REALWorld Law

Sale and purchase

Taxation of asset deals

Which taxes are relevant/which transaction costs will be incurred when buying real estate as an asset (asset deal) and how are the transaction costs shared between the buyer and seller?

Nigeria

Nigeria

Real estate sale and purchase transactions are by law subject to taxation. The applicable taxes are the following:

  • Stamp Duty (as amended by the Finance Act, 2020) is payable at the registration of the transfer deed and the buyer of property is responsible for the payment. The Federal Inland Revenue Service charges about 1.5% of the assessed market value as stamp duty.
  • Capital Gains Tax (as amended by the Finance Act 2020) is based on gains or profits from the sale of property and is payable by the seller. By law, capital gains tax payable is 10% of the gains made from the disposal of the property. However, in practice, for the registration of transfer of title, the usual rate charged by the Federal Inland Revenue Service is about 1% of the assessed market value of the property.
  • Consent and registration fees. By law, transfers of real estate must have the consent of the State Governor to be valid. The law also provides that transfer of real estate interests for terms that are above three years should be registered. The different states have different rates for consent fees and registration fees. The rates applicable in Lagos State are 1.5% and 0.5% respectively for consent and registration fees.

In practice, all transfer taxes and costs are not shared and are paid by the buyer. The Finance Act 2020 grants tax exemptions under the revised provisions of Capital Gains Tax Act for asset transfers among a related party group. A company is recognised as member of a group where it has been part of the group for a minimum of 365 days prior to the reorganisation. Also, the assets must be held by the acquiring company for not less than 365 days to stay exempted from the applicable tax law. Furthermore, the Act in defining the goods that are subject to value added tax exempted transfer of interest in land.