Introduction

In late February 2024, the Nigeria Export Processing Zones Authority issued new Guidelines for Tax Compliance for Approved Enterprises operating in Nigeria Export Processing Zones. These Guidelines, jointly endorsed by the Authority and the Federal Inland Revenue Service, introduce additional tax compliance requirements. This article outlines the key aspects and implications of these Guidelines for Free Zone enterprises.

Key Compliance Requirements

Filing of Tax Returns

Under the new Guidelines, Free Zone Enterprises must now file several tax returns in addition to the Companies Income Tax Returns. The mandatory filings include:

• Monthly Value Added Tax (VAT) Returns
• Monthly Withholding Tax (WHT) Returns
• Monthly PAYE Returns
• Transfer Pricing Returns
• Country-By-Country Returns (where applicable)

These returns are required every month, regardless of whether there were VATable or WHT liable transactions during that period.

Tax Incentives and Exemptions

The Guidelines specify categories of persons and types of income that are not eligible for tax exemptions under the Nigeria Export Processing Zones Act:

• Firms operating within a Zone without the Authority’s license.
• Enterprises with invalid licenses.
• Income from unapproved activities of Approved Enterprises.
• Income from transactions in the customs territory.
• Income of customs territory-based unlicensed head-office, branch, holding company, or subsidiary from transactions with the Approved Enterprise.

VAT on Specific Transactions

Approved Enterprises are required to charge VAT on certain transactions, including:

• Services provided to persons residing in the Customs Territory.
• Services provided to other Approved Enterprises within the zones if their licenses are invalidated by the Authority.

However, Approved Enterprises are not expected to charge VAT on goods supplied to entities in the Customs Territory. This is to avoid double taxation, as import VAT is payable at the point of export of goods into the Customs Territory. VAT should only be charged on goods if the sale is concluded within the Customs Territory.

Withholding Tax (WHT) Obligations

Approved Enterprises must deduct WHT on the following types of transactions:

• Payments to entities that are not Approved Enterprises.
• Payments to Non-Resident Companies.

Additional Compliance Measures

Grace Period for Registration: Approved Enterprises are required to complete relevant tax registrations and regularize their tax status by 31 March 2024.

Potential Penalties: Non-compliance with these obligations will attract penalties as stipulated by existing laws. The Guidelines also stipulate that Approved Enterprises will be subject to routine tax compliance monitoring.

Conclusion

While the Guidelines acknowledge the tax incentives provided under the Nigeria Export Processing Zones Act, the additional tax compliance obligations introduced may undermine the intended benefits of tax exemption for Free Zone Enterprises. Pending a legal review by a court of competent jurisdiction, it is advisable for Free Zone Enterprises to comply with the Guidelines to avoid significant penalties and interest for non-compliance or late filing.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, or www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.