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Nigeria

Tax Incentives for Mining &


Solid Minerals Development

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NIGERIA: INVESTMENT INCENTIVES FOR MINING AND SOLID MINERALS DEVELOPMENT

Favourable Tax Incentives and


Investment Guarantees

CONTENTS

Solid Minerals in Nigeria ........................................3

Proven Reserves ....................................................3

Policy Thrust ..........................................................4

Overview of Incentives .........................................5

Other Tax Incentives .............................................7

Key Incentives, Investment Benefits and


Guarantees............................................................8

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NIGERIA: INVESTMENT INCENTIVES FOR MINING AND SOLID MINERALS DEVELOPMENT

Leverage the Benefits of Africa’s


Largest Economy

SOLID MINERALS IN NIGERIA • PRECIOUS STONES (such as sapphire, tour-


Nigeria offers proven potential maline, emerald, topaz, amethyst, garnet,
for mining investors. The coun- etc.)
try is richly endowed with a
variety of solid minerals of var- PROVEN RESERVES
ious categories ranging from These mineral assets are available across the
precious metals to precious federation in varying mixes and proven reserves.
stones and industrial miner- No corner of Nigeria today is lacking in solid
als. About 40 different kinds mineral assets.
of solid minerals and precious
metals buried in Nigerian soil It is significant to note that among the minerals
are waiting to be exploited. which occur in significant commercial quantities
SOURCE: Nigerian Extractive in different parts of the country are Limestone
Industries and Transparency – for which annual national demand is 18 million
Initiative (NEITI) metric tons and which has driven the growth of
Nigeria’s cement industry; Talc – Over 40 million
Nigeria’s minerals and mining metric tonnes of talc deposits have been iden-
sector is still largely under- tified; Gypsum – over a billion metric tonnes of
developed with abundance of gypsum are spread across the country; Bitumen
mineral resources for develop- – Nigeria has the second largest deposit of Bitu-
ment. These minerals can be men in the world; Coal – there are over 1 trillion
broadly categorized according metric tons of coal resources on Nigeria’s soil.
to use, into five groups: There are also significant quantities of several
other minerals in Nigeria’s natural resource port-
• INDUSTRIAL MINERALS
(such as barite, kaolin, gyp-
sum, feldspar, limestone) NIGERIAN MINERALS AND MINING
• ENERGY MINERALS (such REGULATION 2011 guarantees:
as bitumen, lignite, uranium)
• Security of tenure through mining lease
• METALLIC ORE MINERALS
• Transparent procedures for granting ac-
(such as gold, cassiterite,
columbite, iron ore, lead- cess to mining titles on a first come first
zinc, copper) serve basis by Federal Ministry of Solid
Mineral Development
• CONSTRUCTION MIN-
ERALS (such as granite,
• Internationally competitive mining incen-
gravel, laterite, sand) tives
• Comprehensive Geoscience Data of min-
eral deposits and their locations in Nigeria

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NIGERIA: INVESTMENT INCENTIVES FOR MINING AND SOLID MINERALS DEVELOPMENT

100% Ownership of Company by


Foreigners Accepted

folio of at least 44 known mineral assets. Nigeria’s most


promising mineral assets however are gold, iron ore, barite,
bitumen, lead, zinc, tin, coal and limestone.
SOURCE: Ministry of Solid Minerals Development, Federal
Republic of Nigeria

Nigeria has a large domestic market. It is the largest


market in sub-Sahara Africa and the potential stretches
into the growing West African sub-region. The government
has created a favorable climate for business and industrial
ventures. Government has reviewed its mining policies and
laws. As a result, the government roles have been better
defined as one of administrator–regulator while allowing
the private sector to be owner–operator.
Source: Nigerian Geological Survey Agency

POLICY THRUST
The main objective of the National Policy on Solid Minerals
is to ensure an orderly development of the mineral resourc-
es of the country by providing clear rules for predictable
behavior by the authorities, unambiguous regulations for
the exploitation of the minerals and a clearly prescribed
pattern of developments with roles of the different actors
clearly defined.

In view of the dwindling government revenue from the oil


sector, the Nigerian government has made it a priority to
encourage investors to venture into this sector and others,
in order to diversify the economy. This has led to the in-
troduction of the Nigerian Minerals and Mining Regulation
2011 to streamline procedures for granting licenses to
investors (both local and foreign) and guaranteed access
to mining sites with minimal encumbrances.

The regulation provided for the right to search for, or ex-


ploit minerals in Nigeria, and is obtained through any of the
following mining titles:
• Reconnaissance Permit
• Exploration Licences
• Small Scale Mining Licence
• Mining Licence
• Quarrying Licence
• Water Policy

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NIGERIA: INVESTMENT INCENTIVES FOR MINING AND SOLID MINERALS DEVELOPMENT

Unconditional Repatriation of Profits


and Transfer of Capital

The sector’s legislation guarantees: OVERVIEW OF INCENTIVES


• Security of tenure through mining The Nigeria government has ambi-
lease tious targets for the solid minerals
• Transparent procedures for grant- and mining sector and the sector
ing access to mining titles on a enjoys Pioneer Status with attendant
first come first serve basis by tax exemption to all operating com-
Federal Ministry of Solid Mineral panies. There are large investment
Development incentives bagged by enabling laws
• Internationally competitive mining and supported through the Ministry
incentives of Trade and Investments, Nigerian
• Comprehensive Geoscience Data Investment Promotion Commission
of mineral deposits and their loca- and the Ministry of Solid Minerals
tions in Nigeria Development.

There are tremendous opportunities The mining sector in Nigeria enjoys


for investments in the solid mineral Pioneer Status with attendant tax
sector in Nigeria. Prospecting licens- holiday to all companies operat-
es for investors (both local and for- ing in the sector. A comprehensive
eign) to participate in the exploitation package of incentives has been put
of the vast mineral resources in Nige- in place to create a favorable envi-
ria is granted by the Federal Ministry ronment for investment in the solid
of Solid Minerals Development. minerals and mining sector, some of
which are:

1. Deferred royalty payments.

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NIGERIA: INVESTMENT INCENTIVES FOR MINING AND SOLID MINERALS DEVELOPMENT

Security of Mining Tenure Through


Lease
2. Capital allowances of up to 95% of qualifying capital
expenditure.
3. Exemption from customs and import duties for plant,
machinery and equipment for mining operations.
4. Three (3) to five (5) years tax holiday as applicable;
and tax concessions.
5. Low corporate tax rate of between 20% and 30%.
6. Possible capitalization of expenditure on exploration
and surveys.
7. Extension of infrastructure such as roads and elec-
tricity to mining sites.
8. Expatriate quota and resident permits in respect of
expatriate personnel engaged by mining companies.
9. Personal remittance quota for expatriate personnel,
free from any tax imposed by any enactment for the
transfer of external currency out of Nigeria.
10. The Nigerian Investment Promotion Commission Act
allows 100% ownership of companies by foreign-
ers, while the Foreign Exchange Miscellaneous Act,
guarantees 100% Repatriation of Capital, Profit, &
Dividends through authorized means.

The holder of a mining lease shall be entitled to:

i) Depreciation or capital allowance of 75% of the cer-


tified true capital expenditure incurred in the year of
investment and 50% in subsequent years

ii) Investment allowance of 5%

iii) Exemption from payment of customs & import duties

iv) Expatriate quota & resident permit for expatriate


personnels

(g) In addition to roll-over relief under the capital gains


tax (CGT), companies replacing their plants and machin-
ery are to enjoy a once-and-for-all 95% capital allow-
ance in the first year with 5% retention value until the
assets is disposed, 15% will be granted for replacement
of an asset.

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NIGERIA: INVESTMENT INCENTIVES FOR MINING AND SOLID MINERALS DEVELOPMENT

Transparent Procedures for Granting


Access to Mining Titles
OTHER TAX INCENTIVES
• Exemption from tax of companies profits in respect of
goods exported from Nigeria provided the proceeds
are repatriated to Nigeria and used exclusively for
purchase of raw materials, plants equipment and spare
parts.

• Exclusion from taxes the profits of companies whose


supplies are exclusively from input to the manufactur-
ing of products for exports.

• All new industrial undertakings including foreign com-


panies and individual operating in an Export Processing
Zone (EPZ) are allowed full tax holidays for three con-
secutive years.

• As a means of encouraging industrial technology,


companies and other organizations that engage in
Research and Development activities for commercial-
ization enjoy 20% investment tax credit on their quali-
fying expenditure.

• Dividends distributed by Unit in Nigeria are free of tax


and no withholding tax is deducted therefrom since
such incomes have already suffered tax in the first
instance.

• All companies engaged wholly in fabrication of tools,


spare parts and simple machinery for local consump-
tion and export are to enjoy 25% investment tax credit
on their qualifying capital expenditure while any tax
payer who purchases locally manufactured plants and
machinery are similarly entitled to 15% investment tax
credit on such fixed assets bought for use.

USEFUL LINKS:
Lex Artifex, LLP. (www.LexArtifexLLP.com)
Nigerian Investment Promotion Commission (www.invest-nigeria.com)

Ministry of Mines and Steel Development (www.MinesAndSteel.gov.ng)


Nigeria Immigration Service (www.portal.immigration.gov.ng)

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Highly-Skilled Labour Force

KEY INCENTIVES, INVESTMENT BENE- 3. REPATRIATION OF PROFITS


FITS AND GUARANTEES Under the provisions of the Foreign Ex-
change (Monitoring & Miscellaneous Provi-
1. TRADE LIBERALIZATION SCHEME sion Act No. 17 of 1995), foreign investors
(TLS) OF ECONOMIC COMMUNITY OF are free to repatriate all their profits and
WEST AFRICAN STATES (ECOWAS) dividends net of taxes through an autho-
This Scheme is an incentive primarily rized dealer in freely convertible currency.
geared towards export activities within the
ECOWAS sub-region and the removal of 4. GUARANTEES AGAINST EXPROPRIA-
both tariff and non-tariff barriers to trade TION
in goods originating from ECOWAS coun- The Nigerian Investment Promotion Com-
tries. This affords preferential access to the mission Act Cap. N117 Laws of the Feder-
ECOWAS market from Nigeria. ation 2004 guarantees the none national-
ization or expropriation of any enterprise or
2. LIBERALIZATION OF COMPANY OWN- foreign-owned investment by any govern-
ERSHIP STRUCTURE ment in Nigeria.
The Nigerian Investment Promotion Com-
mission Act has liberalized the ownership 5. INCENTIVES FOR SPECIAL INVEST-
structure of businesses in Nigeria. The im- MENT
plication of this is that foreigners can own For the purpose of promoting identified
100% shares in any company without hav- strategic or major investment, the Nigerian
ing Nigerian shareholders. Investment Promotion Commission shall, in

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NIGERIA: INVESTMENT INCENTIVES FOR MINING AND SOLID MINERALS DEVELOPMENT

Cheap Labour Cost

consultation with appropriate Government agencies, negotiate


specific incentive packages for the promotion of investment as
the Commission may specify.

6. INVESTMENT PROMOTION AND PROTECTION AGREE-


MENT (IPPA)
As part of additional effort to foster foreign investors’ confidence
in the Nigeria economy, Government continues to enter into bi-
lateral investment promotion and protection agreements (IPPAs)
with countries that do business with Nigeria.
The IPPA helps to guarantee the safety of the investment of the
contracting parties in the event of war, revolution, expropriation
or nationalization. It also guarantees investors the transfer of in-
terests, dividends, profits and other incomes as well as compen-
sation for dispossession or loss.

7. INVESTMENT IN ECONOMICALLY DISADVANTAGED AREAS


Without prejudice to the provision of the pioneer status enabling
law, a pioneer industry sited in economically disadvantaged Local
Government Area is entitled to 100% tax holiday for seven (7)
years and an additional 5% capital depreciation allowance over
and above the initial capital depreciation allowance.

8. LABOUR-INTENSIVE MODE OF PRODUCTION


Industries with high labour/capital ratio are entitled to tax con-
cessions. These are industries with plants, equipment and ma-
chinery, which essentially are operated with minimal automation.
Where there is automation, such automation should not be more
than one process in the course of production.

The rate is graduated in such a way that an industry employing


1,000 persons or more will enjoy 15 percent tax concession,
while an industry employing 200 will enjoy 7 percent and those
employing 100 will enjoy 6 percent and so on.

9. LOCAL VALUE ADDED


10% tax concession for five (5) years. This applies essentially to
engineering industries, where some finished imported products
serves as inputs. The concession is aimed at encouraging local
fabrication rather than the mere assembly of completely knocked
down parts.

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Seize the Investment Opportunities


Available in Nigeria

10. RE-INVESTMENT ALLOWANCE


This incentive is granted to companies engaged in manufacturing which incur qualifying capital
expenditure for the purposes of approved expansion, etc. the incentive is in the form of a gener-
alized allowance of capital expenditure incurred by companies for the following:
• Expansion of production capacity
• Modernization of production facilities
• Diversification into related products

12. IN-PLANT TRAINING


This is applicable to industrial establishments that have set up in-plant training facilities. Such
industries enjoy a two (2) percent tax concession for a period of five (5) years.

13. INVESTMENT IN INFRASTRUCTURE


This is a form of incentive granted to industries that provide facilities that ordinarily, should have
been provided by government. Such facilities include access roads, pipe borne water and elec-
tricity. Twenty percent (20%) of the cost of providing these infrastructural facilities, where they
do not exist, is tax deductible.

These are just a few of the leading companies that have discovered the benefits of
Nigeria’s unique essence in mining and solid minerals development:

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Acknowledgement
We would like to thank Lex Artifex, LLP. for their contribution to this guide. Lex Artifex, LLP. is one of the lead-
ing service providers in Nigeria providing legal and advisory services. Lex Artifex, LLP. high performing people
use their expertise and insight to cut through the complexity of local and international issues and regulations.
Find out more about how Lex Artifex, LLP can serve your business needs by visiting their website at
www.LexArtifexLLP.com

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