ECONOMIC DEVELOPMENT TAX INCENTIVE UNDER THE NIGERIA TAX ACT, 2025: ANY POTENTIAL ADVANTAGES FOR FREE ZONE ENTITIES?

INTRODUCTION

The Nigeria Tax Act 2025 (“NTA”) introduces the Economic Development Tax Incentive (“EDTI”), which replaces the long-standing Pioneer Status Incentive (“PSI”).[1] The EDTI establishes a more targeted and investment-linked structure that ties tax reliefs directly to verifiable capital expenditure and performance in priority sectors, and marks a shift from blanket tax holidays to a credit-based model.

For entities operating within free zones, including those under the Nigeria Export Processing Zone Act CAP N 107 2004 (“NEPZA”) and the Oil and Gas Export Free Zone Act No. 8 of 1996 (“OGFZA”), an important question arises: does the EDTI provide any tangible advantage under the NTA? This briefing note examines the potential benefits and limitations for Free Zone Entities (“FZEs”).

COMPARISON OF TAX INCENTIVES

Prior to the NTA, FZEs under both the NEPZA and OGFZA enjoyed broad, full exemption from all federal, state, and local taxes.

The NTA replaces this blanket exemption with a recalibrated, conditional model:

i.        Conditional Exemption: The NTA provides that the conditional exemption applies to the profit of an Export Processing Zone Entity[2]. The profit is fully exempt from tax only where the entity’s sales are wholly derived from export activities.

ii.       Domestic Sales Limit: Full exemption applies only if domestic sales to the Nigerian customs territory do not exceed twenty-five percent (25%) of total sales, effective until 1 January 2028. Notably, the President may, by order published in the Official Gazette, extend this date for up to ten years from the effective date of the NTA, which is 1 January 2026.

POTENTIAL ADVANTAGES FOR FREE ZONE ENTITIES

Nothing in the NTA expressly provides that FZEs are excluded from, or eligible for the EDTI. In the absence of an express prohibition, the dubio contra fiscum principle applies. This principle provides that where the provisions of a tax statute are unambiguous or uncertain, such ambiguity must be interpreted in favour of the taxpayer and against the tax authority. Accordingly, where the NTA does not specifically prohibit FZEs from enjoying the EDTI, they should, by parity of reasoning, be able to claim the EDTI, provided that their activities fall within one of listed priority sectors and they meet the statutory conditions, including the minimum Qualifying Capital Expenditure (“QCE”).

Given the above, the EDTI offers the following potential advantages for FZEs:

i.        Investment-Linked Tax Credits on Qualifying Capital Expenditure

FZEs often undertake large capital expenditure projects. As such, they are well placed to benefit from the Economic Development Tax Credit (“EDTC”).[3] This can improve project economics, reduce tax liability, and improve return on investment.[4] The ability to utilize the EDTC and ensure predictable incentive forecasting depends on the QCE certification process detailed in Section 173 of the NTA, which requires the company to apply to the Nigeria Revenue Service to verify the QCE amount and the production day.[5]

ii.      Strategic alignment with priority sectors

If the FZE’s activities fall into the NTA’s “priority sector” list, the eligibility criteria for EDTI become favorable, enabling them to tap into a more generous regime than companies outside those sectors. [6]

CONCLUSION

The NTA introduces a modernised incentive framework that replaces blanket tax holidays with measurable, investment-linked credits. Although the NTA does not expressly state whether FZEs can enjoy the EDTI, the absence of a specific exclusion coupled with the dubio contra fiscum principle suggests that FZEs engaging in qualifying priority-sector activities and meeting the statutory thresholds could be entitled to claim the EDTI.

Please do not treat the foregoing as legal advice as it only represents the public commentary views of the authors. All enquiries on this should please be directed at the authors.

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