As the economic policies of the country are evolving, businesses are always looking for ways to restructure their businesses in a bid to develop strong and efficient business policies to remain in business or stock quotation. Corporate restructuring could also be because of the failure of a business, a need for expansion, or an example when the government increased the minimum capital for banks and insurance companies. There are many ways in which a company can achieve business or corporate restructuring or reorganization.

The various forms of corporate restructuring include agreement on the sale, management buy-out, mergers and acquisition, take-over, etc. the most common form of corporate restructuring in Nigeria is Mergers and Acquisition (M&A). Mergers and Acquisition are commonly used interchangeably but they do not have the same meaning. A merger is the combination of two or more companies to form a new company (A+B=C), while an acquisition is the purchase of one company by another company (A+B=A).

There are tax-related issues to take into consideration when a business is engaged in a restructuring process. The focus of this article is to highlight these tax issues to be considered during a Merger and Acquisition process.

Tax Implications

These tax implications have taken into consideration the amendments of the Finance Act.

Notification of Federal Inland Revenue Service (FIRS) (“the Board”)

Before any merger or acquisition of a business is carried out, Section 29(12) of the Companies Income Tax Act (CITA) states that the company must inform the Board and obtain the Board’s direction and clearance concerning any tax that may be due and payable under Capital Gains Tax (CGT) Act.

  1. Capital Gains Tax

CGT has expressly exempted the sale of shares from CGT, similarly, when shares are acquired as a form of consideration during the sale of a business through a M&A, the sale of the shares are exempted from CGT.

Where an asset is sold or transferred to a Nigerian Company for business re-organization, CGT shall not apply on the condition that the companies are related and the asset is not sold within 365 days after the date of reorganization, otherwise, the relief will be reversed and the gain on the sale or transfer will be subject to CGT

  1. Transaction Taxes (VAT, WHT, and Stamp Duties)

Value Added Tax – Section 42 of the VAT Act and Section 45 of the Finance Act 2019 states that when an asset is sold or transferred to a Nigerian company for business consideration, VAT shall not apply to the sale or transferon the condition that the companies are related and the asset is not sold within 365 days after the date of reorganization, otherwise, the relief will be reversed and the transfer subject to VAT

The Finance Act 2019 has also resolved the contention behind the issue of VAT on the intangible asset, intangibles assets such as intellectual property rights, contractual rights, etc. are now subject to VAT.

Withholding Tax – Withholding tax does not apply to the purchase consideration of a business, however, WHT will be deducted from legal fees, professional fees, etc relating to the M & A at the applicable rate and remitted to the relevant tax authority.

Stamp Duty – The Stamp Duty Act has subjected all contractual agreements to stamp duty at a flat rate. Invariably, all contracts executed during the process of the M & A will be liable to stamp duty at the applicable rate. 

Section 105, of the Stamp Duty Act, exempts the transfer of property between related party from Stamp Duty, subsequently, Section 104, of the Stamp Duty Act transfer of shares or Conveyance or Transfer Sale from stamp duty on the condition that it is under a case of business reconstruction or amalgamation (M & A)

  1. Companies Income Tax

Section 29(9) of the Companies Income Tax Act provides that when a trade or business carried on by a company is sold or transferred to a Nigerian Company under restructuring or to transfer its management to a Nigerian company and assets employed in such trade or business are transferred or sold, the Board may at its discretion not apply the provisions of subsection (3) and (4) (commencement and cessation rule) on the condition that the companies are related and the asset is not sold within 365 days after the date of the reorganization.

Assets are also transferred at their Tax Written Down Value between related entities, therefore the company acquiring the assets will not be entitled to the initial allowance or investment allowance.

Where a new company is formed, the commencement rule will apply except the two companies are related companies.


The Finance Act 2019 has helped to clarify some major contentions that relate to the tax implications of a merger or acquisition. Before a Merger and Acquisition is concluded, it is important to conduct a tax due diligence on the two companies to determine any tax liability that either company may have as FIRS will want a guarantee that the new company being formed will bear the tax liability of both entities. Also, it is important to seek the advice of a professional when carrying out a M & A process to avoid undue tax exposures.

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