Florence / Italy
October 29 – November 2, 2014
FOREIGN INVESTMENT COMMISSION
Thursday, October 30, 2014
“IS MY COUNTRY ATTRACTIVE FOR
FOREIGN INVESTMENT?”
INVESTMENT INCENTIVES & SUBSIDIES IN
NIGERIA
Olufemi Sunmonu
Femi Sunmonu & Associates Qais Conrad Laureate
The Concordia
256A Ikorodu Crescent
Dolphin Estate 10122
Ikoyi – Lagos
qcllegal@axis5ive.net
© UIA 2014
CONTENTS
•
Introduction: Investment Incentives or Subsidies
•
Africa’s top Investment Destinations in 2013
•
Nigeria’s Contributing sectors in 2013
•
General Investment Subsidies
•
Sector based Investment Subsidies
•
Points to note
•
Key Priority Areas
•
Extant Investment Protection Provisions
INVESTMENT SUBSIDIES OR INCENTIVES?
Current global market information ranks Nigeria as the 28th largest economy in the world
owing to the recent rebasing of its Gross Domestic Product. The favorable investment
climate may be attributed to the nation’s subsidies and/or incentives.
For purposes of clarity, we would distinguish between Incentives and Subsidies.
According to the online Oxford Dictionary, Incentive as “a payment or concession to
stimulate greater output or investment”. They would range from tax credit or holidays,
subsidies, accelerated depreciation.
The same dictionary defines Subsidy as a “sum of money granted by the state or a public
body to help an industry or business keep the price of a commodity or service low”.
Subsidies may be by way of direct or indirect intervention by the Government and may
come in form of interest free loans, low interest loans, tax breaks and exemptions, cash
grants, etc.
While Incentives are intended to motivate an individual to act in a certain way or adopt a
certain practice and are measured in terms of the direct benefits which can be derived,
usually from increased production or productivity. Subsidies, on the other hand, are
payments in cash or kind which reduce the cost of undertaking an activity for producers,
ultimately affecting the final price of the goods to the consumer.
We can therefore deduce that not all incentives are subsidies but all subsidies are
incentives.
AFRICA’S LARGEST ECONOMIES AS AT 2013
SOURCE: IMF, NIGERIAN NATIONAL BUREAU OF STATISTICS
Nominal GDP(Billions) USD
600
Real Growth (2010 - 2013)
500
501
400
354
300
200
216
100
124
6.40%
Nominal GDP(Billions) USD
Real Growth (2010 - 2013)
Nigeria
501
6.40%
2.70%
South Africa
354
2.70%
3.00%
Algeria
216
3.00%
4.90%
Angola
124
4.90%
0
STATISTICS OF THE CONTRIBUTING SECTORS
IN NIGERIA AS AT 2013
SOURCE: NIGERIA NATIONAL BUREAU OF STATISTICS
Sector Based Growth
(%)
Industries
25.6%
Agriculture
22%
Key Economic Sectors
(%)
7%
44%
9%
15%
2%
23%
Services
51.9%
Manufacturing
Telecoms
Oil and Gas
Entertainment
Agriculture
Other Services
GENERAL INVESTMENT SUBSIDIES
•
•
•
•
20% tax credit for 5years for Companies
whose minimum level of local raw
materials utilization ranges between 60 –
70%
Tax deductible expenses of up to 120%
for Research and Development (R & D)
carried out by Industrial companies and
140% for R & D on Local raw materials
20% Investment Tax Credit on qualifying
expenditure for Companies that
engage in R & D activities for
commercialization
25% Investment Tax Credit on qualifying
capital expenditure for Companies
engaging in the fabrication of tools,
spare parts and simple machinery for
local consumption and export
•
Up to 15% tax concession for Labour
intensive industries
•
Grant of Initial 7 years tax exempt
(Pioneer Status) to Manufacturing
companies and Companies operating
in economically disadvantaged areas
•
2% tax concession for Industries with Inplant training facilities for a year 5 year
period
•
Capital allowances of 75% of assessable
profits for Manufacturing companies
and 66% for other Companies
•
20% of expenses incurred on
Infrastructure is tax deductible where
the Infrastructure was not previously
provided by the Government
SECTOR BASED INVESTMENT SUBSIDIES
MANUFACTURING INDUSTRIES
•
•
•
20% Income tax for Companies
with less than N1Million turnover
for the initial 5 year period
Tax free on dividends for
Companies with turnover of less
than N1 million for the initial 5
years
Dividends of companies engaged
in Petrol chemical and Liquefied
Natural Gas sub-sector are taxexempt
AGRO-ALLIED INDUSTRIES
•
100% Capital allowance (Zero restriction)
•
1% duty on all agricultural and agro-industrial machines and
equipment .
•
Grant of up to 50% capital allowances on Agro-allied plant
and equipment
•
100% tax-free period for the initial 5 year period for processing
of agricultural produce being a pioneer industry
•
Agricultural inputs such as fertlizers and seeds subsidized to 50%
for farmers registered under the Growth Enhancement
Scheme (GES)
•
Under the Agricultural Credit Guarantee Scheme Fund
(ACGSF) administered by the Central Bank of Nigeria,
Companies are guaranteed up to 75% for all loans
granted
by commercial banks for agricultural production and
processing.
•
Companies who borrow from banks under the ACGS, for the
purpose of cassava production and processing, are entitled to
60% repayment if interest provided they repay their loans on
schedule
SECTOR BASED INVESTMENT SUBSIDIES
TELECOMMUNICATIONS
•
•
•
•
Balanced tariff structure, which
ensures investment recoup over a
specific period
Reduced Import duty on all
telecom equipment from 25% to 5%
for a 2 year period
Rebate and tax relief for the local
manufacture of
telecommunications equipment
and provision of telecommunication
services
Pioneer status - 5 to 7 years tax
holiday depending on location, for
manufacture/installation of
telecommunications related
equipment.
TRANSPORT
•
Companies engaging in:
- Shipbuilding, Boat, Barges and
Vessel repairs and maintenance
-
Diving and underwater engineering
services,
-
Aircraft maintenance and
manufacturing
are considered Pioneer companies
and therefore entitled to 5 - 7 years
tax holiday depending on location.
•
Access to Central Bank of Nigeria
(CBN) Intervention Fund by eligible
companies of loans not exceeding
70% of the total cost of the project
at an all inclusive interest rate of 7%
and repayment tenor of 10 –
15years
-
SECTOR BASED INVESTMENT SUBSIDIES
SOLID MINERALS
•
3 to 5 years tax holiday
•
Reduced income tax from 30% to 20%;
•
TOURISM
•
95% capital allowance in the first year
with 5% retention value for Companies
replacing their plants and machinery
until the asset is disposed
25% of income derived by hoteliers in
convertible currencies is tax-exempt
where such income is put in a reserve
fund to be utilized within 5 years for
further tourism related expansion
•
Grant of land for tourism development
at concessional rates
•
Roll over relief under Capital Gains Tax
•
Availability of soft loans with long period
of moratorium.
•
Holders of mining lease shall, upon
qualification be entitled to:
- Depreciation or capital allowance of
75% of the certified true capital
expenditure incurred in the year of
investment and 50% in subsequent years
- Investment allowance of 5%
- Exemption from payment of customs &
import duties
•
Tax holidays and import duty exemption
on tourism related equipment.
SECTOR BASED INVESTMENT SUBSIDIES
GAS
Subsidies granted in the Gas Industry vary
and generally depend on the specific
operation
LIQUEFIED NATURAL GAS PROJECTS
- Tax payable is 45% under the Petroleum
Profits Tax (PPT)
- Capital allowance at an annual rate of
33% for the first three years with 1% remaining
in the books
- 5% Investment tax credit
GAS PRODUCTION PHASE/ GAS
TRANSMISSION AND DISTRIBUTION
- 30% Income tax payable
- Capital allowance at the rate of 20% per
annum in the first four years, 19% in the fifth
year and the remaining 1% in the books
- Tax holiday under Pioneer status
GAS
EXPLOITATION
(UPSTREAM
OPERATION)
- Capital allowances, operating expenses and basis
for assessment will be subjected to the provisions of
the PPT Act and the revised Memorandum of
Understanding (MOU).
GAS UTILISATION (DOWN STREAM OPERATAION)
•
Companies engaged in gas utilization and
development projects are to be subjected to
30% tax instead of 45%
•
An initial tax free period of three
renewable for an additional two years
•
years
Gas is transferred at 0% PPT 0% Royalty;
•
Investment capital allowance is increased from
5% to 15%;
•
Interest on loan on gas project is to be tax
deductible provided that prior approval was
obtained from the Federal Ministry of Finance
before taking the loan
•
Dividends distributed during the tax holiday shall
be tax exempt
SECTOR BASED INVESTMENT SUBSIDIES
ENERGY (ELECTRICITY)
•
Total import duty waiver for parts
required for power generation
•
Pioneer status grant (5 – 7 years tax
holiday) to companies that engage
in the manufacture of Transformers,
meters, control panels, switchgears,
cable and other electrical related
equipment
•
Tax exemption on dividends paid
during Pioneer status
•
Income tax at 30% for Power plants
engaging in gas utilization
•
Provision of soft loans at
concessionary lending rates and
subsidy on production
PETROLEUM
•
Investment Tax Allowances (ITA) to
Companies in Joint Ventures with the
Nigerian
National
Petroleum
Corporation and have entered into a
Memorandum of Understanding in
respect of any asset for the accounting
period. The ITA is graduated as follows:
On
shore
5%
Off shore in depth of up to 10m - 10%
Off shore in depth of between 100-200m
15%
Off shore in depth of over 200m - 20%
•
Guaranteed minimum margin of USS2.50
bl
•
Accelerated capital allowances which
provides for capital allowances can be
carried forward indefinitely
POINTS TO NOTE
Double Taxation Agreements exists between Nigeria and 13
countries namely:
•
Belgium, Canada, China, Czech Republic, France,
Netherlands, Pakistan, Philippines, Romania, Slovakia, South
Africa, Mauritius, and the United Kingdom.
•
There is a shipping and air transport double taxation
agreement with Italy.
•
Other pending double tax treaties which are yet to be
concluded or ratified are Poland, South Korea, Spain and
Sweden
EXTANT INVESTMENT PROTECTION
PROVISIONS
•
No restrictions on corporate ownership structure such that foreigners may
incorporate wholly foreign companies for the purposes of carrying on any
trade or business except those listed in the “Negative list” and businesses
under the Cabotage Act and Nigerian Content Act.
•
Unrestricted profit and dividends repatriation (net of taxes) in convertible
currency through an authorized currency dealer
•
Investment Promotion and Protection Agreements (IPPA)
The IPPA helps to guarantee the safety of the investment of the contracting parties
in the event of war, revolution, etc. It also guarantees investors the transfer of interests,
dividends, profits and other incomes as well as compensation for dispossession or loss
occasioned by Government activity.
To this end, Nigeria has concluded and signed IPPAs with France, United Kingdom,
Netherlands, Romania, Switzerland, Spain, South Africa, etc.
•
In addition, Section 16 of the Nigerian Investment Protection Act 1995
guarantees that ‘no enterprise shall be nationalized or expropriated by any
government of the federation’
KEY PRIORITY INVESTMENT AREAS
The Nigerian Government seeks Foreign Direct Investments (FDIs) in the following key
priority areas:
•
Power
•
Infrastructure
•
Agriculture
•
Solid Minerals
•
Non-extractive Oil & Gas activities
OLUFEMI SUNMONU
Partner
FEMI SUNMONU & ASSOCIATES QAIS CONRAD LAUREATE
fsunmonu@fsalegal.com