NIGERIA Law and Practice Contributed by: Theophilus Emuwa, Jibrin Dasun, Perpetua Onyeukwu and Tubosiya Ibama, ǼLEX
Companies that have yet to convert to the PIA regime can also offset their gas-related capital allowance against their oil production profits. Free Trade Zones Approved enterprises operating within a free trade zone are exempt from all federal, state and local gov - ernment taxes, levies and rates where: • their total sales arise from the exportation of goods or services, or serve as inputs into goods or ser - vices exclusively for exportation; • their goods and services are sold to persons engaged in upstream, midstream or downstream petroleum or gas operations; and • not more than 25% of sales arise from the sale of goods or services to the customs territory in Nige - ria – the 25% threshold will expire on 1 January 2028, after which tax will apply to all sales to the customs territory in Nigeria. Such approved enterprises are required to file annual tax returns with the Nigeria Revenue Service (NRS) regardless of tax liability. 2.4 Loss Relief Loss carry back is not permitted, but all companies can carry operating losses forward indefinitely. 2.5 Deduction of Interest There are thin capitalisation rules under which the tax- deductibility of interest expense on any related-party loan is limited to 30% of EBITDA in any given tax year. Deductible interest expense not fully utilised can be carried forward for a maximum of five years. In addition, existing anti-avoidance provisions allow the tax authority to disallow/reduce the interest charged between related parties where such interest is not reflective of the arm’s length principle. 2.6 Consolidated Tax Grouping Nigerian law does not permit tax grouping; each com - pany within a group is individually taxable in Nigeria. 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
can be carried forward and set off against the future profits of the company that incurred them. 2.7 Capital Gains Chargeable gains are now computed alongside income tax and taxed at the same rate. Chargeable gains are computed by deducting from the disposal proceeds any incidental costs wholly and exclusively incurred in selling the asset, and, where capital allow - ance has been claimed, the residue of the asset. All forms of property are chargeable assets under Nigerian law, regardless of where they are located, including foreign currency, securities, digital assets, debts and incorporeal property generally. Gains aris - ing from the disposal of the following are exempt from tax: • private motor vehicles, subject to a maximum of two vehicles per individual in any year of assess - ment; • disposal of shares worth less than NGN150 million with chargeable gain not exceeding NGN10 million in a year; • decorations awarded for valour or gallant conduct; • life assurance policies; • chattels sold for NGN5 million or less or up to three times the annual national minimum wage, which - ever is higher; • assets acquired by way of a gift which are subse - quently disposed of by way of gift; • investment in statutory provident funds and retire - ment benefit schemes; • compensation for loss of office up to NGN50 mil - lion; • gains arising from a merger or transfer of business assets for a consideration lower than the remaining tax value of the assets plus any unutilised capital allowance; • gains accruing to federal, state or local government in Nigeria, their ministries, departments and agen - cies and other public institutions, provided that such gains do not arise from the disposal of assets acquired in connection with any trade or business; and • gains accruing from the disposal of chargeable assets by religious, charitable or educational insti - tutions of a public character, statutory or registered
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