ABSTRACT

This article examines the array of Fiscal Benefits and Reliefs for International Oil Companies Operating within Nigeria. Anchored in key legislation such as the Petroleum Industry Act (PIA) 2021, the Companies Income Tax Act (CITA), and the Nigerian Investment Promotion Commission (NIPC) Act, Nigeria’s fiscal regime is designed not only to attract but also retain foreign investment in its petroleum sector. This article highlights incentive available to foreign companies in general as well as sector-specific incentives applicable to upstream, midstream, and downstream operations of the Nigerian oil sector.

INTRODUCTION

The Oil and Gas sector plays a vital role in the Nigerian economy, serving as the largest contributor to government revenues and export earnings[1]. Given its Importance, legislative efforts have been made towards creating a conducive and attractive climate to facilitate foreign direct investment (FDI) by incentivizing international oil companies (IOCs) through fiscal benefits and reliefs. Some of the various investment incentives provided under the relevant laws and regulations include tax holidays; tax credits; capital allowances; investment allowances; tax exemptions; duty drawback; subsidies; export expansion grants; export development funds; double taxation reliefs; and investment promotion and protection agreements, among others.

1. Pioneer status Incentive

Tax exemptions are one of the most prominent incentives aimed at attracting both local and foreign investment. Pioneer Status Incentive (PSI) is provided for under the Industrial Development (Income Tax Relief) Act (IDITRA) and administered by the Nigerian Investment Promotion Commission (NIPC). The grant of pioneer status accords the recipient company a preferential position, primarily through relief from income tax obligations during their  formative years of operation. It operates as a tax holiday exempting a qualified company from paying company income tax for up to five (5) years; three (3) years in the first instance, renewable for an additional maximum period of two (2) years.

Under IDITRA[4], companies engaged in industries/products approved as ‘pioneer industries/products’ shall in addition to the 3-5 year tax holiday, be exempt from paying tax on dividends paid by the pioneer company during the pioneer period to the extent that they are paid out of income exempted from tax (Section 17(3) IDITRA).

The PSI scheme has proved instrumental in aiding businesses attain stability during their initial years of operation, assisting in managing losses and the substantial capital requirements typically associated with operating a new business. Additionally, PSI can facilitate accelerated growth for oil companies by enabling them to reinvest entire profits into expanding their operations thus resulting in job creation and increased export earnings.

Both Local and International oil companies (IOCs) can enjoy this benefit as the Oil and Gas Industry is one of the eligible industries for the conferment of Pioneer Status in Nigeria.

2. Free Trade Zone Incentive

Free Trade Zones (FTZs) in Nigeria operate under two principal legislations; the Nigerian Export Processing Zones Act (NEPZ Act) and the Oil and Gas Free Zone Act. The NEPZ Act establishes the legal and regulatory framework for general purpose export processing zones intended to function as liberalized trade environments aimed at attracting foreign direct investment (FDI), promoting export activities, and enhancing technology transfer.

Fiscal and regulatory incentives available to enterprises operating within these designated zones include tax holidays, unrestricted repatriation of profits and dividends; waiver of import and export licensing requirements and up to 100% foreign ownership of enterprises.

The Oil and Gas Free Zone (OGFZ) regime, governed by the Oil and Gas Free Zone Act, is a sector-specific legal framework intended to catalyze investment in Nigeria’s oil and gas value chain. It provides a preferential regulatory and fiscal environment for companies engaged in oil and gas.

Operations within the zone. Reliefs and benefits available under the OGFZ scheme include the following[8]: No requirement of Import or export licenses Exemption from federal, state and local government taxes, levies and rates Up to 100% foreign ownership of business in the export free zone 100% repatriation of profit and dividends 100% repatriation of foreign capital investment No restriction on number of foreign personnel that may be employed by companies operating in the zones, i.e. there is no expatriate quota restriction.

3. Double Taxation Relief

Double taxation occurs when the same income is taxed in two different countries. Where a company resident in Nigeria has paid foreign tax on income derived from a treaty partner country, such company may be allowed to claim a tax credit in Nigeria. This credit relief enables the amount of foreign tax paid on the same income to be deducted from the Nigerian tax payable, thus preventing double taxation on the same income source. Nigeria has Double Taxation Treaties with over 15 countries, including the UK, France and Canada.

4. Duty Drawback Scheme

The Duty Drawback Scheme provides for the refund of duties, taxes, and surcharges levied on imported or domestically sourced raw materials, including packing and packaging materials, which are used in the manufacture of goods that are subsequently exported. In order to fully benefit from these incentives, foreign oil companies must comply with all compliance requirements, some of which are outlined below;

1. Registration with the Nigerian Investment Promotion Commission (NIPC).
2. Obtain relevant licenses from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
3. File tax returns and comply with regulations from the Federal Inland Revenue Service (FIRS).
4. Compliance with Local Content obligations as per the Nigerian Oil and Gas Industry Content Development Act, 2010.

CONCLUSION

Nigeria’s comprehensive suite of fiscal incentives, backed by a robust legal framework, positions it as a competitive jurisdiction for international oil investments. The clarity introduced by the Petroleum Industry Act, coupled with existing tax and investment regulations, offers foreign investors a secure and economically viable environment. As global energy dynamics evolve, Nigeria’s proactive regulatory approach is likely to play a pivotal role in attracting and retaining long-term foreign capital in its petroleum sector.

For more information about the fiscal benefits and reliefs available to IOC’s willing to explore the Nigerian Oil and Gas Landscape, feel free to reach out to us BFA & CO Legal via email: info@bfaandcolegal.com, bfa@bfaandcolegal.com and francisca@bfaandcolegal.com.