The Finance Bill presented by President Muhammadu Buhari to a joint session of the National Assembly on the 8th of October 2019, has been signed into law today. The Act, according to Mr President, would support the implementation of the 2020 Appropriation Act.
The strategic objectives of the Act
- To promote fiscal equity
- To align domestic tax laws to align with global best practices
- To introduce tax incentives for investments in infrastructure and capital markets
- To support Micro, Small and Medium Enterprises (MSME)
- To raise revenues for government
Summary of the Key Changes/Features of the 2019 Finance Act
- Companies Income Tax (CIT) Act:
- Wider base for taxing non-resident companies (NRCs): There is provisions for taxing NRCs carrying on digital activities, consultancy, technical, management or professional services in Nigeria, provided they have significant economic presence in Nigeria.
- Deletion of certain inhibitive rules for insurance companies: With the Finance Act, insurance companies would be able to carry forward losses indefinitely as opposed to the 4-year restriction currently in place.
- Exceptions to Excess Dividend Tax (EDT) provisions: Before now, when a company pays dividend in excess of its taxable profits, such dividend is subject to CIT at 30%. This applied whether or not the income from which such dividend is paid had been taxed hitherto or whether the underlying income is altogether exempt from tax. Based on the Act, EDT is inapplicable to; dividends paid out of retained earnings, exempt profit and rental/dividend income of Real Estate Investment Company (REIC). The exemption also covers franked investment income (FII)
- Expansion of the categories of exempt income: The Act expands categories of exempt income to include the profit of a small company and dividends declared from small manufacturing companies. The exemption also covers Rental income/dividend of REICs and secondary payments under “Securities Lending” transaction; thereby eliminating any potential double taxation on compensating payment mimicking interest/dividends.
- Expansion of the categories of allowable deductions and the introduction of thin capitalisation rules: The Act also exempts dividends and rental income received by REIC on behalf of its shareholders provided 75% of the income is distributed to shareholders within 12 months of earning the income.
Also, the Act introduces thin capitalisation rules by disallowing “excess interest” on related-party lending (involving a foreign lender).