TAX INCENTIVES AVAILABLE TO VENTURE CAPITALISTS
1. Venture Capital (Incentives) Act:
Generally, the law seeks to encourage investments through tax reliefs in order to ensure that people are motivated towards investments in certain areas of the economy. The Venture Capital (Incentives) Act, Cap V2, Laws of the Federation of Nigeria, 2004 contains incentives geared towards encouraging venture capitalists in Nigeria. Section 4(a) of the Venture Capital (Incentives) Act, Cap V2, Laws of the Federation of Nigeria, 2004 provides thus:
“The following incentives shall accrue to venture investments-
a) an equity investment by venture capital in a venture project company shall, for purposes of capital allowance under the Companies Income Tax Act, be treated as follows-
1. for the first year deduct 30 per cent;
2. for the second year deduct 30 per cent;
3. for the third year deduct 20 per cent;
4. for the fourth year deduct 10 per cent;
5. for the fifth year deduct 10 per cent.
Section 4(c) further provides thus:
“The withholding tax payable on dividends declared by the Federal Inland Revenue Service in a Venture project company shall be reduced by 50 per cent of the prevailing rate of withholding tax in respect of dividend received by a Participant in the Risk Fund and venture project company within the first five years”
2. Foreign Exchange (Monitoring and Miscellaneous) Act:
Foreign venture capital firms that bring in capital through authorized dealers (usually licensed commercial banks) and obtain a Certificate of Capital Importation are entitled to unconditional and unrestricted repatriation of profits, dividends and/or interests as guaranteed under Section 15(4) of the Foreign Exchange (Monitoring and Miscellaneous)Act which provides thus:
“Foreign currency imported into Nigeria and invested in any enterprise pursuant to Subsection (a) of this section shall be guaranteed unconditional transferability of funds through an Authorized Dealer in freely convertible currency relating to:
a) dividends or profits (net of taxes) attributable to the investment;
b) payments in respect of loan servicing where a foreign loan has been obtained;
c) The remittance of proceeds (net of all taxes) and other obligations in the event of sale or liquidation of the enterprise or any interest attributable to the investment.”