REALWorld Law

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Under Nigerian Law, investors may participate in real estate investment through a company incorporated for the purpose of acquiring interests in real estate or property development or, a Trust constituted for the purpose of investments in real estate and real estate related assets. The investor in the Nigerian real estate space has the discretion to determine the structures to adopt in considering investments in real estate. An individual or company may elect to directly acquire and control a real estate asset or choose to invest through other previous existing or new specifically setup corporate investment vehicles or real estate investment trusts. It is key that only juristic persons and going concerns are recognized as being able to own and invest, acquire title and interests in real property. Investors must give careful consideration to the particular structure adopted for any real estate investment as it will impact on the investors control and direction of the asset, benefits, liabilities and tax implications.

Last modified 22 Mar 2024

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

The taxes applicable to real estate transfer transaction are: Capital Gains Tax (CGT), Stamp Duties. 

Capital gains realised on the sale of real property is subject to CGT and payable by the seller of real estate. The rate under the Capital Gains Tax Act is 10% of the gains from the sales. In reality, the tax authorities (Federal Inland Revenue Service) decide the amount payable on a ‘best of judgment assessment’ basis which uniformly is about 1% of the value of the property.

It is noteworthy that rollover relief can be claimed where proceeds of disposal are used to purchase a new asset of the same class within 12 months before or after the disposal of the old asset. The classes of the assets eligible for relief include Buildings and Landed property (Class 1 Assets).

Stamp duty is chargeable either at fixed rates or ad valorem (ie in proportion to the value of the consideration) depending on the class of instrument All deeds or instruments for transfers of interests in real property are required to be stamped under the Stamp Duties Act and the purchaser or assignee is responsible for this payment. The Federal Inland Revenue Service (FIRS) assessed rates for stamping of transfer documents for is 1.5% for transactions involving a corporate entity.

A different tax regime and rates apply to transfer transactions where individuals are parties and the rates vary within the 36 States in Nigeria. In Lagos State, the rates payable for CGT and Stamp Duties is currently 0.5% each of the property value.

Last modified 22 Mar 2024

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

No. VAT is not chargeable on the sale of real property, including buildings which are developments on land, and this is specifically excluded from the definition of goods subject to VAT payment.

Last modified 22 Mar 2024

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

A combination of land charges, such as ground rents, tenement rates, Neighbourhood Improvement Charges, Business Premises permits apply to properties at different rates across Nigeria. The responsibility for these payments is on the owner and occupier of the premises and ought to be paid to Government before a transfer of the interests to the purchaser otherwise, it becomes the responsibility of the purchaser or assignee to make the payment on any outstanding charges after transfer.

The Land Use Act provides that the Governor of a State where a property is located shall give consent for a transfer of the interests in the property to be valid. The transactions in which Governor’s consent is needed include sale of land, mortgage, leaseetc. Payment of a consent fee may be made conditional on the granting of the consent or made antecedent of the grant. The rate chargeable as consent fee depends on the scale adopted in a particular state but is mostly between 3–5% of the consideration paid on the property transaction. Failure to pay consent fee will make the alienation of interest voidable.

The Registration Fee is required to be paid under the various land instrument registration laws of the States before documents are registered. The property sought to be registered may be valued or revaluated by the director of lands or other valuers to determine the amount payable, and not necessarily the amount stated by the parties in the document sought to be registered.

The purchaser is responsible for ensuring that all required costs and taxes for consent and registration of the transferred interests are paid.

The fees for the Solicitors and other professional consultants including estate surveyors and agents also arise in transfer of property transactions.

The purchaser is usually responsible for the payment of the transaction costs and the taxes except where expressly agreed by the parties that the costs and taxes are to be shared by the parties.

Last modified 22 Mar 2024

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

The recurring taxes outside the transfer costs that are payable by an owner of real estate are the annual charges for land use which includes ground rents, tenement rates and such other levies for development and business premises which the government authorities impose on owners and occupiers of real property. The rates are uniformly imposed on properties depending on locations and the nature of the building developments.

The Taxes and Levies (Approved List for Collection) Act 1998, provides for state governments to charge and collect business premises registration fee and development levy, annually from property owners. Also, the Personal Income Tax Act and the Companies Income Tax Act, provides that rental payable to the owner of a property is subject to Withholding tax and imposes an obligation on the person paying rent to withhold 10% for remittance to the tax authority and collect a tax credit note in favour of the owner of the property to offset its tax liability at the end of the tax year. Please note that withholding tax is not charged on rental income or dividends due to a real estate investment company.

Last modified 22 Mar 2024

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Professional fees of solicitors, property managers, estate agents and such other consultants engaged by the owner of real estate are payable by the owner. The owner is also responsible for maintenance of external structures and parts of the building.

Where the owner is the sole occupier of the property, the costs for services and utilities consumed in the property are payable by the owner. Also, the building insurance costs are the responsibility of the owner.

Last modified 22 Mar 2024

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

The most common income from ownership of real estate are rental payments made by tenants, lessees and licensees of the property and capital gains or profits arising from the sale of the property.

The owner of property will also derive income from the business operations conducted within the  premises whether providing hotel, hospitality, leisure, recreational and such facilities that permit users to pay a fee.

Last modified 22 Mar 2024

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

The income from real estate is subject to the applicable tax laws and rates in the country. A company that owns real estate pays income tax from the profits on the rent based on the applicable rates under the Companies Income Tax Act Cap C21 LFN 2004. The income of an individual owner of real estate is also taxed based on the Personal Income Tax Act Cap P8 LFN 2004. The income tax rates for companies are up to a maximum 30% depending on turnover of the company in the relevant period and for individuals, between 7% and 24%.

Please note that small businesses with an annual turnover of less than N25 million are exempt from paying an income tax and a lower income tax rate of 20% applies to medium-sized companies with an annual turnover of between N25 million and N100 million. The maximum income tax rate of 30% is applicable to companies with an annual turnover of above N100 million.

Furthermore, medium- and large-sized companies are entitled to a bonus of 2% and 1% of tax payable respectively, for early payment of income tax.

By the provisions of the Finance Act 2019 and the Federal Inland Revenue Service Circular on taxation of Real Estate Investment Companies, rental or dividend income due to real estate investment companies (duly registered with the Securities and Exchange Commission) are exempt from company income tax where at least 75% of the income is to be distributed to its shareholders within 12 months following the financial year end. The rentals and dividends of a Real Estate Investment Company are exempt from withholding tax. However, withholding tax is applicable on any further distribution to the shareholders of the real estate investment company.

The owner of a property on whose behalf withholding tax deductions were made from rental income and remitted to the appropriate tax authorities is entitled to utilize the tax credit note thereof to offset the income tax liabilities for the year.

The Finance Act 2021 expanded the definition of Real Estate Investment Companies to include Real Estate Unit Trust and it also provides that withholding tax which had been deducted from interest payments to unit trusts and paid to the FIRS would be the final tax due from such unit trust.

Last modified 22 Mar 2024

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Withholding taxes at the rate of 10% apply on the dividends or distributable profits paid out to shareholders of a Real Estate Investment company or partners in a partnership. The individual shareholders or partners are subject to payment of personal income tax under the Personal Income Tax Act and may apply the withholding tax deductions made from their incomes as tax credit. It is noteworthy that withholding tax will not apply to any distributions made to a Real Estate Investment Company itself.

Last modified 22 Mar 2024

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Costs may accrue as fees payable to professional consultants engaged by the real estate owner or to suppliers for supplies and other services rendered and pertaining to the property.

Last modified 22 Mar 2024

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

No additional costs apply in this regard.

Last modified 22 Mar 2024