In Nigeria, government has over the years, put in place numerous tax incentives, one of which is the incentive of Pioneer Status to help businesses and startups reduce the burden of the first few years of being in business. The incentive of Pioneer Status is a tax strategy used by government across the world to encourage investments in industries that were either non-existent at all, or the country did not have sufficient presence for its economic development.
The Nigerian federal government has over the years expanded the range of industries that would benefit from the Pioneer Status tax incentive under the Nigerian Industrial Revolution Plan, NIRP, and the Economic Recovery and Growth Plan, ERGP, by promoting the 27 industries and products in the approved status document.
Here Is All You Need To Know
The pioneer status applies to companies or startups in their first year of business or operations in Nigeria. Consequently, companies or businesses older than a year would not benefit from the pioneer status incentive. Again, businesses that have existed for several years in a particular sector may not enjoy the pioneer status, except such companies or startups branch into a new line of business covered under the list of 27 or more new industries and products.
Clearly, established companies such as Payporte, Konga or Jumia who are already leaders in the e-commerce business sector as well as those in the music industry would not enjoy tax exemption by the government under the new regime.
Industries Covered By The Regime Include:
Agriculture:
Startups or new businesses under Nigeria ‘s agricultural sector, who are within the first one year of their business can get tax break for a period of three years or more (under the pioneer status). The areas covered under the agricultural sector include:
- Processing and preservation of meat and poultry
- Production of meat/poultry products
- Processing of cocoa
- Marine and Freshwater fishing and aquaculture.
- Growing of all crops.
Manufacturing:
This is where Nigeria hopes to diversify its oil-dependent economy to. Areas covered under the manufacturing sector include:
- Manufacture of starches and starch products
- Manufacture of animal feeds
- Tanning and dressing of leather
- Manufacture of leather footwear, luggage and handbags
- Manufacture of household and personal hygiene paper products, like tissue papers etc.
- Manufacture of paints, vanishes and printing ink.
- Manufacture of plastic products (builders’ plastic ware) and moulds
- Manufacture of batteries and accumulators
- Manufacture of steam generators
- Manufacture of railway locomotives, wagons and rolling stock
- Manufacture of metal-forming machinery and machine tools
- Manufacture of machinery for metallurgy
- Manufacture of machinery for food and beverage processing
- Manufacture of machinery for textile, apparel and leather production;
- Manufacture of machinery for paper paperboard production.
- Manufacture of plastics and rubber machinery
Information Technology And Communication:
- E-commerce services
- Software development and publishing
- Publishing of Books.
- Telecommunication apart from GSM telecommunication
Entertainment:
- Motion picture, video and television programme production, distribution, exhibition and photography;
- Music production, publishing and distribution, such as Record Labels etc.
Environment:
Waste treatment, disposal and material recovery, such as recycling.
Also check: Practical Guides On How You Can Register A Business Name In Nigeria Yourself
Real Estate:
- Real estate investment vehicles under the Investments and Securities Act, such as Real Estate Investment Trusts,REICs etc.
- Construction and operation of non-residential buildings (Shopping malls, hotels;Office buildings; building for industrial production;warehouses; low and middle-income housing estates of single and multi-family buildings,etc)
Business :
- Business Process Outsourcing
Securities:
- Mortgage backed securities under the Investments and Securities Act
Mining:
- Mining and processing of coal
Construction:
- Construction and operation of water projects
- Construction and operation of roads, railways and airports
- Electric power generation,transmission and distribution, among other.
- Construction of utilities generally.
Steps To Take To Obtain Pioneer Status Certification:
- Make sure you apply within the first one year of doing business and that you fall within the categories described above.
- Get your documents ready. Documents in this case include financial statements, certificate of incorporation and other incorporation forms, project documents such as Land Documents, Building drawings, Construction agreements, trademark certificate, title documents and invoices of assets of the company, Tax Identification Number, Tax Clearance Certificate, Bill of quantities and any other document pertaining to your projects.
- Choose a date to make presentation to the Nigerian Investment Promotion Commission about your project. Furnish the Commission about your company as well as your financial statements.
- Once presentation of your project has been made to the Commission, and NIPC is satisfied, you would then be requested to make payment of the application and due diligence fees. Make payment to the Commission.
- At this stage, you would now make application to the Commission, attaching both the soft and hard copies of the relevant supporting documents. NIPC will review your application and conduct intense legal and compliance checks on your project, after which it fixes a date for a verification visit to your facility.
- At this stage, once the NIPC declares your application successful, you will then be requested to make payment of the service charge. NIPC, thereafter, issues you with an Approval In Principle (AIP) once payment has been made, which you may collect in person, or have sent to you by courier. A copy of the AIP is forwarded by the Commission to the tax office and the Industrial Inspectorate Division.
- The next stage is to complete an application form for Production Day Certificate (PDC) and submit same to the Industrial Inspectorate Division (IID) under the Federal Ministry of Trade and Investment alongside the soft and the hard copies of the necessary documents. IID will review the application and schedule an inspection visit to the site of the project for the purpose of determining the production day of the project.
- Satisfied, the IID will send you a mail to that effect,as well as a copy of the Production Day Certificate, at the same time notifying the NIPC.
- Once notified, the NIPC will issue you a Pioneer Status Incentive Certificate and send copies of the PSI Certificate to both the tax office (FIRS) and the IID
- The whole process takes a minimum period of 25 weeks (approximately 6 months) to be completed.
- You may however get yourself a tax consultant or a lawyer who does the work for you while you run your business.
Bottom Line:
Applying for tax exemption in Nigeria under the Pioneer Status tax incentive is one of the strategies organised businesses and startups should consider in their earliest years. This is because no matter how you how see it, your business must one day account for its tax returns; for instance when it is going on IPO, or about to be acquired by external investors who would prefer a more detailed documentation on the legal status of the business.
On the other hand, you can only imagine the heavy job of having to fulfil numerous tax and levy obligations within the first year of being in business, at the same time struggling to raise more capital or manage the fast depleting funds within your disposal.
So exploring the alternative of pioneer status tax incentive in your startup’s earliest years may be one of the ways to legally run away from taxation in Nigeria. This will allow you to worry only about the growth of your business.
Advice:
Find your startup a good tax attorney or expert in your startup’s earliest years so that the mistakes or lack of compliance with regulations and local laws in the past do not come back to haunt your startup in the future when your startup is ready for the next leap.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world