Nigeria Depreciation

Nigeria's Initial and Annual Allowance Framework Under CITA

Nigerian capital allowances are governed by the Third Schedule of the Companies Income Tax Act (CITA), which divides qualifying capital expenditure into initial allowances (one-time, in the year of purchase) and annual allowances (recurring, on the reducing written-down value). Initial allowance rates vary dramatically by asset category: qualifying agricultural and plantation equipment attracts a 95% initial allowance — one of the highest in the world — while industrial plant and equipment qualifies for 50%, motor vehicles for 50%, office equipment for 25%, and furniture for 15%. An agro-processing company purchasing ₦100 million of qualifying agricultural equipment can claim ₦95 million as an initial allowance in year one. The remaining ₦5 million is then written off at the 20–25% annual rate, completing the full write-off within two additional years. This deliberate differential incentivises investment in agriculture and manufacturing as strategic priorities under Nigeria's economic policy framework.

Qualifying Capital Expenditure and Sector-Specific Rules

The Federal Inland Revenue Service (FIRS) defines qualifying capital expenditure (QCE) as expenditure on assets used in the business at the end of the accounting period. Assets must be newly acquired — not merely refurbished — and used in the taxable trade. Industrial buildings qualify for a 15% initial allowance and 10% annual allowance. Petroleum operations follow an entirely separate regime under the Petroleum Profits Tax Act, with different rates specific to upstream oil and gas activities. Mining operations qualify under the Minerals and Mining Act. The interplay between CITA, PPTA, and sector-specific statutes means Nigerian tax planning requires careful identification of the applicable statute before any allowance calculation, as the combined effective rate can vary from near-zero (agriculture) to under 30% (office buildings) — a fivefold difference driven entirely by sector classification.

Pioneer Status, Balancing Adjustments, and Carry-Forward Rules

Nigeria's Pioneer Status Incentive, administered by the Nigerian Investment Promotion Commission, can exempt qualifying companies from income tax for three to five years, during which capital allowances are suspended. Unused allowances from the pioneer period may be carried forward and claimed when the period ends, providing a bank of deductions against future profits. When a qualifying asset is disposed of, CITA requires a balancing charge if proceeds exceed the written-down value — taxing the excess as income, capped at total allowances previously claimed — or a balancing allowance if proceeds fall short. These recapture rules are frequently triggered in Nigeria's active used-equipment market, making careful tracking of written-down value for each asset class essential for corporate tax compliance and financial audit readiness under the Finance Acts of 2020, 2021, and 2023.