NIGERIA LAW AND PRACTICE Contributed by: Chinyerugo Ugoji, Tiwalola Osazuwa, Rebecca Ebokpo, Jibrin Dasun, Peretimi Akinmodun, Onyinyechi Chima and Princess Otah, ǼLEX
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. 5.5 Thin Capitalisation Rules and Other Limitations Existing anti-avoidance provisions allow the Nigerian tax authority to disallow/reduce inter - est charged between related parties where that interest is not reflective of the arm’s length prin - ciple. Furthermore, the tax deductibility of interest expenses on a foreign-party loan is limited to 30% of EBITDA in any given tax year, and deductible interest expenses not fully utilised can be carried forward for a maximum of five years. 5.6 Transfer Pricing The arm’s length standards in the transfer pricing standards and guidelines issued by the OECD and the UN apply in Nigeria unless they conflict with the domestic transfer pricing legislation. 5.7 Anti-Evasion Rules There are anti-avoidance provisions in the vari - ous tax laws that empower the tax authorities to make necessary adjustments to counteract any reduction to tax that would result from transac - tions that are considered artificial. There is legislation that empowers the tax authorities to tax the undistributed profits of a Nigerian company where that company is con - trolled by five persons or fewer. 5.8 Tariffs The international tariff regime in Nigeria is the Common External Tariff (CET) system under the framework of the Economic Community of West
African States (ECOWAS). In summary, the CET establishes a common set of customs duties, import quotas and preferences applied to goods imported from non-member countries, regard - less of which ECOWAS member state they first enter. The CET is implemented by the Nigeria Customs Service and governed by the Customs and Excise Management Act, along with related regulations, guidelines and fiscal policies. The CET is based on the Harmonised System of tar - iff classification and has a ten-digit structure. It includes different tariff bands for various catego - ries of goods, with some goods potentially being duty-free. 7.5% VAT is imposed on the purchase of all VAT- able goods and services. There are also cus - toms processing fees and import substitution tariffs designed to encourage local production. Furthermore, an ECOWAS levy of 0.5% tax is imposed on goods from non-ECOWAS member states. The CET protects some sectors of the economy, predominantly the agriculture and automotive industries. For example, the Fiscal Policy Meas - ures issued in 2023 include the Supplementary Protection Measures for implementing the CET and an Import Adjustment Tax levy on motor vehicles of 2000cc and above. Climate change mitigation is included through the introduction of excise duty on single-use plastics (the Green Tax, which the government has suspended until a later date) and the promotion of healthy living through revised excise duty on alcoholic bever - ages, cigarettes and other tobacco products. Nigeria is a signatory to the African Continental Free Trade Area Agreement (AfCFTA) and has adopted the ECOWAS Schedule of Tariff Offers, which involves a phased reduction, with up to a 90% tariff waiver on goods traded within Africa.
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