Mergers and acquisitions (M&A) are vital strategies for corporate growth and restructuring, and they often have significant tax implications. In Nigeria, the Finance Act 2019 introduced key changes affecting how M&A transactions are taxed and regulated. Understanding these implications is crucial for businesses considering M&A deals. In this article, we will explore the essential insights from the Finance Act 2019 regarding the tax implications of M&A in Nigeria.
1. Definition of a Merger and Acquisition: The Finance Act 2019 defines a merger as the transfer of all assets and liabilities of one or more companies to another existing company, and an acquisition as the acquisition of the shares of one or more companies by another company. These definitions provide clarity and guidance for businesses involved in M&A transactions.
2. Capital Gains Tax on M&A Transactions: One of the significant changes introduced by the Act is the taxation of capital gains arising from M&A transactions. Capital gains realized from the transfer of assets during mergers and acquisitions are now subject to Capital Gains Tax (CGT) at a rate of 10%. This change aims to generate revenue for the government from M&A deals.
3. Qualifying M&A Transactions: The Finance Act 2019 specifies that to qualify for CGT exemption, the merger or acquisition must be carried out for the purpose of restructuring the business and not for tax evasion. This ensures that the tax benefits of M&A are realized within the context of genuine business transformation.
4. Withholding Tax on Dividends and Interests: The Act introduced withholding tax on dividends and interests paid by a merging or acquiring company to shareholders or creditors. This is aimed at preventing tax evasion through dividend stripping schemes and ensuring the proper taxation of income arising from M&A transactions.
5. Group Structure Restriction: The Act imposes restrictions on the use of group structures in M&A transactions to claim tax benefits. This change is designed to prevent abuse of group structures for tax avoidance purposes.
6. Compliance and Reporting: Businesses engaged in M&A transactions are required to maintain accurate records, calculate tax liabilities correctly, and fulfill their reporting obligations to the tax authorities. Compliance is essential to avoid penalties and ensure the smooth execution of M&A deals.
The Finance Act 2019’s provisions regarding the tax implications of M&A transactions in Nigeria reflect the government’s commitment to creating a transparent and equitable tax system. These changes are aimed at preventing tax evasion and ensuring that the tax benefits of M&A are realized within the context of genuine business transformation. Engaging with tax professionals and seeking expert advice can help navigate the complexities of M&A taxation and ensure responsible tax practices. By embracing these changes, businesses can contribute to a fair and sustainable tax environment in Nigeria while pursuing growth and restructuring opportunities through mergers and acquisitions.
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.