EXCHANGE CONTROL
The foreign exchange market in Nigeria is regulated pursuant to the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act Cap F34 LFN 2004 (FEMM Act), the Central Bank of Nigeria Foreign Exchange Manual (CBN Manual) and the guidelines and circulars issued from time to time by the Central Bank of Nigeria (CBN). The FEMM Act establishes a foreign exchange market and authorises the CBN to make regulations for transactions conducted within the market.
Nigeria’s foreign exchange market is made up of three major segments: the CBN window, the interbank and the Bureau de Change. However, please note that the CBN recently discontinued the sale of foreign currencies to Bureaux de Change operators in Nigeria. Separately, a parallel foreign exchange market exists between unlicensed players who buy and sell, or licensed players and third parties that do not meet the documentation requirements for an eligible transaction at the official bank rate. It has been established that scarcity in the official sector and prevailing bureaucratic procedures necessitated the growth and development of the parallel market.
To access foreign currency at the official bank rate, the transaction must qualify as an eligible transaction within the definition of the CBN Manual. Eligible transactions include expatriate personal home remittances (monthly remittance, gratuity, leave pay, final balance, bonus, provident fund and company’s share of provident/pension fund liabilities to expatriate staff); educational expenses, re-insurance, insurance, net proceeds of international air ticket sales, aircraft lease fees, charter fees for bunkering, fishing and other vessels, repairs and maintenance of all shipping vessels and aircraft, travels (personal travel allowance, business trip allowance, foreign medical treatment, pilgrimage), conferences, seminars and training, etc.
The CBN appoints as Authorised Dealer or Authorised Buyer of foreign currency, any bank or non-banking corporate organization which shows evidence of adequate resources and capacity to operate in accordance with the provisions of the FEMM Act. All foreign currency to be utilised for the purchase of securities in Nigeria must be inflowed through an Authorised Dealer, who is required to issue a Certificate of Capital Importation (CCI) within a period of 24 – 48 hours.
In a bid to enhance transparency and efficient processing of foreign investment inflows to Nigeria, the CBN has deployed the electronic CCI platform and now requires Authorised Dealers to issue CCIs to investors in electronic form.
The CCI, once issued, guarantees an investor access to the Nigerian foreign exchange market for the repatriation of dividends, interest and profits (net of taxes) and the remittance of proceeds (net of all taxes) in the event of the sale or liquidation of the enterprise or any interest attributable to its investment.
CORPORATION TAX
Companies Income Tax (CIT) is payable each year on income tax on profits accruing in, derived from, brought into or received in Nigeria. It is payable by companies that are registered in Nigeria and non-resident entities carrying on business or that have a Significant Economic Presence (SEP) in Nigeria.
Currently, the CIT rate in Nigeria is:
- Exempted - profits of Small companies (companies with annual gross turnovers of N25million or less).
- 20% - Medium-sized companies (companies with gross annual turnovers greater than N25million but less than N100 million).
- 30% - Large companies (Companies with annual gross turnovers higher than N100million).
Taxation of companies in the oil & gas sector is primarily governed by the Petroleum Industry Act, 2021, which repealed the Petroleum Profit Tax Act and, instead, imposed: Hydrocarbon Tax, Companies Income Tax and Tertiary Education Tax.
The Hydrocarbon Tax is only applicable to upstream petroleum operations (except for deep offshore operations) in relation to crude oil, condensate and natural gas liquids produced from associated gas. Accordingly, the Federal Inland Revenue Service (FIRS) is empowered to collect the following:
- Hydrocarbon tax of 15%- 30% on profits from crude oil production;
- CIT at 30%; and
- Tertiary Education Tax at 3%.
It is however important to note that holders of Oil Mining Licences and Oil Prospecting Licences will continue to be taxed under the old law (i.e the Petroleum Profit Tax Act) except in cases where a conversion contract is executed as specified by the Petroleum Industry Act, 2021.
Generally, company dividends and other company distributions, whether or not of a capital nature, made by a Nigerian company are liable to tax at source at the rate of 10%. Dividends paid in the form of bonus shares or scrip dividends to individual shareholders are not subject to withholding tax.
TRANSFER PRICING
The Transfer Pricing regime in Nigeria is regulated in accordance with the Income Tax (Transfer Pricing) Regulations, 2018. The Companies Income Tax Act also contains provisions granting the Federal Inland Revenue Service the power to adjust transactions deemed to be “fictitious” or “non-arms length”.
It is a requirement of Regulation 4(1) of the Transfer Pricing Regulations that connected taxable persons follow the arm's length principle when engaging in transactions. Where a connected taxable person fails to comply with the provisions of the Regulation, the Federal Inland Revenue Service (FIRS or the Service) is empowered to make adjustments where necessary to make a controlled transaction consistent with the arm's length principle.
In determining whether the result of a transaction or series of transactions are consistent with the arm's length principle, one of the following transfer pricing methods is applied:
- the Comparable Uncontrolled Price method;
- the Resale Price method;
- the Cost Plus method;
- the Transactional Net Margin method;
- the Transactional Profit Split method; or
- any other method which may be prescribed by regulations made by the FIRS from time to time.
PAYROLL TAX AND SOCIAL SECURITY
The Pension Reform Act (PRA), 2014 establishes a contributory pension reform scheme for the payment of retirement benefits of employees of the Public Service, the Federal Capital Territory and the Private Sector in the Federal Republic of Nigeria. All employers in the public sector, and private employers that have 15 or more employees are required, under the Pension Reform Act (PRA) 2014, to participate in a contributory pension scheme in favour of their employees. Employers are required to make a compulsory monthly pension contribution of 10% of an employee's basic salary, transport and accommodation allowances. An employee also contributes a minimum of 8% of monthly earnings. The minimum total contribution is 18%, however, there is no maximum contribution limit.
PERSONAL INCOME TAX
Personal Income Tax (PIT) is a tax levied on individuals including employees, partners in a partnership, unincorporated trust, joint ventures, families and communities.
For residents of a State in Nigeria, there is a graduated scale as indicated below.
- First N300,000 taxed at 7%
- Next N300,000 taxed at 11%
- Next N500,000 taxed at 15%
- Next N500,000 taxed at 19%
- Next N1,600,000 taxed at 21%
- Above N3,200,000 taxed at 24%
Where an employee is not in Nigeria for a period or periods amounting to an aggregate of 183 days (inclusive of annual leave or temporary period of absence) in any 12-month period commencing in a calendar year, and ending either within the same year or the following year, such employee will be regarded as non-resident and will not be required to pay personal income tax.
The Finance Act 2020 amended the Personal Income Tax Act to provide that income earned by non-resident individuals, executors and trustees from technical, professional, management, or consultancy services remotely provided to a person resident in Nigeria shall be subject to a final 10% WHT in Nigeria, if the non-resident individual has a significant economic presence (SEP) in Nigeria.
DIVIDENDS
Dividends are subject to a 10% withholding tax whether paid to resident or non-resident recipients unless the rate is reduced under a double taxation treaty.
Where a non-Nigerian company which is not engaged in trade or business within Nigeria receives a dividend from a Nigerian company, the only tax payable on the dividend is the 10% withholding tax. No further tax is due from the non-Nigerian company.
STAMP DUTY
Stamp duties are charged by both federal and state governments on various commercial and legal documents, such as deeds of transfer, insurance policies and bills of exchange.
Stamp duties are regarded as taxes on instruments recording transactions, and the rates chargeable would depend on the classification of the document. Some documents attract stamp duties on a nominal basis, while others are assessed on an ad valorem basis.
By the combined effect of the Finance Act 2019 and the clarification provided by the Federal Inland Revenue Service, any document executed outside Nigeria will be "deemed to be received in Nigeria" and consequently, liable to stamp duty if:
- such document is retrieved or accessed electronically in or from Nigeria;
- such document (or an electronic copy of it) is stored on a device (including a computer or magnetic storage) and brought into Nigeria; or
- such document (or an electronic copy of it) is stored on a device or computer in Nigeria;
ROYALTIES
The applicable tax rate payable on royalty payments by resident companies is 10% while resident individuals are charged at a rate of 5%. Non-resident companies and individuals are charged at a rate of 10% unless the non-resident company or individual is domiciled in a jurisdiction which has a double taxation treaty with Nigeria.
CAPITAL GAINS TAX
Capital Gains Tax (CGT) is charged at the rate of 10%. CGT accrues on an actual year basis and pertains to all gains accruing to a taxpayer from the sale, lease or other transfer of proprietary rights in a chargeable interest which may be corporeal or incorporeal (including digital assets) whether in or outside Nigeria.
It is imperative to note that the Finance Act 2021 amended the CGT Act by imposing CGT on the disposal of shares, subject to certain conditions.
By virtue of the Finance Act, 2023 capital losses can now be offset against capital gains, provided that such losses shall only be deductible against the same type of asset.
Further, where the aggregate capital losses in a tax year exceed the aggregate chargeable gains arising from the disposal of the same type of asset in the following year, a company may carry forward losses for deduction from chargeable gains arising from the disposal of such asset. However, those losses are only permitted to be carried forward for a maximum of five years immediately after the year in which the loss was incurred.
LOSSES
Under the Companies Income Tax Act, when ascertaining the profits of a company, prior losses sustained in the business are deductible. A company may carry forward its tax losses or offset against its future taxable income indefinitely. However, losses from one trade / business cannot be offset against the income from another trade or business.
EXPORT PROCESSING ZONE
Approved enterprises operating within an area designated by the president to be an Export Processing Zone (Zone) are exempted from all Federal, State and Government taxes, levies and rates. Legislative provisions pertaining to taxes, levies, duties and foreign exchange regulations do not apply within the Zones.
THIN CAP REGULATIONS
Under Nigerian law, there are no express thin capitalisation regulations and interest is a deductible expense. However, in related parties' transactions, the FIRS may adjust the transaction to impose an 'arm's length' interest rate and tax the borrower's profit accordingly.
REAL PROPERTY TAX
Land use charge is payable in respect of properties. The charge is typically paid by the property owner and the computation of the charge would depend on the location of the property.
TECHNICAL SERVICE FEES
Technical service fees are subject to withholding tax at the respective rates of 10% for corporate recipients and 5% for individuals.
VALUE ADDED TAX
VAT is currently charged at the rate of 7.5% of the purchase price of chargeable goods and services.
INTEREST
A withholding tax of 10% is imposed on the payment of interest to residents and non-residents. The expenses incurred by way of interest on related party loans are tax-deductible.
