Nigeria Tax & Busines Guide - Deloitte

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Basic facts
Population 136.5m Inflation 16.9% (2004)*
Main languages English (official), Hausa, Yoruba and Igbo GDP per head US$477*
Currency Naira (NGN) GDP growth 4.4% (2004)*
Economic communities WTO
GDP sources 36.6% agriculture, 30.3% industry, 33.1% services
*Economist Intelligence Unit estimate.
Political environment

Nigeria is a federal republic in which an executive presidency appoints a Federal Executive Council, comprising government ministers and ministers of state from each of NigeriaÌs 36 states. The executive is accountable to the bicameral National Assembly.

Olusegun Obasanjo, a former military ruler who won election as NigeriaÌs second civilian president in May 1999, was re-elected in May 2003. The presidentÌs PeopleÌs Democratic Party (PDP) has majorities in both houses of the National Assembly. New elections are scheduled for 2007.
Foreign trade and investment
Exports US$33.7bn (2004)* Imports US$17.3bn (2004)*
*Economist Intelligence Unit estimate.

Major exports: Crude oil, cocoa and rubber.

Leading export markets: US (largest), Brazil, Spain, France and China.

Nigeria ranks 59th of 60 countries in the Economist Intelligence UnitÌs business environment rankings.
Business and financing
Business forms Limited-liability company

Foreign companies, banks and oil-services companies operating in Nigeria must be incorporated locally. If a company obtains permission to establish a branch, it will not necessarily enjoy tax-free status. Foreign firms tend to deal mainly with banks that have a foreign affiliation and the larger domestic commercial banks.

Lagos is the main financial centre, but the major banks also have a presence in Abuja, the nationÌs capital, to service the public sector; in Port Harcourt to service oil-sector needs; and in Kano, NigeriaÌs second-largest commercial centre.
Labour environment
Unemployment rate 2.6% (2004)* Minimum wage NGN 7,500 (monthly)
*Economist Intelligence Unit estimate.

The minimum wage is NGN 7,500 per month for private-sector workers and NGN 5,500 per month for public-sector workers.

Nigeria has an abundant supply of unskilled labour.

The National Wages and Salaries Commission specifies a mandatory minimum wage. Wages vary by region and industry.

With effect from January 1st 2005, the Pension Reform Act No. 2 of 2004 (which was passed into law on June 1st 2004) applies. Under the act, the employee is to contribute a minimum of 7.5% of his/her monthly emoluments and the employer is also to contribute a minimum of 7.5%. The employer can choose to contribute the whole 15% minimum.

The government has tightened rules on employing expatriates, and it remains committed to the ÏNigerianisationÓ of top positions in industry.
Taxation
Corporate tax
Main rate 30%, plus education tax, 2%

Nigerian companies are taxed on their worldwide income, with a credit for foreign tax paid; foreign companies are taxed on Nigerian-source income only. A Nigerian company is a company incorporated under Nigerian law. Corporate tax is generally charged at 30% based on total profit. An education tax is charged at 2% based on assessable profit, and a minimum tax applies. A 10% withholding tax is deducted from dividend payments to companies and individuals. Capital gains are taxed separately.
Individual tax
Progressive rates to 25%

Resident individuals are taxed on their worldwide income; non-residents are subject to tax on Nigerian-source income only. A person who is in Nigeria for 183 days in the tax year is regarded as resident. Tax is charged at progressive rates up to 25% on total income. Dividends received are grossed up and included in total income, with a credit for the withholding tax deducted. A minimum tax of 0.5% of total income applies. Capital gains are taxed separately. Under a proposed tax reform, the top individual tax rate would rise to 35%, and employees would be entitled to a tax-free allowance of 40% of their total income.
Capital gains
Gains are taxed at 10%

Companies and individuals are liable to capital gains tax at 10%. Exemptions from capital gains tax include gains on motor vehicles that are not normally used for commercial purposes, gains on furniture and fittings, gains on gifts, gains on stocks and shares, and gains on life-assurance policies.
Indirect tax
VAT standard rate 5%

Value-added tax (VAT) applies to most transactions at 5%. Registration is compulsory for businesses. Exemptions include exports of goods and services, basic food, agricultural inputs, medical and pharmaceutical products, and services of certain banks.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Companies must submit at least once a year a self-assessment tax return, and further returns may be required by the tax authorities. Companies pay tax when submitting their tax return, but may by concession pay tax by instalments. Individuals must file tax returns within three months of the end of the fiscal year.
Additional tax information
Withholding taxes Dividends, Interest and Royalties 10%. The rate is reduced to 7.5% for countries that have a double-taxation agreement with Nigeria.
Tax treaties Nigeria has concluded more than ten tax treaties.
Dividends Dividends are taxable.
Revenue protection No formal transfer-pricing or thin-capitalisation rules. Anti-avoidance provisions for transactions between connected parties.
Groups Group taxation is not allowed by Nigerian tax law.
Incentives Pioneer industries; agriculture; export businesses; natural gas.
Other taxes Air travel levy, Cattle tax, Customs and excise duties, Education tax, Entertainment tax, Freight tax on oil exports, Industrial training fund levy, Minimum tax, Stamp duty.