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Fiscal Regime & Incentives
PETROLEUM FISCAL SYSTEMS IN NIGERIA
  • Oil
  • Petroleum profit tax act (PPT) 1959, and its amendments
  • Memorandum of understanding (MOU)
  • Production Sharing Contracts deep water (Side Letter)
  • GAS Finance (Miscellaneous Taxation Provisions) Acts 18 & 19 of 1998 and Act 30 of 1999.
B. PPT/ROYALTY
  • PPT RATE
  • 85% for JV companies
  • 50% for PSC companies in deep offshore (over 200 metres)
  • ROYALTY

Graduated into:

Land
Swamp/Shallow Waters
Shallow Offshore
Deep Offshore
Onshore ? 20%
0 ? 100m: 18.5%
100 ? 200m: 16.67%
201 ? 500m: 12%
     
501 ? 800m: 8%
     
801 ? 1000m: 4%
     
Over 1000m: 0%

FISCAL INCENTIVES

OIL
  • As contained in the Memorandum of Understanding (MOU) for JV companies
GAS
  • Upstream Gas Utilization:
  • Capital allowance: 20% per year (year 1 ? 4) and 19% in year 5
  • Petroleum Investment Allowance (PIA): 10% as for oil.
  • Income tax is based on CITA (30%) where expenses are identified as exclusively for gas.
  • Custom Duty: 2.5% (Government Circular of 2002)
  • Royalty: Zero %

To benefit from the foregoing incentives, a company must invest in natural gas liquid extraction facility to supply gas in usable form to domestic gas utilization projects, including aluminum smelter and Methanol, MTBE, and other associated gas utilization projects.

  • All capital investment relating the gas-to-liquids facilities shall be treated as chargeable capital allowance and recoverable against oil income. 
  • Gas transferred from the natural gas liquid facility to the gas-to-liquid facility shall be at zero percent tax and zero percent
  • Royalty.
  • All incentives granted in respect investment in associated gas shall be applicable to non-associated gas.
  • Condensate extracted and re-injected into the crude oil stream shall be treated as oil but those not re-injected shall be treated as gas.
  • Downstream Gas Utilization.
  • Capital Allowance: 90% in the first year of production and 10% retained in the books.
  • Petroleum Investment Allowance (PIA): 35% (if no tax holiday is exercised or 15% (if tax holiday is exercised). Tax Free Period: 3 yrs in the first instance, and renewable for additional two (2) years subject to satisfactory performance. The tax-free period shall start on the day the Company commences production as certified by the Ministry of Petroleum Resources.
  • Tax free dividend during the tax-free period.
  • Zero % VAT for plants, machinery and equipment
  • Custom duty: 2.5% (Government circular of 2002) Interest on loan: Deductible provided there is prior approval of FMF.

Gas Utilization means the manufacturing and distribution of natural gas for commercial purpose and includes power plant, liquefied natural gas, gas to liquids plant, fertilizer plant, gas transmission and distribution pipelines.