Small businesses are crucial to development and sustainability of any
economy. Indeed, Nigeria’s economy is largely driven by micro, small and medium
enterprises (MSMEs). With the plethora
of empirical research documenting the impact small businesses have on the
economy, countries, especially developing countries, strive to put structures
in place to ensure that these businesses thrive and prosper.
In Nigeria for example, such moves do not only entail provision of tax
incentives, but also includes awareness campaigns for various incentives aimed at
increasing profitability for investors and positioning the country as a sure
The purpose for
granting tax incentives is to:
attract, retain or increase investment in a particular
encourage growth in specific areas and assist
companies or individuals carrying on specific activities
boost aggregate expenditure in the economy,
and achieve other macroeconomic objectives
incentives may be in various forms e.g. reliefs, credits, exemptions,
allowances, holidays, drawbacks, etc. Highlighted below are some tax incentives
available to companies operating in Nigeria:
Criteria for claim
Industrial Development (Income Tax
Relief) Act (“IDITRA”), CAP I7, LFN 2004
holiday for an initial period of three (3) years, subject to further
extension of up to two (2) years.
Should belong to industries engaged in products declared as
“pioneer products” subject to fulfilling certain requirements as provided in
the governing law. Examples of such industries – manufacturing, processing,
mining, servicing, agriculture, etc.
Free trade zone enterprise
Nigeria Export Processing Zones
Act, Cap N107 LFN 2004 (NEPZA)
• 100% tax
exemption for approved activities carried out within the zone and unhindered
repatriation of funds.
An application for a license is
to be made to the Authority/Zone Management. Approved activities include
manufacturing, trading, service provision, etc.
Incomes exempted from tax
Section 23, Companies Income Tax
Act (CITA) Cap C21, Laws of the Federation of Nigeria, 2004.
exemption of various classes of income/profits e.g. export income, profits
earned by non-governmental organisations, companies promoting sporting
activities, tax etc.
Third party evidence of income
Rural investment allowance
Section 34, CITA
• A portion of expenditure incurred on basic
infrastructural facilities is granted as an allowance against taxable profit
ranging from 5%- 100%.
Incur capital expenditure on provision of essential infrastructure located at
least 20km away from government provided infrastructural facilities.
Research and development (R&D)
Section 26, CITA
• 20% investment tax credit on qualifying R&D
expenditure for companies involved in R&D on a commercial scale.
• Tax deductibility of R&D expense
(restricted to 10% of total profits) for companies who incur R&D.
expenditure which can be verified.
Reconstruction investment allowance
Section 32, CITA
of expenditure incurred on plant and equipment
Incur capital expenditure on plant and equipment
Companies income tax (exemption of
bonds) order, 2011
•Short term securities e.g. treasury bills
and promissory notes issued by Federal, State, Local and Supranational Agencies
and interest earned by holders are exempt from companies income tax
The exemption order is for a period of 10 years to expire
However, only Federal Government bonds remain exempted from CIT
for more than 10 years.
Schedule II of CITA
• Allowance is granted against profits, in
lieu of depreciation. The applicable rates are dependent on class of assets
and range from 25% to 95%
Assets must be owned by the taxpayer, must be used for the
trade/business and be in use as at the end of the basis period.
Verification and approval by regulators is often required where
the value of the assets exceed ₦500,000.
Minimum tax exemption
Section 33, CITA
• Ordinarily, there is minimum amount of tax
payable by companies.However, there
are exemptions to this rule.
Exemptions are for companies that have at least 25% foreign
equity; or that are engage in agricultural trade/business; or that are within
the first four calendar years of commencement of business
Loss carry forward
Section 31(2), CITA
• Tax losses can be carried forward to offset
future taxes. There are however two exceptions to this general rule as
− Losses made by insurance companies cannot
be carried forward beyond a period of 4 years
− Losses made by a company during
commencement period cannot be carried forward beyond the fourth year