Free Zone Enterprises (FZEs) operating within a Free Zone are “exempted from all Federal and State Government taxes, rates and levies”. This means that FZEs operating within the Free Zone are not liable to pay any taxes such as Corporate Income Tax (CIT) or VAT on revenues and profits generated by foreign transactions (non-Nigerian sources) within the Free Zone.
Despite the exemption of FZEs from paying taxes, these entities are required to file their tax returns within the stipulated timelines and in compliance with the law.
Kindly note that FZEs may have certain tax obligations relating to transactions within the Nigerian customs territory, which may be subject to withholding taxes, CIT, VAT etc, except for transactions covered by subsisting Avoidance of Double Taxation Agreement between Nigeria and the home country. (See FIRS Tax Treaties for a list of Countries with such Treaties with Nigeria). FZEs are also required to comply with requirements to pay personal income tax on their employees’ earnings.
Please note that there may be applicable tax liabilities and obligations in other jurisdictions.
Itana does not provide tax advice, however, we can connect you to our network of verified tax and accounting professionals that’ll be happy to provide advice for your business.
Companies in the customs territory are required to pay a tax on their profit from all sources called the Corporate Income Tax (CIT). If you operate in the FZE, and generate your profit from foreign sources, you aren’t required to pay any Corporate Income Tax, which is typically 30% of all profit.
The FZE with a parent company outside Nigeria must comply with the transfer pricing regulatory framework in Nigeria (Income Tax (Transfer Pricing) Regulations, 2018) and the parent company’s country, taking into consideration any bilateral tax treaties.
The FZE will be required to maintain transfer pricing reports documenting its compliance with all transactions made between the FZE and its parent company.
The FZE would also be required to file its annual transfer pricing returns, along with its tax returns. For all financial transactions between the two entities, all transactions must be conducted under the arm’s length principle i.e. the transaction was conducted in the same manner in which it would have been conducted between unrelated or unaffiliated entities.
Your Free Zone Enterprise will have different books from that of your other entities. These books will clearly show your Income / Revenue that is taxable and that which is not.
The Free Zone Act specifies that not every tax law is applicable in the zone. This means that for all purposes and intent, when you are registered as a Free Zone Enterprise you are exempted from Company Tax.
Kindly note that you might be subjected to taxation when you repatriate your profit or revenue into your country of origin.
No, transactions of approved FZEs within the Free Zone are exempted from all Federal, State and Local Government taxes, so therefore VAT-free.
Transactions exporting FZE products outside Nigeria are considered export services and, therefore tax-free. However, such transactions may be subject to certain import (digital imports) tax obligations of the specific country. These may include customs duties, withholding taxes, etc.
It is also important to comply with the Transfer Pricing Regulations of both Nigeria and the foreign country when transactions are between an FZE and an affiliated entity in a foreign country.