Effective 1 January 2020, Nigeria applies differentiated corporate income tax rates as follows:

A 30% tax rate applies to large companies (annual turnover of NGN 100 million or more);
A reduced tax rate of 20% applies to medium-sized companies (annual turnover over NGN 25 million and less than NGN 100 million); and
An exemption applies to small companies (annual turnover below NGN 25 million) subject to the timely filing of the corporate tax return.

Prior to the change, the standard corporate tax rate was 30%.

Capital gains are chargeable to tax under a separate capital gains tax heading (see below).

Dividend income is chargeable to tax generally by way of a final withholding tax operated by the distributing company (see below).

Effective 16 August 2021, companies operating in the upstream petroleum sector are subject to new hydrocarbon tax including the regular corporate income tax. Earlier, upstream operations were outside the scope of the standard corporate tax but instead were subject to a separate Petroleum Profit Tax and additionally paid royalties to the State (see below).

Alternative Minimum Tax

A minimum tax of 0.5% is payable on turnover less franked investment income (franked investment income refers to dividend income received by a company on which withholding tax has already been paid). The minimum tax is payable in cases where a company does not have taxable profits or where the regular corporate income tax payable is lower than the minimum tax.

The minimum tax for insurance companies is payable at 0.5% of gross premiums for non-life insurance and 0.5% of gross income from life insurance.

Small companies with turnover below NGN 25 million, companies in the first four calendar years of business, and companies engaged in the agriculture business are exempted from payment of minimum tax.

Capital Gains

Gains on the disposal of chargeable assets (see Sec. 5.1.) are subject to capital gains tax at the flat rate of 10%. The tax also applies to gains on the disposal of assets located outside Nigeria to the extent brought in or received in Nigeria. Generally, gains on the disposal of shares and Nigerian government securities are exempt from the capital gains tax. However, effective 1 January 2022, a 10% capital gains tax is imposed on the disposal of shares, if the aggregate proceeds on disposal of the shares exceed NGN 100 million in any of the 12 consecutive calendar months, except in cases where the sale proceeds are wholly or partially reinvested in any domestic company then the capital gains tax can be deferred. Additionally, taxpayers are required to report disposals annually for ease of administration and compliance to FIRS for corporate shareholders. Further, shares transferred between an approved borrower and lender in a regulated Securities Lending Transaction are exempt from the capital gains tax. Effective 1 January 2020, chargeable gains on assets transferred pursuant to a related party business reorganization are exempt from the capital gains tax, subject to certain conditions.

Dividends

Dividends received by a Nigerian resident company from another Nigerian resident company are subject to a final withholding tax at the rate of 10% by the distributing company. Dividends received from non-resident companies are taxable at the standard corporate tax rates unless it is remitted to Nigeria through government-approved financial channels. Dividends received from small manufacturing companies during the first five years of operation and investments in wholly export-oriented businesses are exempt from tax.

Excess Dividend Tax

See Sec. 5.1.

Hydrocarbon Tax

Companies engaged in the exploration and production of oil and gas (upstream petroleum operations) are subject to the regular corporate income tax and the new ‘Hydrocarbon Tax’ (‘HT’) introduced under the Petroleum Industrial Act (‘PIA’) which replaces the pre-existing Petroleum Profit Tax (‘PPT’) Act. In addition, the companies also pay royalties to the state based on their production and the price of crude oil and condensates (discussed separately below). HT does not apply to companies with investments in deep offshore areas. Although, no rate is set for deep offshore operations, however, corporate income tax may apply.

The HT applies on profits from crude oil in each accounting period at the following rates:

30% on converted or renewed onshore and shallow offshore; and
15% for new onshore and shallow onshore acreage and for licenses/leases converted into the new petroleum prospecting license.

Further, companies involved in midstream and downstream petroleum operations are also subject to regular corporate income tax, with specific rules for the industry.

Dividends paid from upstream petroleum operations are subject to withholding tax at the rate of 10%. The tertiary education tax is payable at the rate of 3% (increased from 2.5%, effective 1 September 2023) of assessable profits and is not allowed as a deduction for tax purposes unlike under the former PPT Act.

While determining the HT, companies are allowed a deduction for capital allowances and specified costs such as rent, royalties, etc. The deduction is, however, now capped at a cost price ratio limit of 65% of the gross revenue and the unutilized cost can be carried forward to subsequent assessment years subject to the aforesaid cap, subject to certain conditions.

Royalties

Under the PIA, companies are required to pay the following royalties on the crude oil and condensates produced. The royalty rate varies depending on whether related to oil or gas, the daily output (expressed as barrels per day (BPD)), and the production area, as follows:

Onshore areas:

monthly production not exceeding 5,000 BPD - 5.0%;
monthly production between 5,000 and 10,000 BPD - 7.5%; and
monthly production exceeding 10,000 BPD - 15.0%

Shallow water (up to 200m water depth):

monthly production not exceeding 5,000 BPD - 5.0%;
monthly production between 5,000 and 10,000 BPD - 7.5%; and
monthly production exceeding 10,000 BPD - 12.5%

Deep offshore (greater than 200m water depth):

monthly production not exceeding 50,000 BPD - 5.0%; and
monthly production exceeding 50,000 BPD - 7.5%;

Frontier - 7.5%

For natural gas and natural gas liquids, the royalty rate is 5% (2.5% provided gas is produced and utilized in the country).

In addition to the production royalties, an additional royalty ranging from 0% to 10% is leviable depending on the price per barrel of oil. This additional price-based royalty does not apply to frontier acreag. Under the PIA, companies are required to pay the following royalties on the crude oil and condensates produced. The royalty rate varies depending on whether related to oil or gas, the daily output (expressed as barrels per day (BPD)), and the production area, as follows:

Onshore areas:

monthly production not exceeding 5,000 BPD - 5.0%;
monthly production between 5,000 and 10,000 BPD - 7.5%; and
monthly production exceeding 10,000 BPD - 15.0%

Shallow water (up to 200m water depth):

monthly production not exceeding 5,000 BPD - 5.0%;
monthly production between 5,000 and 10,000 BPD - 7.5%; and
monthly production exceeding 10,000 BPD - 12.5%

Deep offshore (greater than 200m water depth):

monthly production not exceeding 50,000 BPD - 5.0%; and
monthly production exceeding 50,000 BPD - 7.5%;

Frontier - 7.5%

For natural gas and natural gas liquids, the royalty rate is 5% (2.5% provided gas is produced and utilized in the country).

In addition to the production royalties, an additional royalty ranging from 0% to 10% is leviable depending on the price per barrel of oil. This additional price-based royalty does not apply to frontier acreage.

Petroleum Profit Tax (effective until 15 August 2021)

The petroleum profit tax applied at 3 different rates as follows:

85% for petroleum operations carried out under a joint venture arrangement with the Nigerian National Petroleum Corporation (NNPC) or any non- production-sharing contract (non-PSC) beyond the first 5 years of operation;
65.75% for the first 5 years of operation under a joint venture arrangement; and
50% for companies operating under a production-sharing contract with the NNPC.

Dividends paid from upstream petroleum operations were subject to withholding tax at the rate of 10% (reduced to 7.5% under most Nigerian tax treaties) as from 1 January 2020. Prior to that date, distributions by upstream petroleum operators were exempt from dividend withholding tax.

Further, the tertiary education tax paid by companies subject to PPT was allowed as a deduction for tax purposes.

Pre-existing licenses are not required to convert to the new PIA regime; they can continue to be taxed under the pre-existing rules until the license expires.

Effective 1 September 2023, decommission and abandonment contribution by an upstream company to a fund, scheme, or arrangement approved by the relevant tax authorities is deductible for pre-existing licenses.

Royalties (effective until 15 August 2021)

Companies engaged in upstream petroleum operations were required to pay royalties under the PPT regime to the federal government of Nigeria as soon as production starts. This is usually in the form of monthly cash payments at the prescribed rate or by way of royalty oil. The royalty rates for joint venture operations were:

Onshore production - 20%;
Production in territorial waters and the continental shelf up to 100 meters water depth - 18.5%; and
Offshore production beyond 100 meters water depth -16.67%.

The royalty framework for PSC operations in Deep Offshore and the Frontier and Inland Basin was overhauled effective from 1 January 2020. For crude oil and condensates, the royalty consists of a baseline royalty amounting to 7.5% (reduced from 10%) for the Frontier and Inland Basin and 10% (modified from rates of 0%, 4%, 8%, and 12% depending on depth) for deep offshore (beyond 200 meters water depth). In addition to the baseline royalty, a price-based royalty applies whenever the price exceeds USD 20 per barrel. The rates of the price-based royalty are:

Oil Price per Barrel (in USD)	Price-Based Royalty Rate
0 to 20	0%
Above 20 and up to 60	2.5%
Above 60 and up to 100	4%
Above 100 and up to 150	8%
Above 150	10%

Further, the royalty on gas was levied at the rate of 7% for onshore concessions and 5% for offshore concessions.

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