Nigeria’s new 30 per cent capital gains tax (CGT) regime could create uncertainty for companies involved in offshore transactions, PwC Nigeria has warned, as the expanded rules bring certain indirect transfers involving Nigerian companies and assets within the country’s tax net. The development follows the implementation of the Nigeria Tax Act (NTA) on January 1, which raised the CGT rate for companies from 10 per cent to 30 per cent.
PwC said the new framework means the sale of a foreign company in jurisdictions such as the United Kingdom, United Arab Emirates, Netherlands or South Africa could potentially trigger tax obligations in Nigeria, even when Nigerian shares are not transferred directly. The firm explained that the reforms are designed to ensure that gains linked to Nigerian assets remain taxable in Nigeria, including transactions structured through offshore holding companies.
Under Section 17(2) of the NTA, gains made by a non-resident from disposing of chargeable assets may be subject to Nigerian tax where the asset is located, or deemed to be located, in Nigeria. PwC also pointed to Section 46(f), which provides that shares or similar interests in foreign entities can be treated as being located in Nigeria if, during the 365 days before disposal, more than 50 per cent of their value is derived directly or indirectly from Nigerian assets.
However, PwC said there are two possible ways to interpret the new rules, creating uncertainty for taxpayers and businesses. One interpretation is that the 50 per cent Nigerian-asset threshold must first be met before a foreign share disposal becomes taxable in Nigeria. The other view is that the change-of-ownership provision under Section 47 operates independently, potentially allowing Nigeria to impose CGT where an offshore transaction indirectly changes ownership of a Nigerian company or asset, even if the 50 per cent threshold is not met.
The uncertainty comes as Nigeria now has one of the highest headline CGT rates among major African economies. PwC’s comparison put Nigeria’s 30 per cent rate above Ghana’s 25 per cent, South Africa’s 21.6 per cent, Morocco’s 20 per cent and Kenya’s 15 per cent. The firm noted that Nigeria’s combination of a high tax rate and broad indirect-transfer provisions could increase the tax burden and compliance challenges for businesses, while several technical and administrative questions surrounding the new regime remain unresolved.
source: The guardian
