How businesses can benefit from tax holiday scheme in Nigeria

How businesses can benefit from tax holiday scheme in Nigeria

Encouraging businesses and supporting starters is key to economic growth, and to achieve this, the government of Nigeria provides tax holiday scheme which are tax exemptions to companies or multinationals operating in the country for the purpose of boosting foreign investment.

Factors such as sector, income type, business size, and business location determine the granting of tax incentives. Cost-based tax incentives include tax credits and accelerated depreciation allowances while profit-based tax incentives include tax holidays and reduced tax rates.

In Nigeria, the Pioneer Status Incentive is a profit-based tax incentive administered by the Nigerian Investment Promotion Commission (NIPC) which is governed by the Industrial Development (Income Tax Relief) Act, 2004 and established in line with the modern tax regimes as a means of attracting investment and boosting economic development in different sectors of Nigeria.

It is based on the principle that companies designated as pioneers are relieved from paying company income tax in their formative years to enable them make a considerable profit for re-investment into the business and usually granted for a total of five years – an initial period of three years which is renewable for additional two years.

Qualified businesses that meet the criteria, are exempted from paying corporate income tax and also enjoy the benefits of exemption from 10% withholding tax on dividends paid out of business profits.

Criteria for granting PSI status (tax holiday) in Nigeria

The folowing criteria are taken into consideration before granting the PSI status by the NIPC:

  • A joint venture or wholly foreign-owned company and an indigenous company must have a non-current tangible asset of over One Hundred Million Naira to qualify for pioneer status.
  • The potential of the company contributing sustainable development
  • The value addition a business creates in the production process is measured in granting pioneer status.
  • Nigerian local content which focuses on the promotion of value addition in Nigeria through the use of raw materials, products, and services in order to encourage the growth of indigenous capacity,
  • The export potential of the business the potential of the company contributing sustainable development e.g. building of schools, provision of water,
  • Application Process for the grant of pioneer status Incentive

Steps to apply for pioneer status incentive:

  • An applicant must make a written application for pioneer status to be submitted to the NIPC in the first year of production or service to be accompanied by evidence of all required legal and regulatory compliance documentation.
  • Request a date to present the project to the NIPC covering company overview, project overview, project impact, financial analysis, etc.
  • Provide a project profile, indicating pioneer industry/product, share capital, and non-tangible current assets.
  • NIPC provides feedback and requests payment of application and due diligence fees within a week.

Once the applicant pays the prescribed fees, the next step is to submit Part 1 of the application form to the Executive Secretary of NIPC with supporting documents.

NIPC reviews the application and performs legal, regulatory, and compliance checks and after review, NIPC requests a date for the verification visit.

After a verification visit has been conducted, NIPC makes a decision on the application and notifies the company of its decision, and requests payment of service charge deposit within a week.

Upon payment of the service charge deposit to the NIPC, the NIPC issues an Approval in Principle to the company.

The applicant is also to complete the Part II application form and submit same to the Industrial Inspectorate Department (IID) which reviews the application for completeness and thereafter requests an inspection visit to determine production day.

Upon determination of a project’s production day, the IID will issue a Production Day Certificate to the applicant and notify the NIPC of the issuance.

Finally, upon receipt of the copy of the production day certificate from the IID, the NIPC will issue a Pioneer Status Incentive Certificate to the applicant and send a copy to the FIRS and the IID. The Pioneer Certificate will state the period of which the pioneer status incentive is valid.

Author: Greg