Free trade zones and tax incentives: EPZ, gas utilisation and the levies on profit

A factory in an export processing zone pays no tax on its profit for three years, claims a full capital allowance on its plant, and imports without duty. A gas company has three tax-free years and then a 90% annual allowance. The same companies may owe a levy on profit to a technology agency, a science and engineering agency and the police trust fund. Incentives come with conditions, and the exam asks for both.

This topic covers the export processing and free trade zones, the export processing zone allowance, the special incentives under the zones law, the incentives for gas utilisation, and the levies on profit under the NITDA, NASENI and Police Trust Fund laws. The previous topic covered transport, telecommunications, banking and insurance. The next covers the Startup Act.

Key terms in plain English

Syllabus check

This topic is in syllabus area D, company taxation. It covers:

• export processing and free trade zones
• the incentives for gas utilisation
• levies on company profit

CAMA 2020 and tax incentives

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

Free trade and export processing zones

All companies, foreign ones and individuals included, that operate in an export processing zone or free trade zone are exempt from tax on their profits, provided the undertaking is 100% export oriented. For manufacturing this includes assembling or processing goods for export if the value of exports is at least 75% of the total turnover for the assessment year.

The aim is to encourage manufacturing for export, widen the revenue base and create jobs. The exemption is only available to a company that files returns under section 55(1) of CITA.

Export processing zone allowance (section 35)

A company that spends on qualifying buildings and plant in an approved manufacturing activity in an export processing zone gets a 100% capital allowance in any assessment year, but no investment allowance. At the end of the tax holiday only the tax written down value is carried forward.

The three-year exemption: conditions

The profits of a 100% export oriented undertaking in or outside a zone are exempt for the first three consecutive assessment years if:

1. it is 100% export oriented;
2. it is not formed by splitting, breaking up or reconstructing an existing business;
3. it makes and exports goods and the export proceeds are at least 75% of its turnover;
4. it is not formed by transferring plant previously used for another purpose, or the transferred plant is not more than 25% of the total value of its plant; and
5. it repatriates at least 75% of export earnings to Nigeria and places them in a domiciliary account in a licensed bank.

A company in the zone must file under section 55(1) to enjoy the exemption from taxes, levies, duties and exchange controls; the penalties in CITA and the FIRS Act apply to default.

Special incentives under the Export Processing Zones Act (section 18(1))

• The laws on taxes, levies, duties and foreign exchange do not apply in the zones.
• Foreign capital can be repatriated with its appreciation, and profits and dividends of foreign investors can be remitted.
• No import or export licences are needed.
• Up to 25% of production may be sold in the customs territory on a permit and payment of duties.
• Rent-free land during construction, then rent as the authority sets it.
• Up to 100% foreign ownership, and foreign managers and qualified staff may be employed.

Gas utilisation: downstream operations (section 39)

“Gas utilisation” means marketing and distributing natural gas for commerce, including power plants, liquefied natural gas, gas to liquid, fertiliser plants and gas pipelines. A company in gas utilisation gets:

1. a tax-free period of three years, renewable for two more on satisfactory performance, claimable once only by a company, not for a company formed by reorganisation or buy-back from one that has had it, and not for one that has had another gas incentive;
2. as an alternative to the tax-free period, an additional investment allowance of 35%, which does not reduce the value of the asset, and then no further 15% allowance;
3. accelerated allowance after the tax-free period: an annual allowance of 90% with 10% retained for plant and machinery, and an additional investment allowance of 15% which does not reduce the value of the asset;
4. tax-free dividends during the tax-free period where the dividend is in foreign currency and imported plant and machinery is at least 30% of the equity share capital.

The tax-free period begins on the day production starts, as certified by the Ministry of Petroleum Resources.

Levies on profit

The position from 2026

Under the Nigeria Tax Act 2025 the pioneer holiday is replaced by an Economic Development Incentive (a 5% a year tax credit for five years on qualifying capital expenditure).

Free zone companies keep exemption on exports, on output that goes into exported goods or services, and on supplies to oil and gas companies. But tax applies in proportion where more than 25% of sales are into the customs territory, and from 1 January 2028 the full profits of a free zone company are taxed if it makes any sale into the customs territory.

The 4% development levy replaces the NITDA, NASENI and Police Trust Fund levies from 2026. Use the rules above for periods ending before 1 January 2026.

Worked examples

1. Exports are 640 ÷ 800 = 80%, above the 75% required.
2. If it also meets the other four conditions and files its returns, its profit is exempt for the first three years.

1. Exports are 70%, below 75%.
2. It does not qualify, or tax accrues proportionately on the profit.

1. Additional investment allowance.
   35% × ₦200,000,000 = ₦70,000,000, which does not reduce the asset’s value.
2. The further 15% allowance is not available to it.

1. NITDA levy.
   1% × ₦20,000,000,000 = ₦200,000,000.
2. NASENI levy.
   0.25% × ₦20,000,000,000 = ₦50,000,000.
3. Police Trust Fund levy.
   0.005% × net profit of ₦20,000,000,000 = ₦1,000,000.

How to score full marks

• List every condition for an incentive, and say whether the facts meet each.
• Use the percentages exactly: 75%, 25%, 35%, 90%.
• State the filing condition under section 55(1).
• Name the base of each levy.

Common mistakes in the exam

• Giving the EPZ allowance together with the investment allowance.
• Claiming the gas tax-free period twice.
• Using turnover as the base of the levies.
• Forgetting that exemption depends on filing returns.

Quick revision

• Zones: 100% export; manufacturers 75% of turnover; three years.
• Gas: 3 + 2 years, or 35%; then 90% and 15%.
• Levies: 1%, 0.25%, 0.005%.

Practice questions

Questions 1 to 10 are multiple choice. Questions 11 to 13 are written. Try each before opening the answer.

Model answers

Spotted a mistake? Tell us and we will check it.