Overseas Nigerians - Investment Options and Tax Treatment

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Published Jul 25, 2020

By RemitFinder

Federal Government of Nigeria (FGN) Bonds

What is the Tax Treatment on savings and investments in Nigeria?

Are there any tax breaks available?

Conclusion

The overseas Nigerian diaspora has been steadily growing, and remittances sent back home by Nigerians living abroad have been correspondingly increasing as well. In this detailed writeup, we discuss various savings and investment options available to overseas Nigerians to grow their hard-earned money back home in Nigeria. We then look at the tax implications for overseas Nigerians for their savings invested in Nigeria.

Nigerians marching on a street with Nigerian flags in hand

Image from Nairametrics

Every month, thousands of Nigerian graduates and experts in tech, finance, medicine, and other fields emigrate to various parts of the world to further their careers or in search of a better life. As anyone might expect, these emigrations have also caused a tremendous increase in remittances to the country by the millions of Nigerians abroad.

World Bank revealed that Nigerians abroad sent $22 billion back to Nigeria in 2017. PWC reports that remittances rose to US$25 billion in 2018 and are expected to reach US$34.89 billion in 2023. This increase is primarily because many Nigerian emigrants are highly paid professionals in good economies.

A huge chunk — at least 70% — of money sent home are usually for:-

Family and friends as support for school fees, healthcare, weddings & other parties
Contributions to the social and economic development of their home town
Donations to religious organizations and charities
Improving political influence

Only a small portion of remittances are earmarked for savings and investment. Also, these investment efforts are usually entrusted to relatives or "trusted" close friends in Nigeria. Unfortunately, these informal channels of Investment, more often than not, return no real value in the end.

Thankfully, recent policy changes are shifting the trend in favor of more structured savings and formal investment strategies. Provided in this article are some savings & investment options in Nigeria to help you get started. But first, why would a Nigerian Diaspora want to invest at home?

Why should Nigerians living abroad invest in Nigeria?

Yellow colored vans on a road with an old apartment building in the background

Nigeria is on its way to becoming a developed country. The current infrastructural deficit, poor power supply, insecurity, massive illiteracy, and other ills currently plaguing the country will be solved. Fixing the country directly translates to lots of opportunities that only those who are well-positioned early enough can take advantage of.

On its part, the government is working to improve the economic condition of the country, by implementing policy changes aimed at encouraging local content production and small scale enterprises. It has made provisions for tax holidays, grants, duty-free import policy, and other incentives for investors.

The Nigerian government is particularly interested in direct diaspora investments and is making conscious efforts to encourage its citizens abroad to invest in priority sectors of the local economy. For example, the government:-

Set up a Nigerian Diaspora Commission
Successfully issued a debut Diaspora Bond in 2017 and other Foreign Currency Bonds
Regularly organizes the Nigeria Diaspora Investment Summit and is partnering with Nigerians in the diaspora with arrangements like the Diaspora Medical Assistance Program

Now let's discuss some interesting opportunities.

What are some Savings and Investment Options available to Overseas Nigerians?

There are many ways to invest and save in Nigeria. But here are some to get you started.

Federal Government of Nigeria (FGN) Bonds

FGN Bonds with their long 2 to 20 years tenors are great savings/investment options for Nigerian Diaspora. You can purchase N10,000 units and increase your units in multiples of N1,000 later on. You'll receive the interest twice each year until the end of the tenor when you receive the principal. But if you need to collect your capital before the bond matures, you can turn to the secondary market to sell your investment.

FGN Savings Bond

The FGN Savings Bond is a retail investment vehicle that you can begin investing in with N5,000 but the maximum allowable investment is N50,000,000. The FGN Savings Bond's tenor runs for 2 to 3 years and offers 11% to 13% per annum interest.

Sovereign SUSUK (Islamic Bond)

SUSUK Bonds in Nigeria are used for financing specific ethical projects like road construction & rehabilitation. Investors receive "Rental" profits of 11.20 % per annum paid two times each year for a 7 years tenor.

Green Bond

The Sovereign Green Bond is dedicated to financing "green" projects that have a positive impact on the environment. It offers up to 14.50% interest annually with a 7-years tenor.

Eurobonds

These are foreign currency denominated bonds that investors buy and receive principal and interest in a foreign currency. The Federal Government of Nigeria Eurobonds is denominated in US Dollars.

The Debt Management Office (DMO) Nigeria does primary auctions for FGN Bonds every month while the secondary trading takes place every day on various Over The Counter (OTC) Securities Exchange platforms.

Treasury Bills

These are short-tenor vehicles from the federal government. A Treasury Bill is usually sold at less its actual value. This difference in payment and actual worth is the interest and it's paid upfront. For example, paying N180,000 for an N200,000 TB. Twice each week, the Central Bank of Nigeria (CBN) auctions Treasury Bills with 91-days, 182-days, and 364-days tenors. The CBN, in March 2017, increased the minimum Treasury Bills subscription to N50 million.

Diaspora Bond

Debuting March 2017 with a $300 million bond, the Diaspora Bond is targeted at the Nigerian Diaspora who wishes to invest at home. Offering between 5-8% annual dividends with at least 5 to 10-year tenure, it makes a good savings/investment option. To incentivize investors, Diaspora Bonds are exempt from tax, can serve as collateral for bank loans, and eligible for discounts on the FG housing scheme.

Mutual Funds

A mutual fund is an investment vehicle that gathers money from many investors specifically to purchase securities. It is open- or closed-ended, professionally managed, and invests in securities like bonds and such other assets. Investors/unit-holders share the profits as dividends.

Three main categories of mutual funds exist in Nigeria.

Fixed-Income Funds that invest primarily in fixed-income securities like treasury bills.
Equity Funds whose investment portfolio is primarily in stock and other capital market instruments.
Mixed-Income Funds — a hybrid of the first two with a diversified investment portfolio that covers both Money and Capital markets.

There are also halal funds available.

Cross Border Pension Fund

Under this arrangement, Nigerians in Diaspora can join the Nigerian Contributory Pension Scheme (CPS) as a means of saving towards retirement and subsequent return to Nigeria.

High-Interest Savings Account

Several banks in Nigeria have a high-yield savings account that offers interest rates that are much higher than a traditional savings account.

Diaspora Savings Account

Many Diaspora Savings Account packages are also available from the various financial institutions in Nigeria.

All these accounts operate on a simple save-more-earn-more principle.

Set Up a Business

Nigeria's large population provides both a massive potential workforce and a ready market. Almost all areas of the economy are in urgent need of investors, but here are some businesses to consider starting.

Real Estate

Real Estate is classed among the most sustainable businesses because it is relatively safe and offers attractive returns. It serves as a hedge and store of value against inflation, especially in a volatile economy like Nigeria's. Investment ideas include:-

Commercial property — office spaces, open space rental
Residential property development — hostels, blocks of flats
Establishing a construction company

Agriculture

Livestock Farming
Processing of agricultural produce
Exportation of highly demanded food products
Development of storage facilities for farm produce

Medical and Pharmaceutical Industry

Home Care Services for the elderly, disabled, and others
Medical services like mobile screening and disposal of medical wastes
Physiotherapy center, Weight Loss Clinic, Health & Fitness Club, Body Enhancement & Skin Care Centre

Education

Educational institution for high-demand skills
Distance learning
Night classes
Home tutoring and private lessons

Digitized Savings and Investment Platforms

Various FinTech companies now offer Nigerians the chance to benefit from agriculture without actually owning a farm. You can contribute to farm sponsorship with very attractive interest rates (it could be as high as 40%) and relatively short tenures.

Using apps downloadable from the various app stores, you can easily automate your saving plans and invest in different asset classes including stocks, bonds, treasury bills, and more.

What is the Tax Treatment on savings and investments in Nigeria?

Now we will deep dive into various types of taxes that overseas Nigerians may need to pay on their savings and investments in Nigeria. We will also look at some key government initiatives aimed at simplifying tax rules and reducing tax liabilities for overseas Nigerians.

A calculator on a balance sheet with income tax folder in the background

Company Income Tax (CIT)

A Business resident in Nigeria is charged CIT on their global income while non-resident companies pay CIT on their Nigeria-sourced income.

Small businesses with a gross income of N25m or less pay 0% CIT.
Medium-sized businesses with a gross income range between N25m and N100m are to pay 20% CIT.
Large corporations with a gross income of over N100m pay 30% CIT.

Tertiary Education Tax

Apart from non-resident corporations and unregistered entities, every company in Nigeria pays Tertiary Education Tax at the rate of 2 percent of their annual assessable profit.

Minimum Tax

This is for companies with no total profit or whose computed tax on profits is smaller than the minimum tax. It charged at 0.5 percent of the gross income minus the dividend. But companies that are younger than 4 years old in the business, agribusinesses, and small businesses do not pay minimum tax.

Local Income Taxes

The federal government alone collects CIT. State governments collect the income tax on unregistered businesses and individuals, while local governments can only collect fees and other taxes.

Are there any tax breaks available?

The Government of Nigeria has embarked upon many other tax related initiatives that either simplify tax regulations or help reduce the tax liability for overseas Nigerians. Below we include some such initiatives.

Tax-Free Investments

All FGN bonds, treasury bills, Diaspora Bonds tax-free.

Taxes on Real Estate Investment

Real Estate Investment firms are no longer required to pay CIT on rental income and dividend as long as the company distributes at least 75% of such income within 12 months.

Other Government Initiatives

Free Trade Zones: Also called export processing areas where companies enjoy the concentration of infrastructure and economies of scale but do not pay taxes on their profits among other incentives.
Ease of Doing Business Initiatives.
100% foreign ownership in various sectors.
Free transferability of both investment capital and returns.
Double Taxation Treaties (DTT) with some countries under which investors pay a discounted percentage of 7.5% on dividends.

Conclusion

The ongoing diversification of Nigeria's economy creates a unique opportunity for Nigerians in Diaspora to build wealth while contributing to the country's development. For those not already doing so, now is the time to begin to save and/or invest at home.