Private Equity (PE) firms that invest in certain sectors covered under the Startup Act are fully exempted permanently and forever, regardless of the size of the profit, and duration of the investment; however, those not exempted will pay Capital Gain Tax (CGT).
This was disclosed by Taiwo Oyedele, chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, who noted that “If PE firms invest in a sector that does not have that exemption, and you want to exit. If you’re exiting, you’re allowed to pay on a net basis.”
In the Startup Act, the Labelled Startups are entitled to exemption from CIT for an initial period of 3 years, which can be renewed for an additional 2 years, for a maximum of 5 years.
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It also stated that gains from the disposal of assets (like shares) in a Labelled Startup are exempt from CGT, provided the investor has held those assets for a minimum of 24 months.
“ It’s up to you to decide what your income is, what your gain is, what your loss but if you’re exiting and you have a net gain position, you pay tax on it,” Oyedele said.
Private Equity (PE) firms are investment managers that pool substantial capital from institutional investors to buy, improve, and sell private companies for profit. They are active owners who acquire a controlling or significant stake and engage deeply in the company’s management and strategy to drive value creation. PE investments are characterized by a long-term commitment, typically holding assets for 3 to 7 years, and are highly illiquid.
Oyedele explained that if private equity firms sell an investment that would typically be taxed, they can achieve a permanent exemption from Capital Gains Tax by immediately reinvesting the full sale proceeds into another Nigerian business.
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“This allows you to avoid paying tax on the entire gain, and the reinvested amount is treated as the new cost basis for the new investment, effectively ‘resetting’ the taxable gain and encouraging the continued circulation and growth of capital within the country,” he said.
Oyedele said that the global community is trying to fight companies evading tax, “that we should fight double taxation as much as we find double non-taxation.”
The global community, through initiatives like the OECD’s Base Erosion and Profit Shifting (BEPS) project, is working to create a unified framework. This framework aims to ensure that income is taxed at least once in a fair location where the economic activity and value are created, thereby preventing profits from being shifted to tax-free jurisdictions when an investor exits a country.
