2021 Finance Law – Impact on the capital market and the real estate sectors – Finance and Banking

Nigeria: Finance Law 2021 – How the capital market and real estate sectors are impacted

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The Finance Act 2021 (the “FA 2021”) introduced changes that could have significant implications for Nigeria’s capital markets and real estate sectors. In this post, we have addressed some of the changes that we believe are relevant.

Capital gains on sale of shares

The general tax exemption granted under the Capital Gains Tax Act (“CGTA“) for disposal of shares has now been amended. Gains accruing to a person or company for the disposal of shares in any Nigerian company registered under the Companies Act and related matters (“CAPA“), are now subject to capital gains tax (“CGT“) at the rate of 10%, subject to certain exceptions, such as where the disposal proceeds are reinvested in the acquisition of shares of the same company or any other Nigerian company during the same tax year , or where the aggregate proceeds from the disposal of shares are less than NGN 100 million in any consecutive 12 month period, or where shares are transferred between an approved borrower and lender in a transaction regulated securities lending business as defined by the Corporation Income Tax Act (“CITA“).

These changes impact capital market transactions in the following ways:

  1. The capital gains exemption on disposal of shares used to be a lure for equity investments, but with the changes institutional investors may need to assess the implication of investing in shares or securities debt, especially Nigerian government securities. The CGTA exempts capital gains from the disposal of Nigerian government securities from the CGT. Such securities include Nigerian Treasury Bonds, Savings Certificates, Premium Bonds issued under the Bonds and Savings Certificates Act, or any other long-term securities issued by the Nigerian government. It is unclear whether this exemption will apply to securities issued by state governments. With the exemption of Nigerian government securities from CGT, investors may be inclined to invest more in debt securities than in equities.

  2. The use of holding companies for the purpose of holding real estate titles was a common scheme used by property developers, individuals and property managers, to manage exposure to CGT and reduce times to perfect titles in the registers state land. With the withdrawal of the CGT exemption, this is no longer effective.

  3. Exemption from the application of CGT to taxable capital gains on shares transferred between an approved borrower and a lender in a regulated securities lending transaction should stimulate interest in securities lending in Nigeria. A concern, however, is that some securities lending transactions are not necessarily regulated by the Securities and Exchange Commission (“SECOND“), particularly if the securities to be borrowed are Nigerian securities, but the borrowers and the agents of the lenders and borrowers are located outside of Nigeria. This can pose a challenge as the definition of a securities lending transaction regulated is that regulated by the SEC.By Under Section 3 of the CGTA, gains from the lending of securities in a Nigerian company could be subject to CGT in Nigeria, although the intention is to exempt gains from securities lending transactions. This amendment therefore requires clarification.

Mutual fund franked interest income

Prior to the amendment introduced by the FA 2021, interest earned by a Nigerian company that holds shares in a mutual fund was subject to income tax at 30%. Indeed, contrary to the dividends distributed by a mutual fund, the interests distributed to a mutual fund within the framework of an undertaking for collective investment (“IEC“) was not exempt from tax. This increased the tax exposure of unitholders whose fund managers invest in debt securities. With the amendment introduced by the FA 2021, unitholders corporate trust units will only be subject to 10% WHT as a final tax on interest derived from investments made within the framework of a UCITS.

Real estate investment vehicles

Investment in real estate assets in the Nigerian capital market could be done through a real estate investment company (“REICO“) or a REIT (“REITsA new definition has been introduced for REICOs. This definition expands the definition of REICOs to include REITs that have been duly approved by the SEC as a real estate investment program. The amendment to this definition attempts to remedy what was previously an unclear and inefficient system.For context, prior to the 2019 Finance Act, REICOs were in a position where dividends and rental income received by a REICO would be taxed in the hands of the REICO, and also taxed between the hands of the ultimate beneficiaries who are shareholders of the REICO, which was onerous, since REICOs are only transfer vehicles for investment in real estate assets, therefore only the ultimate beneficiary would have to pay the tax on the dividends and rental income from investments in these real estate assets The 2019 and 2020 finance laws have remedied this anomaly by exempting dividends and income from tax levies received by a REICO on behalf of its shareholders, provided that (i) a minimum of 75% of the dividend distribution and rental income is distributed, and (ii) such distribution is made within 12 months of the end of the year in which the dividend or rental income was earned.

However, these REICOs are required to deduct the WHT when redistributing the dividend and rental income to their shareholders. It was unclear, however, whether REITs were covered by this exemption, as REITs are not corporations. It was possible that a trustee of a REIT who received dividends or rental income from real estate investments could pay tax on that income and unitholders would also pay tax when the income was redistributed to them. The FA 2021 amendment now clarifies that REITs will also benefit from this exemption, therefore rental and dividend income should not be taxed in the hands of the trustee, but in the hands of the ultimate beneficiaries.

Securities lending transactions

One of the highlights of the 2019 finance law was the introduction of a tax regime for regulated securities lending transactions. Under the 2019 finance law, the dividend was defined as comprising “compensation payments received by a lender from its authorized agent or its borrower in connection with a regulated securities lending transaction, if the underlying transaction giving rise to the compensation payment is the receipt of dividends by a borrower on shares or securities received from its authorized agent or from a lender in a regulated securities lending transaction”. The FA 2021 amended this definition to read “dividends include compensatory payments received by a lender from its authorized agent or borrower in connection with a regulated securities lending transaction”.

The impact of this amendment is that each compensatory payment that a lender receives from the borrower will be interpreted as a dividend, regardless of the nature of the underlying transaction giving rise to the compensatory payment. For example, when the lender lends debt securities listed as bonds to a borrower, and while the bond is temporarily under the control of the borrower, the borrower receives interest from the issuer of the bond, interest on this bond when transferred to the lender will be treated as a dividend in the hands of the lender, even if the underlying transaction is in debt securities.

Based on the above, with the amendment introduced by the FA 2021, a lender who lends debt securities will be able to benefit from the exemption under section 23(1)

This amendment is an incentive for both debt securities lending transactions and equity-based securities lending transactions.


FA 2021 has made changes that have significant implications for capital markets investment transactions. Although some issues still require further clarification, the impact of the changes appears to reach a potential increase in government revenue, without necessarily hampering investment opportunities in the Nigerian capital markets. The extent of this balance, however, would only be determined as implementation progresses.

We will examine in our subsequent publications how the changes introduced by the FA 2021 affect other sectors.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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