How businesses can benefit from tax holiday scheme in Nigeria
Tax payment represents a significant government levy to individuals and corporate bodies. In addition to contributing to GDP, the levy helps trigger general growth in a country.
But as much as this imposition would boost the pocket of the state, the government is also reminded of its duty to encourage builders of business.
Since encouraging businesses and supporting starters is key to economic growth, the Nigerian government is able to achieve this through tax incentives.
The tax incentives are tax exemptions to companies or multinationals operating in the country for the purpose of boosting foreign investment.
Tax incentives are granted depending on factors such as sector, income type, business size, and business location. Categorically, 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 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.
The pioneer status incentive is administered by the Nigerian Investment Promotion Commission (NIPC) and follows the principle that companies designated as pioneers are relieved from paying company income tax in their formative years to enable them to make a considerable profit for re-investment into the business.
It is a tax holiday granted for five years; though with an initial period of three years which is renewable for additional two years, to qualifying industries that meet the criteria, from paying corporate income tax. In addition, companies qualified for pioneer status also enjoy the benefits of exemption from 10% withholding tax on dividends paid out of business profits.
What NIPC considers before granting PSI status
In granting the PSI, the NIPC considered the following;
- 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
The following steps must be taken 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).
The IID reviews the application for completeness and 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.
