What new tax laws hold for Nigeria’s real estate sector

President Bola Ahmed Tinubu last week signed the tax reform bills in Abuja signalling a new area in the country’s tax system which will impact every sector including the real estate sector. The new laws show that some aspects of real estate will be exempted from taxation. However, stakeholders have harped on the need to […]

President Bola Ahmed Tinubu last week signed the tax reform bills in Abuja signalling a new area in the country’s tax system which will impact every sector including the real estate sector.

The new laws show that some aspects of real estate will be exempted from taxation. However, stakeholders have harped on the need to also consolidate by reducing the high cost of imports for building materials.

The laws are set to ease rent burden on both individuals and institutions in the real estate sector.

One of such areas is company dividends and rental where the reform provides that, “with certain limitations, dividends and rental income received by a real estate investment company on behalf of its shareholders are tax exempt as long as, at least, 75 per cent of the income is disbursed within a year following the end of the fiscal year in which it was earned.”

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“Additionally, profits or losses from business operations are assessed by considering rent and surcharges associated with income-producing land, as well as repairs to income-generating properties, machinery, and equipment, including tool renewals and modifications,” it said.

The laws further increased the “Exemption threshold for Corporate Income Tax from N25 million to N50 million in annual turnover. A 4 per cent development levy will be implemented to finance educational and infrastructural projects. If implemented as intended, this will help to address the supply imbalances in Nigeria’s real estate market,”

The levy is aimed at stimulating the growth of the developer market by reducing the rate to 2 per cent by 2030, thereby attracting more payments.

The laws specify that the chargeable income of an individual is defined as the total income determined under section 28 of the proposed reforms, minus eligible deductions such as rent relief of N200,000 or 20 per cent of the annual rent paid, whichever is lower, contingent upon the individual accurately declaring the actual rent paid.

On withholding tax (WHT) rate applicable to payments made to Nigerian resident contractors for construction services, including roads, bridges, and buildings, it stated that the rate has been decreased from 2.5 per cent to 2 per cent for local contractors.

“The primary objective is to alleviate the financial strain on local contractors. Nonetheless, for the contractors who are non-resident, this rate has been elevated from 2.5 per cent to 5 per cent. This will provide the local contractors with an advantage in relation to their international counterparts,” it added