TAX RETURNS FOR FREE TRADE ZONE ENTITIES (FTZE) IN NIGERIA- GUIDELINE & CLARIFICATION

Introduction

A Free Trade Zone Entity is a corporate body that is governed and regulated by the rules and regulations of the Free Trade Zone (FTZ) under the Nigeria Export Processing Zones Authority (NEPZA) in which it was established.

The government agency administering and overseeing the Free Trade Zones (FTZ) activities in Nigeria is the Nigeria Export Processing Zones Authority (NEPZA), established under the NEPZA Act No, 63 of 1992.

However, In line with section 18(1)(a) of the Finance Act 2020, entities within the Free Trade Zones (FTZ) are obligated to file their returns with Nigeria Export Processing Zones Authority (NEPZA) as well as the Federal Inland Revenue Service (FIRS), and all penalties prescribed in the Companies Income Tax (CIT) Act and the Federal Inland Revenue Service (Establishment) Act may apply in the event of non-compliance with section 55(1) of the Companies Income Tax (CIT) Act.

Following the Memorandum of Understanding (MoU) signed by the Federal Inland Revenue Service (FIRS) with the Nigeria Export Processing Zones Authority (NEPZA), It is important to note that enterprises in the Export Processing Zones enjoy complete exemption from tax. However, they are statutorily expected to file returns. These returns help the government to plan and know which taxes it has foregone as incentives.

It is also expected that the companies in the zone act as collection agents for the FIRS of VAT when they do business with companies that are not in the zone.

This MoU would also help the FIRS to breach collaboration gaps between the Service and NEPZA.

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What is a Free Trade Zone (FTZ)?

A Free Trade Zone (FTZ) is a designated location within a geographical area where corporate bodies or an enterprise can carry out business operations without any trade barriers, restrictions, bureaucratic bottlenecks, or any custom interference or intervention.

Some of the aims of a Free Trade Zone (FTZ) is for every free trade zone entity to attract new businesses and promote foreign participation and investments. Goods manufactured within the free trade zone may be remanufactured, reexported and landed without any customs interference within the Free Trade Zone (FTZ).

However, goods or services will be subject to customs duties if they are exported to clients outside the Free Trade Zone (FTZ) but within the country in which the Free Trade Zone (FTZ) operates.

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OBLIGATIONS OF ENTITIES IN THE FREE TRADE ZONE (FTZ)

An entity within the Free Trade Zone (FTZ) must meet the following obligations to comply with the Nigeria Export Processing Zones Authority (NEPZA) Act.

1. Register with the Authority; Free Trade Zone (FTZ) under the Nigeria Export Processing Zones Authority (NEPZA).

2. File annual returns on or before the due dates

3. Proper book-keeping and records of transactions.

Also, an entity within the Free Trade Zone (FTZ) must meet the following obligations to comply with the Companies Income Tax (CIT) Act and the Federal Inland Revenue Service (Establishment) Act.

1. Register with the FIRS and obtain Taxpayer’s Identification Number (TIN).

2. File annual CIT returns, and VAT on or before the due dates

3. Proper book-keeping and records of transactions and

4. Perform other obligations as may be legally required.

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FILING OF ANNUAL RETURNS WITH NEPZA & FIRS

An entity within the Free Trade Zone (FTZ) is under the obligation to file returns once annually with Nigeria Export Processing Zones Authority (NEPZA) as well as the Federal Inland Revenue Service (FIRS). This is to enable the Nigeria Export Processing Zones Authority (NEPZA) and the Federal Inland Revenue Service (FIRS) to confirm if the activities of the entity within the Free Trade Zone (FTZ) were in line with the Companies Income Tax Act, its Free Trade Zone (FTZ) and the Nigeria Export Processing Zones Authority (NEPZA) statutes during the period reported.

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An entity within the Free Trade Zone (FTZ) returns with NEPZA shall contain:

1. A duly completed NEPZA form of Annual Returns obtained from the Free Trade Zone (FTZ), with a non-refundable fee of US$500 or its Naira equivalent. This form must be signed by the company’s director and secretary showing that the information contained in the form is true and correct.

2. Audited Financial Statement; stating the amount of income and expenditures from each, and every source during the period reported.

3. A list of the company’s directors and shareholders of the company, and

4. Such documents, as may be required for the purpose of compliance with the Free Trade Zone (FTZ) and the Nigeria Export Processing Zones Authority (NEPZA) Act.

An entity within the Free Trade Zone (FTZ) returns with FIRS shall contain:

1. Audited Financial Statement

2. Income Tax Computation

3. Capital Allowance Computation.

4. Such documents, as may be required for the purpose of compliance with the Companies Income Tax (CIT) Act and the Federal Inland Revenue Service (Establishment) Act.

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In conclusion, Free Trade Zones (FTZ) under the regulation of the Nigeria Export Processing Zones Authority (NEPZA), provide for foreign participation and investment to promote new businesses, as well as create employment opportunities for local citizens.

Also, entities within the Free Trade Zones (FTZ) are obligated to file their returns with Nigeria Export Processing Zones Authority (NEPZA) as well as the Federal Inland Revenue Service (FIRS), and all penalties prescribed in the Companies Income Tax (CIT) Act and the Federal Inland Revenue Service (Establishment) Act may apply in the event of non-compliance with section 55(1) of the Companies Income Tax (CIT) Act.

With this agreement, the Federal Inland Revenue is expected to start receiving returns from enterprises that are in operation in the Nigerian Export Processing Zones. FIRS would also have access to the zones to conduct compliance checks.