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

In order to encourage offshore production, the DOIBPSCA provides a graduated scale for royalties applicable to production sharing contracts, which results in a reduction in royalties based on water depth (from 12% in areas from 201 to 500 metres water depth, to 0% for areas above 1,000 metres depth). To encourage gas production, profits from gas production are taxed at the CITA rate (i.e. 30%), rather than under the PPTA. Further, section 39 of CITA provides certain incentives for gas utilization (gas utilization typically means the marketing and distribution of natural gas for commercial purposes). These incentives include: tax free period of three (3) years which may be renewed for another period of two (2) years or alternatively 35% investment allowance; investment allowance of 25% on plant and machinery; accelerated capital allowance after the tax free period; interest on loans for gas project is tax deductible provided the prior approval of the Minister of Finance was obtained; and tax free dividend during the tax free period. Section 10(a) of the PPTA also provides for certain gas incentives, under this provision, funds invested in the separation of crude oil and gas from the reserves into suitable products are considered as part of the oil field development and taken as deductibles for tax purpose. There are also a number of incentives available to companies operating in the mining and minerals sector. Mining companies enjoy an accelerated capital allowance of 95% on qualifying capital expenditure incurred in the year in which the investment is incurred. Provision is also made for loss relief by which losses can be relieved for a maximum period of four (4) years after which all un-relieved losses will lapse. Further, by the combined provisions of section 36 of CITA and section 28 of the Nigerian Minerals and Mining Act 2007 (the “Mining Act”), a tax relief period of three (3) years and a further extension of up to two (2) years can be granted to companies engaged in mining operations.

By the provision of section 25 of the Mining Act, operators in the mining sector are granted exemption from payment of custom/import duties in respect of plants and machineries imported specifically and exclusively for mining operations. Also note that where a holder of a mineral title earns foreign exchange from the sale of its minerals, it may be permitted by the Central Bank of Nigeria to retain in a portion of same for use in acquiring spare parts and other inputs required for mining operations which otherwise would not be readily available without use of such earning. The Mining Act also gives allowance to a mining company to set up a tax deductible reserve for environmental protection, mine rehabilitation, reclamation and mine closure costs. Further, mining companies may benefit from waiver of applicable royalties (of 3-5%, depending on the nature of minerals being mined).

Apart from tax and other fiscal reliefs, a number of legislation provide for other forms of benefits, particularly to foreign investors, in that they protect investments from expropriation as well as guarantee the repatriation of proceeds of investments. For instance, the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act (Cap F34, LFN 2004), provides a conducive regime for the repatriation of foreign capital inflow into Nigeria for investment purposes. Similarly, by virtue of Section 24 of the NIPC Act, “unconditional transferability of funds through an authorised dealer in freely convertible currency” is guaranteed to foreign investors with respect to dividends/profits on investments, payments made in servicing of foreign loans, and proceeds from sale of liquidation of enterprises. In Section 25 of the NIPC Act, statutory guarantee is given against expropriation of any private business enterprise by the government. In effect, foreign investors are free from the fear of having their lawful and legitimate enterprises nationalised or taken away from them by any means whatsoever.

The Nigerian government, in collaboration with private sector stakeholders, is continually taking steps to review available investment incentives with a view to deepening economic competitiveness of the country. However, in addition to investment incentives, the Nigerian government should consider other salient ingredients such as security, consistency and sanctity of laws and policies, democratic values, the rule of law and anti-corruption, which are some of the key enablers of economic growth and factors which international investors evaluate when selecting investment destinations.

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