19 Jan



Investment has been defined as an act of committing money or capital in order to gain profitable return in future. Investment income is the profitable return that is gained. Where it relates to companies or individuals, it shall be regulated by the CITA and PITA respectively.

There are different types of investment income like:

  • Rent (from property investment):
  • Dividends (from shares).
  • Royalty (from copyright).
  • Interest (from debenture).
  1. Rents: Section 79 CITA and 69 PITA mandates the payor of a rent to withhold 10 percent tax at the time of paying. The deduction would be remitted to the tax authority. Such tax shall be deemed as franked.
  2. Dividends (from Shares): Are profits of a company that are distributable/distributed. It shall not include those of a capital nature if the company is being wound up or liquidated. Section 80 of CITA and 71 of PITA mandate a Nigerian company wanting to pay dividends to withhold 10 percent. Such dividends received shall be regarded as franked income (i.e. Income that has suffered from taxation and should not be taxed again) and would not be subject to further taxation. For foreign companies, the dividends are exempted except they are brought into or received in Nigeria. The following dividends are exempted under CITA:
    • Dividends derived by a foreign company and brought into Nigeria through approved channels. (like CBN).
    • Dividends received from a small manufacturing company in the first five years of operation.
    • Dividends received from investment in wholly export oriented business.
    • Dividends wholly paid for in foreign currency or by asset imported into Nigeria. The beneficial owner of the dividend must own at least 10 percent equity in the paying company. The paying company must be engaged in agriculture or oil and gas operations.
    • Dividends distributed by Unit trust (small investors contribute money into a pool and use the money to invest).

The following dividends paid to an individual by a company incorporated in Nigeria are exempted under PITA.

  • Where paid wholly in foreign currency or asset brought into Nigeria between Jan 1 1987 and Dec 31st The recipient should own nothing less than 10 percent equity share capital in the paying company-3rd Schedule to the PITA.
  • Income earned from a foreign company and brought into Nigeria wholly in foreign currency by a Nigerian resident and paid into an approved domiciliary account-3rd Schedule to the PITA.
  1. Interest: is income from certain investment like bonds, debentures, loans, bank deposits and so on.


  1. Royalty: payment made by one party to another for the use of a right.

Section 78 CITA and 70 PITA  mandates the payor to withhold 10 percent payment as tax when interest of royalty becomes due. Such interest must have accrued in, been derived or received or brought into Nigeria. This led to tax avoidance. In Aluminium Industries Aktien Gesellschaft V FBIR, the court held that interest paid to a Nigerian subsidiary in swiss currency was not taxable as it was not derived in Nigeria. This decision led to criticism and amendment of the CITA. Section 9 now makes the net wide to encompass income having connection with Nigeria.

The following Interests or Royalties are exempted:

  • Interest on loan granted by a foreign bank to Nigerian individual or company for an endeavour in Nigeria. Provided the moratorium is not less than 10 years.
  • Interest on loan granted by a bank to a company engaged in Agricultural trade or business provided the moratorium is not less than 18 months. The interest rate should not be more than the base lending rate provided by CBN.
  • Interest on loans granted by a bank for manufacturing of goods for export.
  • Interest derived from a foreign company and brought into Nigeria through approved channels-Section 23 CITA.
  • Interests on deposits of foreign companies provided they are transferred wholly in foreign currency to Nigeria through approved channels.




Quite eccentric really

Leave a Reply

error: Download option in Footer
%d bloggers like this: