Tax: Nigeria

Capital gains tax (“CGT”) is chargeable on gains arising from the sale of an aircraft pursuant to the Capital Gains Tax Act. The gain is computed by deducting from the sum received, the cost of acquisition to the seller, plus expenditure incurred on the improvement or expenses incidental to the acquisition of the aircraft.

The sale of aircraft is zero rated for the purposes of Value Added Tax (“VAT”) by virtue of the Federal Inland Revenue Service Information Circular No. 9701 which exempts the payment of VAT on aircraft and spare parts of aircraft.

a.     CGT is imposed on gains at the rate of 10% and is payable by the seller. The sale of aircraft is zero rated for the purpose of VAT in Nigeria.

No. CGT is only chargeable if the aircraft is sold by a Nigerian company. The income derived from the sale of an asset outside the Nigerian territory will usually not be subject to CGT. Pursuant to Section 4 of the CGT Act, where the sale of the aircraft is carried out by an individual who is in Nigeria for a temporary purpose only for a period which does not exceed 182 days or a by a Non-Nigerian company, CGT will be chargeable on any amount that is brought into or received in Nigeria in respect of the sale.

The sale of aircraft is zero rated for the purpose of VAT in Nigeria.

a.     CGT is imposed at the rate of 10% on any amount that is brought into or received in Nigeria in respect of the such sale and is payable by the seller.

The sale of aircraft is zero rated for the purposes of VAT by virtue of the Federal Inland Revenue Service Information Circular No. 9701

Excise duties are not payable on the export of an aircraft as aircraft are not listed as excisable goods under the Customs, Excise, Tariff ETC (Consolidation) Act (“CET Act”)

Yes, the import of aircraft will attract the payment of custom duties by virtue of the CET Act. However, the import of aircraft and spare parts into Nigeria are zero rated for the purposes of VAT by virtue of the Federal Inland Revenue Service Information No. 9701 which exempts the payment of VAT on the importation of aircraft and aircraft spare parts.

a.     The import duty chargeable on aircraft will depend on the weight of the aircraft. The rates are assessed as follows:

Yes. The Stamp Duties Act requires any agreement executed in Nigeria, or relating, wheresoever executed, to any property situated or any matter or thing done or to be done in Nigeria to be stamped and the appropriate stamp duty paid in respect of the said instrument.

a.     An agreement may be stamped at either fixed rate or ad valorem (i.e. varied with the value of the instrument being stamped.)

Loan agreements are stamped at the rate of 0.125% of the loan amount and is payable by the Lender. A sale/transfer agreement will be stamped at the rate of 1.5% of the consideration amount and is payable by the seller.

There are no specific taxes or duties to be paid upon the registration of an aircraft. However, the Nigerian Civil Aviation Authority (“NCAA”) requires the payment of registration fees. The cost of registering the aircraft will depend on the weight of the aircraft. The fees are assessed as follows:

Nigerian law makes no provision for the payment of luxury taxes in relation to an aircraft.

Yes.  Income tax, withholding tax and value added tax are payable in respect of payments made by an aircraft lessee to a lessor. However, the tax treatment of such payments made by an aircraft lessee to an aircraft lessor will depend on whether the lease is an operating lease or a finance lease.

The income derived from an operating lease is classified as rent under the Companies Income Tax Act (“CITA”) which defines rents to include “payments for the use of and hire of charter vessels, ship or aircraft”. Section 79 of CITA provides that payments due or payable to a lessor shall at the time of payment be subject to the deduction of withholding tax by the lessee. Taxes withheld pursuant to Section 79 shall be payable as final tax if the lessor is a non-resident. The Lessee will be liable to pay VAT as imposed by the Value Added Tax Act.

The lessee in a finance lease will be entitled to claim for capital allowances (where the agreement provides for the transfer of ownership, risk and reward to the lessee) on all payments to the lessor, interest payments are also treated as allowable deductions for the lessee while the interest earned by the lessor is a return on investment and is not subject to VAT.

a.     Companies income tax is assessed at the rate of 30% of any profits accruing to the company and is payable by either the lessor or the lessee depending on whether the lease is an operating or a finance lease.

Withholding tax (“WHT”) is withheld at the rate of 10%. However, where the lessor is resident in a country with which Nigeria has entered into a double taxation agreement/treaty, the rate at which tax will be withheld from the payment will be 7.5%. Nigeria currently has double taxation agreements with 14 countries: Canada, Pakistan, Belgium, France, Romania, Netherlands, United Kingdom, China, South Africa, Italy, Philippines, Czech Republic, Slovakia and Singapore. The lessor is required to withhold and remit the tax to the Federal Inland Revenue Service.

VAT is assessed at the rate of 5% and is payable by the Lessee.

Where the aircraft operated by a company resident in Nigeria, companies income tax is payable at the rate of 30% in any year of assessment on any profits accruing in derived from, brought into or received in Nigeria from the operation and use of the aircraft.

In the case of a non-resident company engaged in commercial air transport, companies income tax is payable at a minimum rate of 2% of the full sum of profits received from the carriage of passengers and goods into Nigeria. Section 14(1) of CITA provides that where a non-resident company carries on the business of air transport, its profit or loss to be deemed to be derived from Nigeria shall be the full profits or loss arising from the carriage of passengers and goods into an aircraft in Nigeria.

Also, a 5% tickets sales charge is payable to the NCAA. The charge is based on the total cost of travel paid by the passenger, inclusive of fuel surcharge or any other charge added to the total cost of travel.

There are also numerous fees and charges payable to the Federal Airport Authority of Nigeria. These include landing fees, fuel charge, port charge, check-in counter charge, concession fees, electricity fees, VIP lounges fees and so on.

There is no separate tax implication for the corporate and/or private use of an aircraft. The responses provided in question 10 above are applicable.

A 5% charter sales charge is payable to the NCAA. The charge is based on the total cost of travel paid by the client, inclusive of fuel surcharge or any other charge added to the total cost of travel.

Principal repayments do not attract the payment of companies income tax and VAT. However, the CITA imposes income tax on interests payable under a loan.

a.     The tax rate on the interest payment is 10% or 7.5% where the lender is resident in a country with which Nigeria has entered into a double taxation agreement/treaty. The borrower is required to withhold and remit the tax to the Federal Inland Revenue Service.

Interest payments on foreign loans with certain repayment periods above 2 years attract varying levels of tax exemption.

Nigerian law makes no provision for the payment of environmental or carbon emission taxes.

A 5% cargo sales charge is payable to the NCAA. The charge is based on the total cost of cargo fees paid by the client, inclusive of any other charge added to the total cost of travel.

The Value Added Tax Act (Modification) Order exempts transport services available for use by the public from the payment of VAT. Thus, flight tickets are zero rated for the purposes of VAT.

Petroleum products are not on the list of items expressly exempted from VAT in Nigeria. However, it has been industry practice not to charge VAT on petroleum product based on the reliance on a directive of the Petroleum Product Pricing Regulatory Agency not to charge VAT given the regulation of retail pricing and provision of subsidy to reduce the cost burden to citizens in relation to these “essential” products.

No.