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Tax Implications within Free Trade Zones in Nigeria
By SimmonsCooper Partners

According to the World Bank, Free Trade Zones (FTZs) are defined as “fenced-in, duty-free areas, offering warehousing, storage, and distribution facilities for trade, transhipment, and re-export operations.” They play a vital role in facilitating ease of global trade. There are 34 FTZs in Nigeria, which are located in 17 of Nigeria’s 36 States. The regulating body for FTZs in Nigeria is the Nigeria Export Processing Zones Authority (NEPZA). The NEPZA is charged with the responsibility to oversee all activities of FTZ’s. It is the main point of contact for other government agencies in their relations with businesses operating within FTZs.

By the provisions of Sections 8 and 18(1) of NEPZA’s establishing statute, the NEPZA Act No.63, of 1992 have created attractive incentives to businesses operating in FTZs in Nigeria. These include:

  • Provisions exempt approved businesses from all Federal, State and Local Government taxes, levies rates and foreign exchange regulations.
  • Approved businesses operating within the FTZ enjoy unrestricted offshore repatriation of foreign capital and returns on investment.
  • Free importation in the FTZ which include exemption from customs duty on capital and consumer goods and raw materials.
  • Axemption from duties and foreign exchange regulations.

In order to take advantage of the above-listed incentives, an investing company must have obtained an application form to register with the NEPZA. Procedurally, a six (6)-step approach is laid down to be followed. These are:

  • Obtain the Application Form with a processing fee of USD$1000 from the Nigeria Export Processing Zone Authority (NEPZA).
  • Review of the Application Form – This involves the review of the application paper and the documents submitted along by the appointed officer.
  • NEPZA conducts site inspection for confirmation of the information contained in the documentation submitted.
  • Recommendation to Minister- the report of the site inspection will confirm if the application has merit and recommend to the minister who will in turn pass to the President for final approval.
  • Grant of Presidential approval.
  • Official declaration – This is by issuing a free zone declaration license to the applicant.

Within the sub-region of the African Continent, a trade liberalization scheme amongst the member states also offers international trade incentives. Of particular note is the ECOWAS Trade Liberalization Scheme, which started in 1979. According to Article 3 of the ECOWAS Treaty of 1979, the scheme only covered agricultural products and handmade crafts. Then, in 1990, it was extended to industrial products.
This scheme applies to the 15 West African with its objective to ensure the removal of both tariff and non-tariff barriers to trade in goods originating from ECOWAS countries. This affords preferential access to the ECOWAS market from Nigeria.
Worthy of mention is the African Continental Free Trade Area (AfCFTA), which Nigeria is a signatory. The African Continental Free Trade Agreement established the

AfCFTA in 2018 with a commencement date of January 1st, 2021. The AfCFTA seeks to bolster intra-African trade, facilitate investment through ease of the movement of capital and people, promote sustainable economic and industrial growth, amongst others.
Recent Developments on Free Trade Areas in Nigeria
In order to aid the implementation of the AfCFTA and Single African Air Transport Market (SAATM) agreements, the Federal Government of Nigeria recently announced the designation of five international airports as free trade zones. The project is expected to boost the attraction of Foreign Direct Investments (FDI) in the aviation industry.

On March 30, 2021, the federal tax regulatory authority, the Federal Inland Revenue Service (FIRS) which is the agency responsible for charging, assessing, collecting and accounting for tax and other revenues accruing to the Federal Government of Nigeria made an announcement mandating the filing of income tax returns by Approved Enterprises (AEs). A list was published which comprises tax offices designated for filing of income tax returns by AE operating in Nigeria Export Processing Zones and Oil & Gas Free Zones.

This was done in pursuance of the amendment of Section 18(1) of the Nigeria Export Processing Zones Authority Act and Oil and Gas Free Zone Authority Act (“the Acts”) by Finance Act, 2020. Based on the amendment, AEs now have a requirement to submit their income tax returns with the FIRS in accordance with the provisions of Section 55 of the Companies Income Tax (CIT) Act.