Export Processing Zones and Free Trade Zones play a significant role in modern-day globalization, international investment, and free trade. While different countries treat Free Trade Zones (FTZ) and Export Processing Zones (EPZ) differently, almost all of them institute at least partial tax exemption for their citizens and companies operating within their territory. These arrangements led to large enterprises of various nationalities taking advantage of such favourable policies.
Tax incentives in the Export Processing Zones and Free Trade Zones aim to encourage foreign and local firms to establish and operate industrial activities within Nigeria, thereby enhancing the country’s export earnings and generating employment opportunities. Export Processing Zones are set up principally to offer special fiscal arrangements to investors who are interested in exporting their products. EPZ and FTZ offer companies and investors a zero-rate or low-rate tax system. Therefore, many enterprises invest in the area and self-sufficiently export goods.
According to The Nigeria Export Processing Zones Authority (NEPZA):
- There are over 500 licensed Free Trade Zone enterprises operating in Nigeria.
- FTZs have attracted Foreign Direct Investment (FDI) with a combined net worth of over 200 billion dollars from multinationals
- The FTZs have local investments worth N300 billion
- The major enterprises operating in Nigeria’s Free Trade Zones are oil and gas companies, manufacturing industries, steel rolling mills, food processing, car assembling, and pharmaceutical industries.
EPZ and FTZ Tax Incentives
- Nigerian companies with profits resulting from exports of goods are exempt from tax as long as they are repatriated back to the country and are used exclusively to purchase raw materials, equipment, and spare parts.
- Waiver of all expatriate quotas and free repatriation of foreign capital invested in the Free Trade Zones at any time with capital appreciation on the investment.
- Companies that are 100% export-oriented but outside an EPZ can enjoy a 3-year tax holiday, as long as they are not formed through the breakup or reconstruction of existing businesses, and at least 75% of their turnover is dedicated to exports.
- Rent-free land at the construction stage within the Zone.
- When a company engages in approved manufacturing activity in an EPZ and incurs capital expenditures on qualifying buildings and equipment, it is entitled to a 100% capital allowance in that assessment year.
- Exemptions from tax apply to profits of companies whose sales are exclusively inputs to the manufacture of goods for export. Tax exemption can only be claimed if the company obtains a certificate of purchase of the input from the exporter.
- In the case of plant and machinery transfers to a new company, the tax written down value must not exceed 25% of the total value of the plant and machinery in the new company. It is also essential that the company repatriates at least 75% of the export earnings to Nigeria and places them in a Nigerian account to qualify for a tax holiday.
- 100% foreign ownership of all manner of business is allowed in the Free Trade Zones.
- Duty-free, tax-free import of raw materials and components for goods destined for re-export (e.g. capital)
- Free engagement of expatriate managers and other personnel in the Free Trade Zones.
- Also, all disputes arising within the Zone between the government and an enterprise are resolved by the Authority expeditiously and equitably.
- As a means of encouraging industrial technology, companies and other organizations that engage in Research and Development activities for commercialization enjoy 20% investment tax credit on their qualifying expenditure.
- All companies engaged wholly in the fabrication of tools, spare parts and simple machinery for local consumption and export are to enjoy 25% investment tax credit on their qualifying capital expenditure while any taxpayer who purchases locally manufactured plants and machinery are similarly entitled to 15% investment tax credit on such fixed assets bought for use.
- Preferential tariffs for made-in-Nigeria goods by some economic blocks like the European Union (EU).
- Complete exemption from federal, state, and local governments‟ taxes, levies, duties and foreign exchange regulations
- One-Stop approvals for all permits, operating licenses, and incorporation papers
Taxaide Professional Services Ltd (Taxaide) deploys different tools to help taxpayers and administrators pursue streamlined, discreet, transparent, and efficient tax functions that skillfully address tax management and administration issues. This leaves room for efforts to be directed at more strategic concerns. Our tax management framework explores several dimensions to ensure every tax decision results in value creation in as many possible ways. Taxaide provides a wide range of FTZ management and advisory services which includes:
- General and specific advisory on fiscal incentives available in Free Trade Zones (FTZ).
- Filing of relevant tax/fiscal returns with the Nigerian Export Processing Zones Authority (NEPZA).
- Management of the process for obtaining/enforcing incentives through NEPZA, the Zone Manager, or any other regulator.
- Obtaining all relevant incentives certification/approval.
For more information on FTZ and all tax-related issues, please do not hesitate to contact us on 0700TAXAIDE or contact@taxaide.com.ng
