Tax planning, incentives and opportunities • Techpoint Africa

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Agribusiness is not immune to the challenges faced in the Nigerian business environment. Despite the dire need for food sufficiency in Nigeria and the untapped opportunities in this sector, agribusiness and agro-tech startups do not have easy access to loans as the particular challenges of their business operations and the competition from seemingly more companies. lucrative lenders are reluctant to grant loans. owners of agro-industries.

Below we highlight the avenues for agrotech startups to effectively minimize costs and boost operations through tax planning and the appropriate use of incentives.

Tax planning

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It is important that each agro-tech startup strives to undertake its operations in such a way as to minimize its tax exposure without violating the tax provisions in force.

For effective and efficient tax planning, arrangements and tools such as profit transfer agreements and the strategic location of intangible assets such as intellectual property (IP) must be deployed. Tax exemptions and tax incentives applicable to the agricultural sector should be explored and exploited.

An effective and proven means of tax planning is the timely payment of statutory taxes to avoid penalties. Other tax planning tips include deducting tax at source, setting aside tax funds monthly, properly recording financial statements, and organizing financial statements to include depreciation on machinery, reduction in cash payments, knowledge of basic information and recent developments in the industry such as tax slabs, due to filing dates of income tax returns, applicable income tax rates, involvement of new tax laws to be introduced and the hiring of professional services.

As Farmcrowdy and ThriveAgric, agrotech startups are the dominant explorers of crowdfunding. Recently, the Nigerian Securities Exchange Commission (SEC) released its proposal for a regulation on crowdfunding where it proposes a minimum share capital requirement of 100,000,000 (~ $ 250,000) for crowdfunding.

While the government’s position to regulate crowdfunding to protect investors is laudable, there must be a conscious effort to interpret these regulations in a way that will not stifle innovation and business. As stakeholders concerned with crowdfunding, agro-tech startups are urged to engage government constructively for policy guidance in order to avoid implementation issues.

Some of the tax returns that start-ups should file along with their due dates include:

Corporate income tax: For newly incorporated companies such as agritech startups, the due date for filing returns is within 18 months from the date of incorporation or no later than 6 months after the end of its accounting period, whichever comes first. contingency.

For existing agrotech startups, the due date for filing corporate income tax (“CIT”) returns is within 6 months from the end of the accounting year. An agrotech start-up can request to start paying the tax on account before the due date and after approval, the payment is expected no later than two months after the due date.

Withholding tax: As stated earlier, a tax planning tip for startups is to avoid paying for services in cash and billing financial information correctly, as an invoice is proof of a transaction. Withholding tax (“WHT”) is accessible using the taxpayer’s invoice and is used to capture third party taxpayers who may have evaded tax.

Agritech companies are involved in the purchase of agricultural raw materials and the sale of final agricultural products. It is important for them to obtain their WHT credit score from their respective buyers in order to offset the applicable income tax payable at appraisal for the year.

Income subject to the WHT includes rents, interest paid on investments of any kind, dividends, royalties, advisory services, professional, management, technical services, all aspects of building construction activities, all types of contractual activities and arrangements other than the sale and purchase of goods. and ownership.

Since agrotechs pay interest on their subscribers’ investments, they are supposed to deduct the WHT and remit it to the relevant tax authority. no later than the 21stst day of each following month. When the WHT is deposited outside the due date, a late filing penalty of 25,000 (~ $ 63) for the first month of occurrence and 5,000 (~ $ 13) for each subsequent month of default. to apply to.

Value added tax: Agritechs are involved in the purchase of raw materials and the sale of finished agricultural products and, as such, are required to pay value added tax (“VAT”) on their operations which cover these activities.

The VAT exemptions that affect Agritechs include imported machinery intended for use in export processing zones (“EPZ”) or free zones (“ZLE”), fertilizers and locally manufactured medicines and agricultural equipment. Agritechs must also ensure the payment of monthly VAT returns to the competent tax authorities valued at 7.5% by the Finance Law, 2019 on or before 21st day following the month of the transaction.

Tax incentives

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These are reliefs, credits, allowances, vacations, kickbacks, etc., and are among the many strategies employed by the government to attract investment, encourage ingenuity, and foster economic development in various industries. sectors. Some of the tax incentives that agro-tech startups can take advantage of include:

  1. The Nigerian Investment Promotion Commission tax incentives :
    • Income tax relief (Pioneer Status) for a period of 3 years that can be extended for two terms of one year each or for a period of two years outright.
    • Zero import duties: zero percent import duties (customs, excise and value added) for the import of agricultural and agrifood processing equipment.
    • Exemption from tax interest on loans granted to agricultural activities.
    • VAT exemption
    • Access to the Crédit Agricole Guarantee System up to 75%
    • Investment Promotion and Protection Agreement which provides basic reciprocal protections for investments.
  2. Relief for small businesses under the new finance law: The 2020 finance law exonerate small businesses with annual sales of less than 25 million yen (~ $ 63,000) from CIT. Companies engaged in manufacturing, agricultural production, solid mineral extraction, and wholly export-based trading with annual turnover between 25 million yen and 100 million yen (~ $ 250,000) will pay 20% in WHT while companies with gross annual turnover over 100 yen million should pay 30% CIT.
  3. Tax relief for rural investment: Relief is granted for 3 years to companies located in rural areas lacking essential infrastructure such as electricity, water, paved roads. Most agrotech startups have their farms in rural areas without basic amenities and can take advantage of this incentive.
  4. Investment allowance: 10% tax relief for businesses in the first year of purchase of plant and machinery used for agricultural production and manufacturing by agricultural businesses.
  5. Deductible capital deduction: The full capital allowance is granted to agricultural and manufacturing enterprises for assets used for production.

In addition to the tax incentives available in Nigeria, agro-tech startups can also take advantage of opportunities locally and internationally.

Recently, the African Development Bank organized its Agripitch competition which is open to all agripreneurs aged 18-35 and a national or citizen of an African country with prizes ranging from cash rewards to investment funding and post-competition support.

Annual GoGettaz Agripreneur competition also aims to develop the Pan-African entrepreneurial community and pave the way for new businesses adopting technology and innovation in the agri-food and agro-tech sectors. In 2020, the GoGettaz competition awarded $ 100,000 as a prize to inspire young people across the African continent to start and grow innovative or technology-driven businesses in the agribusiness sector, from ‘seed to fork’. and beyond.

Conclusion

Nigeria’s population growth is a compelling indicator that opportunities abound in the agricultural sector. Technology combined with a ready market makes agrotech startups a viable sector yet to be fully exploited.

With a fundamental understanding of tax bases, tax incentives and tax obligations, agro-tech startups can effectively minimize their tax exposure and explore real opportunities to boost their operations and scale, even if more concerted government intervention and support is sought. .

Featured Image By Quang Nguyen Vinh of Pexels.


Aderemi Fagbemi

Aderemi is a partner of Tope Adebayo LLP with nearly two decades of experience in the legal profession. She is well versed in corporate and commercial transactions with particular expertise in energy law and policy, mining, technology and digital law, corporate law and commercial law with a particular interest in legal advice for startups, financing projects and infrastructure projects.

AnthoniaUdeh

Anthonia Oudeh

Anthonia Udeh is a savvy lawyer with a remarkable analytical mind whose areas of practice focus on tax advice, employment and labor law, and investment and corporate restructuring.

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