Doing Business In Nigeria: Some Of The Incentives Available To Investors

There is also the Oil and Gas Free Zone Onne, Rivers State (“OGFZ”) administered by the Oil and Gas Free Zone Authority (the “OGFZA”), which was created by the Oil and Gas Export Free Zone Act (“OGFZ Act”), 1996 (Cap O5, LFN 2004). The OGFZ Act provides for incentives to oil & gas companies operating within the OGFZ, as well as companies providing services and supplying equipment to such oil & gas companies within the OGFZ. The regulatory and operational guidelines applicable within the OGFZ are similar to those applicable in other (general) EPZs, save that while the former is created specifically for oil and gas businesses, the latter cater for the development of multiple industries. Registration of enterprises within the OGFZ should generally be easier and faster while residence and work permits for expatriates are seamlessly processed and obtained within the OGFZ. Procedures for customs clearing of cargoes in the OGFZ are without the usual bureaucratic hassles experienced by shippers and operators at the regular ports.

Some of the other incentives enjoyed within the OGFZ include exemption of “Form M” prior to shipment; possibility of breaking bulk goods into smaller units to be repackaged, sold and even exhibited; exemption from payment of customs duty on goods exported from, and consumed within the OGFZ; and exemption from import and export licences for investors. Notably also, foreign exchange (“FOREX”) regulations are relaxed within the OGFZ. In this connection, the Central Bank of Nigeria in its “Guidelines for Banking Operations in the Free Trade Zones in Nigeria, 2015” makes provisions for seamless foreign exchange transactions in all free trade/export processing zones.

In addition to the foregoing, there are specific incentives available to investors in Nigeria’s extractive sectors, such as the petroleum and mining sectors. Fiscal arrangements applicable to companies operating in the Nigerian petroleum upstream sector depend on the nature of petroleum arrangement under which they operate. By virtue of the Petroleum Profits Tax Act, Cap P13, LFN, 2004 (“PPTA”), upstream petroleum operations are generally taxed at the rate of 85% of assessable profits. However, during amortization of pre-production allowance, tax is calculated at 65.75% as against the usual rate of 85%. Also, by virtue of the Deep Offshore and Inland Basin Production Sharing Contracts Act (“DOIBPSCA”), companies conducting petroleum operations under production sharing contracts with the Nigerian National Petroleum Corporation in deep offshore and inland basin terrains enjoy a reduced tax rate of 50%. Marginal field operators enjoy a reduced tax rate of 55%. Further, income that has been subject to tax under the PPTA is not subject to any further tax. Thus, dividends earned by investors in such companies do not suffer withholding tax.

In addition, all expenses which are wholly, exclusively and necessarily incurred in furtherance of the petroleum operation of the company are tax deductible against the company’s revenue before ascertaining the taxable profit. By the provisions of paragraph 5 and Table 1 of second schedule to the PPTA, capital allowance can be claimed in respect of qualifying capital expenditure at the rate of 20% per annum for four years and 19% in the fifth year and the remaining 1% in the books. In addition to the capital allowance, upstream companies also enjoy an investment allowance on capital expenditure (of 50% in relation to production sharing contracts and 5-20% for lease/licence holders).