Mergers and Acquisitions in Nigeria: Tax Considerations

The Covid-19 pandemic has caused unprecedented disruption and a severe economic downturn for many companies around the world. Not only did the pandemic plunge Nigeria into a health emergency, but it also resulted in a sharp decline in corporate sales, leading many companies to file for bankruptcy. This situation has led companies to adopt effective corporate restructuring strategies such as mergers and acquisitions (M&A) in order to remain competitive and increase growth and profitability.

It has been observed that companies often invest more in corporate finance and legal aspects of M&A while paying less attention to the tax considerations of such arrangements. With that in mind, this article attempts to examine the scope of M&A in Nigeria and the potential tax implications for M&A arrangements in the country.

Merger or takeover?

Although the words “merger” and “acquisition” are often used interchangeably, they actually mean different things. A merger is an agreement in which two or more existing companies are merged into one larger company for economic or strategic reasons.

An acquisition, on the other hand, is the process by which one company (the acquirer) takes over another company (the target) by acquiring a controlling interest in the share capital or all or substantially all of the target’s assets and liabilities. In most cases, the acquired company expires while the acquiring company takes up business and brings it to its operations. However, sometimes the acquisition may only place the business of the acquiree under the indirect ownership and control of the acquirer’s management.

In Nigeria, the Federal Competition and Consumer Protection Act (FCCPA) is the premier law on mergers and acquisitions and the latest attempt to align the country’s competition and merger control regime with global best practices. Before the FCCPA went into effect, the review and evaluation of M&A activity in Nigeria was governed by the Investment and Securities Act (ISA), the Rules and Regulations of the Securities and Exchange Commission (SEC Rules), and the Companies and Allied Matters Act. regulated (CAMA).

The FCCPA defines a merger as “when one or more companies acquire, directly or indirectly, direct or indirect control over all or part of the business of another company”. The FCCPA also provides that the merger may be accomplished in any way, including (a) buying or leasing any stock, interest or asset in the other concerned company; or (b) merger or merger with the other relevant entity; or (c) a joint venture.

Although the term “acquisition” has not been defined by the FCCPA, SEC rules define it as “the acquisition of sufficient interests in another company by one company to give the acquiring company control over that other company”.

From the definitions above, it’s safe to say that there is a fine line between mergers and acquisitions. While the merger will merge two companies into a single company, whereby the other loses its identity, the acquisition only allows one company to take over the majority stake in another company in order to give the acquiring company control of the acquired company, whereby the latter still retains its identity, albeit as a subsidiary of the former.

Tax Considerations for Mergers and Acquisitions in Nigeria

Given the economic situation in Nigeria as a result of the Covid-19 pandemic, it is necessary for companies to take strategic measures to increase their resource base, reduce their tax risks and increase their market share in order to remain competitive and increase growth and profitability. M&A is seen as a critical restructuring instrument that has the potential to secure and optimize the efficiency of companies.

When implementing an M&A agreement, it is imperative that the parties involved (including taxpayers) consider the potential tax considerations that may affect the transaction in order to improve tax security and efficiency. These considerations are discussed below.

First, prior to a merger or acquisition, the Federal Inland Revenue Service (FIRS) must seek guidance on the tax implications. This complies with Section 29 (12) of the Companies Income Tax Act (CITA) which provides that “no merger, acquisition, transfer or reorganization of the dealings or operations of any company may take place without receiving the services of the service”. Instructions under subsection 9 of this section and clearance relating to taxes due and payable under the Capital Gains Tax Act. ”

In order to apply to run the FIRS, the merging companies must provide copies of the relevant transaction documents, including the merger plans and audited financial statements of the companies involved. The FIRS issues a “Principle Approval Letter” once it is satisfied with a proposed M&A agreement.

It is also important to note that when parties involved in M&A transactions are not connected, the old and new deals are viewed as separate; Thus, the start and end rules according to Section 29 of the CITA (in the version revised by the Finance Act 2019) apply to the surviving or ceasing company.

Likewise, with regard to an acquisition agreement, the cancellation rules also apply to the acquired company, which ceases to exist, and the relevant cancellation tax returns must be submitted. However, if the acquisition is between related parties, Section 29 (9) of the CITA provides that the FIRS may order that the businesses of the acquired or merging companies be deemed to have continued by the acquired company. As a result, the commencement and termination rules would be inapplicable in this regard.

In addition, since the surviving company is believed to have opened new business in an M&A transaction involving independent parties, the company is entitled to all capital allowances, including start-up, investment and annual allowances, as provided in Section 32 and appendix of the CITA. This therefore implies that the new company cannot accept any unused capital deductions, tax losses or withholding tax credits from the former companies.

However, in accordance with the provisions of Section 29 (9) (b) and (c) of the CITA, when the related party M&A agreement is concerned, the commencement and termination rules do not apply and the surviving entity is only entitled to annual tax credit and no initial or investment allowance.

In most M&A agreements, the shareholders of the acquired or merging companies are settled by issuing shares in the surviving company or by cash or a combination of both. If the shareholders sell their shares, capital gains tax is due. However, Section 30 of the Capital Gains Tax Act provides that “gains accruing to any person from the sale of any Nigerian government’s securities, stocks and shares are not taxable gains for the purposes of the Act.”


As companies invest resources in the financial, legal, and technical aspects of M&A agreements, it is also important to be aware of taxes to remove tax risks and uncertainties and to improve tax efficiency for the parties involved in the M&A transaction.

Since M&A agreements involve many tax issues and complexities, inadequate tax considerations can significantly reduce the benefits to be gained from the agreement as the aspiring business may face an excessive tax burden. With Nigeria’s government policies and tax laws constantly changing, it can be helpful for companies to use professional tax advisors on mergers and acquisitions and other forms of corporate restructuring strategies to make informed decisions.

This column does not necessarily represent the opinion of the Bureau of National Affairs, Inc. or its owners.

Aimée Dushime is a Senior Associate and Okechukwu Onyenyeonwu is an experienced Staff Analyst in Transfer Pricing Services at KPMG Advisory Services in Lagos, Nigeria.

The authors can be contacted at:;

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