NIGERIA Law and Practice Contributed by: Theophilus Emuwa, Jibrin Dasun, Perpetua Onyeukwu and Tubosiya Ibama, ǼLEX
able expenses, capital allowance and carried-forward losses. Under the former CIT Act regime, capital allowances comprised both initial and annual allowances, each applying at different rates. The NTA abolishes the ini - tial allowance, leaving only annual allowances, and also introduces several new categories of qualifying expenditure, including intangible assets, heavy trans - portation infrastructure (such as pipelines and cables) and software expenditure. These changes will slow capital cost recovery and result in higher tax liabilities in the year of asset acquisition. Allowable expenses must be “wholly and exclusive - ly” incurred in making profits. Profits are taxed on an accrual basis, and tax is paid on a preceding-year basis, except for tax on profits from petroleum opera - tions, which is paid, on a current year basis, in monthly instalments based on projected profits, with a rec - onciliation made at the end of the tax year to reflect actual profits. 2.2 Technology Investments There is an exemption on gains arising from the disposal of the shares of a start-up licensed by the National Information Technology Development Agen - cy (labelled start-up), provided that the shares have been held for a minimum of 24 months. There is also a reduced withholding tax rate of 5% on payments to foreign companies that provide techni - cal, consulting, professional or management services to a labelled start-up, which is the final tax. Investors in a labelled start-up also enjoy a 30% investment tax credit. There are no special incentives for a pat - ent box. 2.3 Special Incentives The NTA repeals the Industrial Development (Income Tax Relief) Act (IDITRA) and replaces the Pioneer Sta - tus Incentive (PSI) with the Economic Development Tax Credit (EDTC). The EDTC is a 5% annual tax credit on qualifying capital expenditure, which applies to the tax payable on the profits of a priority product or ser - vice. Any unused EDTC can be carried forward for a maximum of an additional five years, after which it will lapse. The EDTC is available to companies whose
capital investment in a priority sector or product meets the threshold specified in the NTA. Oil and Gas Companies The following incentives apply to companies that have converted to the PIA regime. • A gas production tax credit on non-associated gas (NAG) greenfield developments in onshore and shallow waters reaching first commercial gas production between 1 January 2026 and 1 Janu - ary 2029. The rate of the credit depends on the hydrocarbon liquid content. The gas production tax credit applies for ten years from the first produc - tion. • A gas production allowance at the rate of USD0.50 per thousand cubic feet or 30% of the fiscal gas price, provided hydrocarbon liquids do not exceed 100 barrels per million standard cubic feet for all other NAG greenfield projects achieving first com - mercial gas production after 1 January 2029. Upon expiry of the ten-year period of the gas production tax credit, the gas production allowance may apply at the same rates, provided that the tax credit and allowance are not applied to the same period of production. • Investors in gas pipelines are entitled to a five-year tax-free period commencing after the expiry of any EDTC. Additionally, companies that have converted to the PIA regime can also offset the costs of producing associated gas upstream of the measurement point from their crude oil production profits. Companies that have yet to convert from the PA regime to the PIA regime and have executed a pro - duction sharing contract (prior to 1998) with the Nige - rian National Petroleum Corporation enjoy an invest - ment tax credit (ITC) or an investment tax allowance (ITA) of 50% of their qualifying expenditure. The ITA is deductible from revenue in arriving at taxable profits. The ITC operates as a full tax credit and does not reduce qualifying capital expenditure for the purposes of calculating capital allowances. Upon conversion to the PIA regime, the ITA and ITC no longer apply.
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