Nigeria: Fiscal And Other Incentives; And Investment Protection

Last Updated: 11 December 2018
Article by Banwo & Ighodalo

As part of its efforts to make the Nigerian business climate investment-friendly, the Federal Government of Nigeria has introduced various incentives and reliefs aimed at promoting both local and foreign investments. We have itemized hereunder, some of such incentives as follows:


Pioneer status confers a tax holiday that affords relief from payment of income tax for a period of up to five (5) years (that is, an initial three (3) year period beginning from their date of first production, which may be extended for a further period of two (2) years), for companies carrying on business in sectors of the Nigerian economy that are considered to be vital to Nigeria's development.

Pioneer status is provided for under the Industrial Development (Income Tax Relief) Act, Cap I7 LFN 2004 (the "IDITF Act") and the Pioneer Status Incentive Regulations 2014 (the "IDITF Regulations"). Pursuant to the IDITF Act, the Federal Executive Council ("FEC") may declare an industry to be a pioneer industry and any product of the industry to be a pioneer product if it is satisfied that:

  1. the industry is not being carried on in Nigeria;
  2. the industry is not being carried on a scale suitable to the economic requirements of Nigeria;
  3. there are favourable prospects of further development in Nigeria of the industry; or
  4. it is expedient in the public interest to encourage the development or establishment of any industry by declaring it to be a pioneer industry.

In exercise of powers conferred on it, the FEC, on August 2, 2017, approved the addition of twenty seven (27) key industries and products included in the revised list of 'pioneer status' incentives for prospective investors.1

In addition to prescribing that only Nigerian companies which have a minimum share capital of N10,000,000 can apply for pioneer status, Paragraph 3 of the IDITF Regulations sets out the relevant documents to be submitted in support of an application for the conferment of pioneer status. Please see below for a list of documents to be submitted to the Nigerian Investment Promotion Commission in furtherance of an application for grant of pioneer status:

  1. Completed NIPC Form 2 application
  2. Formal Application letter addressed to the Executive Secretary NIPC;
  3. Copy of Certificate of Incorporation, MeMArt and incorporation forms
  4. Tax Clearance Certificate; and
  5. Bank draft of N200,000 in favour of the NIPC


By virtue of Section 22 of the Companies Income Tax Act, Cap C21 LFN 2004, as amended by the Companies Income Tax Amendment Act No. 11 of 2007 ("CITA"), expenses incurred on research and development (including the amount of the levy paid to the National Science and Technology Fund) are tax deductible from income tax, if the Research & Development activities are conducted in Nigeria and connected with the business from which the income or profit is derived. Reserves made out of a company's profits for research and developments are also deductible. This must however not exceed 10% of the total profits of the company for the year as ascertained before any deduction for donation or research and development.


Where investments are made in certain localities classified as economically disadvantaged areas, a hundred percent (100%) tax holiday for up to a period of seven (7) years is granted, together with an additional five percent (5%) depreciation allowance over and above the initial capital depreciation.


There are no thin capitalisation rules under Nigerian law, provided that minimum statutory share capital requirement (i.e. N10,000,000 for companies having foreign participation) is complied with. Thus, Nigerian companies can obtain shareholders' loans, borrow from banks including foreign banks and can obtain finance through intergroup lending. Please note however that there are rules on artificial and arm's length transactions between connected parties.

It is also important to mention that, by the provisions of Section 11 of CITA, interest on foreign loans are entitled to certain tax exemptions, depending on the tenor of the loan (such tenor not being less than two years), and the moratorium period on the loan. Table I in the Third Schedule to CITA (reproduced hereunder), specifies the applicable bands of tax exemptions.

Repayment Period including Moratorium Grace Period Tax Exemption Allowed
Above 7 years Not less than 2yrs 100%
5-7 years Not less than 18 months 70%
2-4 years Not less than 12 months 40%
Below 2 years Nil Nil

In practice, the grace period referred to in the table above has been interpreted to mean moratorium period on both principal and interest payment.

Also, Section 24 (a) of the CITA allows companies, when assessing their tax, to deduct any interest paid on any money borrowed and employed as capital for the acquisition of the item through which the profit sought to be taxed is generated.


A ten percent (10%) tax concession is granted, for up to a period of five (5) years, in relation to local value added. This essentially applies to companies carrying on business in engineering industries, where some finished imported products serve as inputs. This is aimed at encouraging local fabrication rather than the mere assembly of completely knocked down parts.


Under this scheme, an eligible company would enjoy generous tax allowances in respect of qualifying capital expenditure incurred within five (5) years from the date of the approval of the project.


In certain instances, eligible companies may be entitled to claim tax exemptions in respect of the following:

  1. Dividends;
  2. Interest on foreign currency domiciliary accounts;
  3. Interest earned on deposits in Nigeria by non-residents; and
  4. Income earned abroad repatriated to Nigeria.

In addition to the foregoing, particular incentives for enterprises in strategic sectors of the economy can also be negotiated with the Federal Government of Nigeria, through the NIPC.


Nigeria presently has double taxation treaties with Belgium, Canada, China, France, the Netherlands, Pakistan, Philippines, Romania, South Africa, United Arab Emirates and the United Kingdom. Generally, treaties seek to minimize the impact of double taxation by Nigeria and treaty countries, on income from a single source. For instance, the WHT rate for dividend, interest, rent and royalty, which is typically 10%, is reduced to 7.5% where the recipient is from a treaty country.


The Constitution of the Federal Republic of Nigeria safeguards every person's right to property and any interest therein and forbids a compulsory acquisition of such property or interest except in accordance with the provisions of a law which requires prompt payment of compensation and which allows the person claiming compensation, access to a court for the determination of his interest in the property and the amount paid or payable as compensation.

Also, the NIPC Act guarantees that there shall be no acquisition of an enterprise by the Federal Government, unless the acquisition is in the national interest or for a public purpose and under a law which makes provision for – (a) payment of fair and adequate compensation; and (b) a right of access to the courts for the determination of the investor's interest or right and the amount of compensation to which he is entitled. Such compensation shall be paid without undue delay, and authorisation for its repatriation in convertible currency shall be issued (where applicable).

Further, Nigeria has negotiated Bilateral Investment Promotion and Protection Agreements/ Treaties ("BITs") with several countries. Seven (7) of such BITs (that is, those entered into with Finland, France, Germany, Netherlands, South Korea, Spain, Switzerland and the United Kingdom) are currently in force. Also, Nigeria signed an agreement on Trade Promotion and Protections with the United Arab Emirated on January 19, 2016.

The BITs typically include provisions which prohibit direct and/or indirect expropriation, including measures which have the effect of directly or indirectly depriving investors/nationals or their investments in Nigeria. In virtually all of the cases however, the prohibitions with respect to expropriation are generally subject to qualifications in relation to non-discriminatory measures in respect of which adequate compensation is paid to the national/investor. For instance, pursuant to Article 6 of the Dutch BIT, the FGN is prohibited from carrying out acts of expropriation (i.e. any measures which have the effect of directly or indirectly depriving Dutch nationals of their investments in Nigeria). This prohibition is however subject to the qualifications that any expropriation measures must:

  1. be in the public interest and under due process of law;
  2. not be discriminatory or contrary to any express undertaking of the FGN; and
  3. be accompanied by provision for the payment of just compensation representing the genuine value of the affected investment.

Any purported expropriation measures which fall within the purview of the foregoing qualifications will not generally be considered actionable under any of the BITs.


1. The twenty seven (27) industries recently included on the pioneer status list to enjoy pioneer status include the following: Mining and processing of coal; processing and preservation of meat/poultry and production of meat/poultry products; manufacture of starches and starch products; processing of cocoa; manufacture of animal feeds; tanning and dressing of Leather; manufacture of leather footwear, luggage and handbags; manufacture of household and personal hygiene paper products; manufacture of paints, vanishes and printing ink; manufacture of plastic products (builders' plastic ware) and moulds; manufacture of batteries and accumulators; manufacture of steam generators; manufacture of railway locomotives, wagons and rolling stock; manufacture of metal-forming machinery and machine tools; manufacture of machinery for metallurgy; manufacture of machinery for food and beverage processing; manufacture of machinery for textile, apparel and leather production; manufacture of machinery for paper and paperboard production; manufacture of plastics and rubber machinery; waste treatment, disposal and material recovery; e-commerce services; software development and publishing; motion picture, video and television programme production, distribution, exhibition and photography; music production, publishing and distribution; real estate investment vehicles under the Investments and Securities Act; mortgage backed securities under the Investments and Securities Act; and business process outsourcing.

The information contained here is based on relevant Nigerian laws, regulations and practices applicable to doing business in Nigeria, as of November 14 2018. This Manual only highlights legal issues, in general, and is not exhaustive. Also it does not, and it is not intended to, constitute legal advice and or opinion. If you have questions or require advice in respect of matters contained herein or any other specific issues, kindly contact us for such advice and we would be happy to assist you on an individual basis and walk with you on your journey to explore the limitless opportunities for investments in Nigeria.

Banwo & Ighodalo does not accept liability for any action (or lack thereof) by you or anyone else as a result of reliance on, or any other use of, information contained herein. For the avoidance of doubt, under no circumstance shall Banwo & Ighodalo be liable for any consequences resulting from reliance on or use of information contained in this Manual.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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