No gains or loss should be included in the computation of taxable income where such gains are resulting from incorporation, recapitalization, acquisition, amalgamation, separation, dissolution or similar restructuring of a corporate entity provided such transfer is:

A legal or regulatory requirement;
As a result of a directive or compulsory acquisition by the government;
An internal restructuring within a group which does not involve a transfer of property to a thirty party; or
In the public interest and approved by Cabinet Secretary.

Exemption from Commencement and Cessation Rules

Sec. 29 of CITA provides rules regarding the computation of assessable profits of a company in the case of commencement or cessation of trade or business. The Federal Inland Revenue Service (FIRS) issued an Information Circular on 12 May 2022 clarifying that when a holding company is formed as a result of restructuring, the Board of FIRS may direct on an application made by any of the companies that the commencement and cessation rules shall not apply on fulfilment of the following conditions:

The formation of the holding company does not result in any change in the ownership structure of the group;
The businesses of the holding company and the subsidiaries are not discontinued, but may be transferred within the group; and
The assets are sold or transferred at an amount equal to the residue of the qualifying expenditure, that is, at their tax written down values (TWDV).

However, unrelieved losses or unabsorbed capital allowances cannot be transferred by a member of the group to another member. For other forms of restructuring which do not fulfil the above conditions, the existing procedure of case-by-case application for the Board's direction continues to apply.

Exemption from Capital Gains Tax

The domestic tax laws provide that the transfer of assets in a re-organization of companies such as mergers and takeovers for better organization is not subject to capital gains tax provided the following conditions are satisfied:

One company has control over the other or both are controlled by some other person or are members of the group of companies;
The companies are related for a consecutive period of not less than 365 days prior to the date of re-organisation; and
The assets acquired are not disposed-off within 365 days after the date of acquisition.

Information Circular dated 12 May 2022 issued by the FIRS clarifies that any assets transferred in exchange for shares issued shall not be subject to capital gains tax provided that the disposal was made at least 365 days prior to re-organization.

Exemption from Stamp Duty

The Information Circular dated 12 May 2022 clarifies that stamp duty does not apply if it is proved to the satisfaction of the FIRS that the holding company holds not less than 90% of the issued share capital of the subsidiaries.

Exemption from VAT

In case of a re-organization, transfers of land and buildings or an interest therein, securities or an interest therein, or moneys or an interest therein, are not subject to VAT. For other assets, VAT applies only if the assets are disposed of within 365 days of the re-organization.

Powerful Tax Solutions

Tax Rules Engine

Collaboration Tools

Latest Tax News