Tax Implications of Free Trade Zone Transactions

In its pursuit of increased foreign and local investments, Nigeria has strategically established Free Trade Zones (FTZs) – a practice not unique to Nigeria but embraced globally by countries like Tanzania, Libya, China Hong Kong, and others. Nigeria boasts 42 licensed FTZs, with 14 currently operational. A Free Trade Zone (FTZ) is a designated economic zone where goods can be manufactured, stored, and handled under specific customs regulations. It provides unique advantages such as exemption from customs duties, trade barriers, and other regulations affecting companies within the zone. Businesses registered in an FTZ are termed Free Zone Enterprises. Key Incentives for Approved Enterprises (AE) in FTZs: Tax Requirements for FTZs: According to Section 8 of the Nigeria Export Processing Zone Authority (NEPZA) Act, approved enterprises within FTZs are exempt from all Federal, State, and Local Government taxes, levies, and rates. This exemption extends to all legislative provisions pertaining to taxes within FTZs, as stated in Section 18 (1) of the Act. However, it’s crucial to note that only the AE within FTZs enjoys tax exemptions. Other entities within custom territories conducting transactions with AE are subject to applicable taxes. Tax Implications of Transactions: Recent Amendments and Circular: The 2020 Finance Act introduced amendments, requiring companies registered in FTZs to comply with Section 55(1) of the Company Income Tax Act (CITA) and render returns. FIRS issued a circular outlining guidelines for filing income tax returns by approved enterprises within FTZs. Contents of Tax Returns: Other Statutory Obligations for FTZ Enterprises: In summary, understanding the tax implications of transactions within FTZs is vital for both Approved Enterprises and entities within Customs Territories to ensure compliance with Nigerian tax laws. For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.