within the group, but must be carried forward and set off against the future profits of the company that incurred them.

ii Other relevant taxes

In addition to income taxes, Nigerian businesses are also subject to other taxes such as value added tax (VAT) under the VAT Act, CGT under the CGT Act and stamp duties under the Stamp Duties Act.

VAT is levied on the supply of all goods and services with a few exceptions. The rate of VAT is 5 per cent, and it is collected by the supplier and remitted to the FIRS, except where the supplier is a foreign company, in which case the purchaser withholds the VAT and remits it to the FIRS. A taxpayer is allowed to recover VAT incurred in acquiring stock-in-trade or inventory, but not VAT incurred on overheads and administration or on capital assets. It remains unclear whether VAT arises on the sale of choses in action (or intangible contractual rights). Lagos State has also introduced a 5 per cent consumption tax on hotels, restaurants and event centres.

CGT is charged on the gains arising on the disposal of an asset at a rate of 10 per cent. Gains that are applied towards replacing business assets are exempted from CGT, as are gains arising from the disposal of stocks and shares, and those arising from the merger of two companies provided that no cash payment is made. On the other hand, gains arising from a demerger or spin-off are not exempted even where assets have been moved to entities under the same control and ownership as the transferor.

The Stamp Duties Act provides for stamp duty to be paid on instruments. The rates are as contained in the Act, and can be as high as 6 per cent of the value of the underlying transaction.


i Corporate residence

The profits of a Nigerian company are deemed to accrue in Nigeria regardless of where they arise. Nigerian companies are therefore subject to CIT on worldwide profits. The profits of a non-Nigerian company are taxable in Nigeria to the following extent:

  1. the company has a 'fixed base' in Nigeria to the extent attributable to such base;
  2. the company habitually operates in Nigeria through a dependent agent who conducts business on its behalf, or who delivers goods or merchandise on its behalf from stock maintained in Nigeria, to the extent attributable to such activities;
  3. all the profit where the company executes a turnkey contract in Nigeria; that is, a single contract for surveys, deliveries, installation or construction; and
  4. the adjustment made by the FIRS where the foreign company does business with a connected Nigerian company, and the FIRS considers the terms to be artificial or fictitious.

ii Branch or permanent establishment

In determining the fiscal residence of a non-Nigerian company incorporated in a country that has a double taxation treaty with Nigeria, the applicable concept is that of 'permanent establishment', which such treaties define as a fixed place of business through which the business of an enterprise is carried on. However, a permanent establishment will not include facilities used solely for the purpose of carrying on an activity of a preparatory or auxiliary nature, or for the storage, delivery or display of goods or merchandise of a non-resident company. The FIRS directed that all non-resident companies are to file income tax returns taking effect from tax year 2015.


The drive to encourage foreign direct investments in Nigeria has led to the enactment of various pieces of legislation, including the Industrial Development (Income Tax Relief) Act. This Act encourages investment in sectors of the economy that are necessary for the economic development of the country by granting tax relief to businesses. For a business to enjoy relief from corporate income tax under this Act, it must be engaged in one of the industries listed in the Act, or would have to apply and obtain a designation of its activity as a pioneer industry. Relief under this Act is for an initial period of three years extendable up to a maximum period of two years. Dividends are not subject to tax in the hands of the shareholders of the company enjoying the relief. Capital allowances can be carried forward and utilised at the end of the tax relief period. This incentive regime was reviewed in 2017 by the Application Guidelines for Pioneer Status Incentive. The Guidelines have replaced the erstwhile 'service charge' of 2 per cent of estimated tax savings with a new annual service charge of 1 per cent of actual pioneer profits.

The Venture Capital (Incentives) Act provides tax incentives to venture capital companies that invest in venture capital projects and provide at least 25 per cent of the total project cost. The incentives include a 50 per cent reduction of the withholding tax payable on dividends distributed by project companies, allowing equity investments in venture project companies to be treated as qualifying capital expenditure, and exempting capital gains on the disposal of such equity from tax.

The Nigeria Export Processing Zones Act also contains certain fiscal incentives for businesses. It provides in Section 8 that approved enterprises within a zone would be exempted from all federal, state and local government taxes, levies and rates. It also provides in Section 18 that such enterprises may repatriate capital, profits and dividends at any time. The Oil and Gas Export Free Zone Act grants similar incentives to approved enterprises operating within the zone.

Capital allowances are another form of tax incentive. Capital allowances are granted on the acquisition of qualifying capital expenditure that is used solely for the purpose of the business. Capital allowances serve to reduce the profits of a company, and ultimately reduce tax liability. Under the CITA, there are initial and annual allowances. The initial allowance can be claimed only in the year in which the asset was acquired, while the annual allowance, based on the remainder after deducting the initial allowance from the cost of the asset, is spread over the tax life (including the first year) of the asset until the cost of the asset is reduced to a book value of 10 naira.

Under the PPT Act, a petroleum investment allowance (PIA), which allows an uplift of up to 20 per cent on qualifying capital expenditure, is available as an incentive to encourage investment in offshore exploration. In addition to the PIA and capital allowances, companies operating production-sharing contracts (PSCs) in Nigeria's deep offshore and inland basin regions are entitled to either an investment tax credit (ITC) or an investment tax allowance (ITA), depending on when the PSC was signed, which is equal to 50 per cent of annual qualifying expenditure. The ITC operates as a full tax credit, while the ITA is deductible from profits before the calculation of tax. The ITC does not result in a deduction from qualifying capital expenditure for the purposes of calculating capital allowances. There are also special incentives available to oil companies to encourage gas utilisation or the development of gas delivery infrastructure. Most significantly, such companies can offset their gas-related capital allowance against their oil production profits. Given the difference in tax rates between gas production and oil production (30 per cent versus 85 per cent), this incentive has led to considerable investment in gas utilisation projects.

To stimulate the financial markets, the federal government, in 2012, amended relevant laws to exempt from taxation income earned from debt instruments. Consequently, income from bonds issued by sovereign or sub-sovereign entities and those of corporate bodies are exempted from tax in the hands of the bondholder. Proceeds from the disposal of government or corporate bonds are exempt from VAT. These exemptions for corporate bonds are only for a period of 10 years and will lapse in 2022. In addition, the government has increased the tax relief available to companies that incur expenditure on infrastructure or facilities of a public nature. Such companies will now enjoy a 30 per cent uplift in basis for deductibility of the relevant expenditure.

i Holding company regimes

Nigeria does not have any special holding company regimes.

ii IP regimes

Nigeria does not have any special IP regimes.

iii State aid

No state aid is available.

iv General

See Section I.


i Withholding on outward-bound payments (domestic law)

By law, where any amount is payable by one company to another company or person as interest, royalty, rent or dividend, the company making the payment shall first deduct tax at a rate of 10 per cent and pay it to the tax authority. This withholding tax is treated as the final tax when the payment is due to a non-Nigerian company. Where a dividend is paid to a Nigerian company, the amount deducted as withholding tax is treated as franked investment income and is not subject to further tax in the hands of the recipient. In all other cases, such withholding tax qualifies as a credit against CIT liability.

ii Domestic law exclusions or exemptions from withholding on outward-bound payments

Withholding tax exemptions are available on outward-bound payments where:

  1. the payment of a dividend is satisfied by an issue of shares of the company paying the dividend;
  2. dividend is paid by a company exempted from tax under the Industrial Development (Income Tax Relief) Act;
  3. dividend is paid out of profits that have been subjected to PPT;
  4. dividend is paid by an enterprise operating within a free zone; or
  5. interest is paid by a Nigerian company on a foreign loan with a tenor of at least seven years.

In all other cases of outbound remittance of payments, tax withheld at source by the company making the payment will be the final tax.

iii Double tax treaties

Nigeria has signed a number of double taxation treaties with countries. Residents of these countries enjoy a preferential withholding tax rate of 7.5 per cent on payments of interest, rent, royalties and dividends. While Nigeria's double taxation treaties mostly employ the credit method for the elimination of double taxation, a few treaties also employ the exemption method.

iv Taxation on receipt

As a general rule, dividends, interest, rent and royalties brought into or received in Nigeria by a Nigerian company do not qualify for a credit against Nigerian CIT in respect of foreign tax or withholding already suffered. Exceptions include when the income in question is liable to Commonwealth income tax or when the income is brought in from a country with a double taxation agreement with Nigeria that allows for such a credit. In an instance where a credit is not allowed, the ordinary treatment for these types of profits is to aggregate them with business profits subject to tax at the applicable rate of CIT (i.e., 30 per cent); however, such profits will be exempt from CIT if they are brought into Nigeria through a commercial bank.


Small and medium-sized businesses are predominantly funded by equity, as most businesses of this size do not have access to long-term debt. On the other hand, most large businesses, including foreign-owned companies, are predominantly funded by debt.

i Thin capitalisation

Nigeria does not have thin capitalisation rules. There are no restrictions on debt-to-equity ratios, although minimum equity capital requirements exist, mainly in the financial services sector. There are, however, anti-avoidance provisions under which the FIRS may disallow the deduction of interest and other financing costs that it deems not to be at arm's length.

ii Deduction of finance costs

Generally, finance costs may be deducted, provided that the relevant test for deductibility of expenses is satisfied. However, as group relief or consolidation is not available, it will be difficult to push acquisition debt down to the target except by, for example, the acquisition financiers directly refinancing target company debt or a mechanism such as post-completion merger.

iii Restrictions on payments

A Nigerian company can only pay dividends out of distributable profits, namely, trading profits, revenue reserves and capital gains. A company shall not declare or pay dividends if its directors are of the opinion that doing so will leave the company in a position where it is unable to meet its liabilities as they fall due.

iv Return of capital

A company may cancel paid-up shares that it considers to represent excess capital and return such capital to its shareholders. A resolution for the cancellation of shares for purposes of returning capital, like all other procedures that reduce share capital, must, however, first receive court sanction. At the discretion of the court considering an application for reduction of capital, creditors of the company making the application may object to the reduction. Before making an order confirming a reduction of capital, the court must be satisfied that the consent of every creditor entitled to object to the reduction has been obtained, or that the debt owed to them has been discharged, determined or secured, and that the company's authorised share capital has not, by reason of the reduction, fallen below the statutory minimum.

A court order confirming reduction of capital must be registered with the Corporate Affairs Commission before it can take effect and repayment can be made. The return of capital using this procedure is tax-neutral, because proceeds from a disposal of shares are not subject to either CIT or CGT.


i Acquisition

Foreign companies acquiring interests in local businesses usually avoid doing so through a local vehicle, unless the circumstances demand it. Instead, most foreign investors prefer to use an investment vehicle located offshore, usually in a low-tax or double taxation treaty country.

It is quite common for acquisitions of this type to be funded by debt or by portfolio investments. Consideration payable to local sellers is usually structured as a cash payment for shares in the local entity. This structure is tax-neutral.

ii Reorganisation

Mergers and other corporate reorganisations that involve the exchange of shares or cash payment for shares are tax-neutral. CGT may be payable where a reorganisation involves the payment of cash for assets.

iii Exit

A foreign investor wishing to liquidate an investment in a Nigerian company may do so by winding up the business or selling its shares in the business. Capital returned in the process of winding up and proceeds from the sale of shares will not be subject to tax in Nigeria.


i General anti-avoidance

Various tax laws contain general anti-avoidance provisions. These provisions allow the FIRS to make necessary adjustments to counteract the reduction in tax that would result from transactions it considers artificial. The FIRS may deem any transaction to be artificial if it finds that its terms have in fact not been effected or, where it is a transaction between related parties, if its terms do not reflect arm's-length dealings.

ii Controlled foreign corporations

There are no rules relating to controlled foreign corporations. There is legislation that empowers the tax authorities to tax undistributed profits of a Nigerian company where the company is controlled by five persons or fewer.

iii Transfer pricing

The Income Tax (Transfer Pricing) Regulations 2018 provide guidance in the application of the arm's-length principle in related-party transactions. The Regulations allow related parties to adopt any of a number of listed methods as a basis for pricing of controlled transactions. The methods are:

  1. the comparable uncontrolled price method;
  2. the resale price method;
  3. the cost-plus method;
  4. the transactional profit split method; and
  5. the transactional net margin method.

With the approval of the FIRS, a method outside of those listed above may be used. The Regulations also allow for advance pricing agreements with the FIRS. The Regulations replace the Income Tax (Transfer Pricing) Regulations 2012 and incorporate the 2017 updates on the Organisation for Economic Co-operation and Development (OECD)'s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

Companies with related-party transactions of over 300 million naira are obliged to prepare and submit contemporaneous transfer pricing documentation. A transfer pricing declaration form must also be filed with the documentation. The Regulations stipulate punitive administrative penalties for late filing and non-disclosure.

iv Tax clearances and rulings

There are no provisions authorising the FIRS to give tax rulings. In practice, the FIRS does issue circulars and opinions regarding the tax treatment of contentious issues. However, such circulars and opinions have been held to be non-binding.

It is also not possible to obtain an advance ruling from the courts. In Nigeria, the courts will refuse to hear an action based on hypothetical or academic issues. Consequently, the only means of ascertaining the position of the law is to institute an action when a dispute arises between a company and the tax authority.

The parties to a merger, takeover or other corporate reorganisation involving the transfer of business undertakings or assets must obtain directions from the FIRS as to the value at which assets will be transferred. The parties must also obtain clearance from the FIRS in respect of any CGT resulting from the transaction.


The Federal Executive Council (FEC) approved the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme in January 2019. The scheme has a 10-year life span and permits participating companies to fund the construction or refurbishment of major road projects in the country. The participating companies will in return get CIT credits.

The FIRS issued the Income Tax (Common Reporting Standard) Regulations (CRS Regulations) effective from 1 July 2019 and the Income Tax (Common Reporting Standard) Implementation and Compliance Guidelines (the Guidelines) to supplement the CRS Regulations. The CRS Regulations give effect to the provisions of the OECD Convention on Mutual Administrative Assistance in Tax Matters, the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information and the Common Reporting Standard, alongside its commentaries, as approved by the OECD. Reporting financial institutions include depository institutions, investment entities, custodial institutions and specified insurance companies.

On 14 October 2019, the President submitted the Finance Bill 2019 (the Bill) to the National Assembly. The Bill introduces vast changes to the CITA, VAT Act, PPTA, Personal Income Tax Act and Stamp Duties Act. It is expected that the Bill will become operational from January 2020.

Some of the changes proposed in the Bill are outlined below.


  1. introduction of digital permanent establishment (PE) for companies with significant economic presence in Nigeria;
  2. introduction of thin capitalisation rules limiting deductible interest expense on a loan by a foreign related party to 30 per cent of earnings before interest, taxes, depreciation and amortisation (EBITDA); any excess interest expense to be carried forward for a maximum of five years;
  3. introduction of a specialised framework for the taxation of securities lending transactions;
  4. 'excess dividend tax', wherein companies pay tax on dividends that exceed profits, to no longer apply to dividends paid out of exempt income or from franked investment income;
  5. exempting businesses with a turnover of less than 25 million naira from CIT while medium-sized companies with turnover between 25 million and 100 million naira to pay CIT at the rate of 20 per cent;
  6. eliminating the rules for the taxation of a company at commencement and cessation of business (which typically lead to double taxation);
  7. permitting insurance companies to deduct reserve for unexpired risks on time apportionment basis and to also carry forward tax losses indefinitely; and
  8. introduction of a bonus of 2 per cent and 1 per cent, respectively, for early payment of CIT by medium-sized and large companies.


  1. subjecting dividends declared from profits from the sale of crude oil to 10 per cent withholding tax.

VAT Act:

  1. increasing the rate of VAT to 7.5 per cent;
  2. defining goods and services to include intangibles;
  3. charging VAT based on the destination principle;
  4. requiring residents to self-charge and remit VAT on taxable supplies from non-residents even where a non-resident fails to issue a VAT invoice; and
  5. introduction of a threshold of 25 million naira of turnover for registering for and filing VAT returns.

CGT Act:

  1. exempting compensation for loss of employment below 10 million naira from CGT; and
  2. exempting gains realised from the sale of assets by related companies in furtherance of a reorganisation from CGT.

Stamp Duty Act:

  1. defining stamp to include electronic stamps; and
  2. imposition of stamp duty of 50 naira on electronic receipt or transfer from 10,000 naira and above (with the exception of own-accounts transfers).


With Nigeria's tax-to-GDP ratio being at 6 per cent (one of the lowest in the world) and unstable revenue from oil, the federal government's resolve to increase tax revenue is stronger than ever. The Bill, is, therefore, unsurprising. Further, the government has completed the last step in the implementation of the CRS MCAA by the introduction of the Country-by-Country Reporting (CbCR) Regulations, which would enable the government to receive information from over 100 jurisdictions that have committed to exchanging information under the CRS MCAA.

We, therefore, expect to see aggressive initiatives from the federal government geared towards widening the tax net and curbing tax evasion and profit shifting. We also expect to see increased investments in small and medium-sized businesses when the Bill is eventually passed.


1 Theophilus I Emuwa and Chinyerugo Ugoji are partners and Jibrin Dasun and Eniye Igbanibo are assocaiates at ÆLEX.