Investor Presentaiton

The Country and its institutions Business Organisation Labour and Social and Regulation Security Regulations The Nigerian Financial Tax System Services Industry Foreign Exchange Transactions Investment in Nigeria Accounting and Auditing Requirements Importation of Goods Exportation of Goods COVID-19 Economic and Fiscal Measures Capital Allowances 5.3 • employee is not in Nigeria for a period or periods amounting to an aggregate of 183 days (inclusive of annual leave or temporary period of absence) or more in any twelve-month period; and remuneration of the employee is liable to tax in the other country under the provisions of the DTA between Nigeria and the other country. In practice, where an expatriate fails to declare his actual income, or where the RTA considers the actual income declared to be grossly inadequate, the RTA may assess the expatriate to tax on deemed income basis, either based on deemed income levels published by the RTA for general application, or deemed income levels specifically determined by the RTA for the company. Deemed income levels are usually based on the nationality, job classification and industry where the expatriate employee works. Petroleum Profits Tax (PPT) Profits derived by a company from petroleum operations, defined as the winning or obtaining and transportation of petroleum, are subject to tax under the PPT Act. Generally, the chargeable profit of a petroleum company is subject to tax at 85%. However, the applicable rate for companies that are yet to fully amortise their pre-production capitalised expenditure (in practice, companies within the first five years of operation) is 65.75%. The PPT rate for companies involved in a production sharing contract (PSC) is 50%. A PSC is defined as an agreement between the holder of an oil licence and any other petroleum exploration and production company for the purpose of exploration and production of oil in the deep offshore (any water depth beyond 200 meters) and inland basin. Income generated by a petroleum company not related to its petroleum operations is subject to CIT rather than PPT. 5.3.1 Taxable Income Taxable income of a petroleum company comprises the proceeds from the sale of oil and related substances extracted by the company, plus the value, determined for royalty purposes, of the oil and related substances used by the company in its own refineries, plus any other income of the company incidental to, and arising from, its petroleum operations. All expenses incurred whether within and outside Nigeria for petroleum operations are deductible under the PPT Act, provided they are wholly, exclusively and necessarily incurred. 5.3.2 Capital allowances (annual allowances) are deductible in respect of qualifying expenditure, in arriving at taxable income. The current rates for capital allowances are 20% in the first four years and 19% in the fifth year. Qualifying expenditure comprises machinery and equipment, pipelines and storage facilities, buildings and drilling costs. The deduction for capital allowances is restricted so that for any accounting period, the tax on the company should not be less than 15% of the tax which would have been assessable had no capital allowances been granted to the company. Capital allowances not utilised because of this restriction are available to be carried forward indefinitely - just like unrelieved losses - until relieved. The PPT Act makes provision for petroleum investment allowance on qualifying capital expenditure. The allowance, which is added to capital allowance, is granted only in the accounting period in which the related asset was first used for the purpose of petroleum operations. The rates, which are based on qualifying capital expenditure, are based on the location of the assets and are stated as follows: Land operations Offshore operations in up to 100 metres of water 5% 10% Offshore operations in between 100 and 200 metres of water Offshore operations in more than 200 metres of water 15% 20% However, PSC operators are entitled to either investment tax allowance (ITA) or investment tax credit (ITC), depending on when the relevant PSC was signed, at the rate of 50% of qualifying capital expenditure. Operators of PSCs signed before 1 July 1998 are entitled to claim ITC, which is treated as a deduction from the assessable tax payable. On the other hand, operators of PSCs signed after 1 July 1998 are entitled to ITA, which is deducted in the same manner as capital allowance to determine their chargeable profit. "Profits derived by a company from petroleum operations, defined as the winning or obtaining and transportation of petroleum, are subject to tax under the PPT Act." 55 Investment in Nigeria Guide - 8th Edition KPMG

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