Introduction
As part of the effort to boost economic growth, attract foreign direct investment (FDI), boost exports, and encourage industrialization, the Nigerian government offer tax and regulatory incentives to investors by establishing the Free Trade Zones (FTZs).
A Free Trade Zone (FTZ) is a specially designated area within a country where businesses can operate with special tax, customs and regulatory privileges. Goods may be imported, manufactured, re-packaged, or exported from these zones without the usual customs duties, import/export licenses, or taxes that would apply in the rest of the country (Custom territories).
However, while these zones offer generous tax exemptions, businesses operating within them are still required to meet certain compliance obligations.
This article explained the meaning of Free Trade Zone (FTZ) and the requirements to register in FTZs, explored Nigeria’s major FTZs, outlined the tax compliance requirements and the also examined the tax implication of typical transactions of companies in FTZs.
Aerial drone view of the Lekki Free Trade Zone in Lagos, Nigeria
Free Trade Zones (FTZs) are designated geographic areas where businesses enjoy special economic privileges, including tax exemptions and relaxed customs regulations, to encourage investment, industrialization, and export-oriented growth. Essentially, these zones offer a business-friendly environment with reduced government interference, particularly for companies involved in manufacturing, processing, and exporting goods. Licenses for operating in Free Zones in Nigeria are issued by two main authorities:
- Nigeria Export Processing Zones Authority (NEPZA) – for general manufacturing, services, trading, and export-oriented businesses.
- Oil and Gas Free Zones Authority (OGFZA) – for companies operating in oil and gas-related free zones such as Onne, Brass, and Ibom.
Each authority regulates the zones under its jurisdiction and grants operational approvals and licenses and operating license are valid for one-year subject to renewal.
Requirements to register a company in Free Trade Zone
The following are the requirements to register a business in free trade zone:
- Application Letter to NEPZA or OGFZA.
- Evidence of Payment of application and license fees.
- Business Plan/Feasibility Study detailing proposed operations.
- Certificate of Incorporation (from Corporate Affairs Commission).
- Memorandum and Articles of Association.
- Site Plan or layout of the factory/office (if applicable).
- Environmental Impact Assessment (EIA) (for manufacturing).
- Tax Identification Number (TIN).
- Means of identification of directors/shareholders
- Board Resolution to operate in a Free Zone.
Key Characteristics of Free Trade Zones (FTZs) in Nigeria
1. Tax and Duty Exemptions:
Companies operating in approved FTZs are exempt from all federal, state, and local government taxes, levies, and rates. They also enjoy customs duty exemptions on imports of raw materials, machinery, and equipment used in production or export. However, the exemptions are based on certain conditions.
2. 100% Foreign Ownership Allowed:
FTZs allow full foreign ownership of businesses. There are no equity participation restrictions, making the zones attractive to international investors.
3. Full Repatriation of Profits and Capital:
Investors are free to repatriate profits, dividends, and capital without restrictions, subject to Central Bank of Nigeria (CBN) guidelines.
4. Simplified Import and Export Procedures:
No requirement for import or export licenses within FTZ operations. Goods can be imported into the zones duty-free, and exports leave the zones with minimal bureaucracy.
5. Outside the Customs Territory:
FTZs are considered to be outside Nigeria’s customs territory for tax purposes. However, goods leaving the FTZ and entering Nigeria’s local market (customs territory) become subject to applicable customs duties and taxes.
6. One-Stop Shop Administration:
Government agencies such as Customs, Immigration, NEPZA/OGFZA, and NPA maintain a presence in the zones. This ensures fast-track processing, licensing, and regulation under a single-window framework.
7. Special Regulatory Oversight:
FTZs are regulated by:
- Nigeria Export Processing Zones Authority (NEPZA) – for general free zones (e.g., Lekki, Calabar, Kano)
- Oil and Gas Free Zones Authority (OGFZA) – for oil and gas-specific free zones (e.g., Onne, Brass, Warri)
Each zone is required to comply with the operational guidelines and monitoring of these agencies.
8. Employment and Local Content
FTZs promote local employment but also allow unrestricted employment of expatriates where necessary. Companies are encouraged to develop skills and transfer technology to Nigerian workers.
9. Targeted Economic Activities
FTZs focus on strategic industries such as: Manufacturing, Oil and Gas, agro-processing, Logistics, Warehousing, Petrochemicals, Technology and Innovation.
10. Infrastructure Support
Many FTZs provide pre-built industrial spaces, logistics hubs, power supply, port access, and road networks to support business operations. Zones like Lekki FTZ are integrated with projects such as Lekki Deep Sea Port and Dangote Refinery.
Below is an image of the deep-sea port infrastructure at Lekki Free Trade Zone: 
NB: It should be noted that companies in FTZ can also sell into the Nigerian market (Customs Territory); however, goods sold locally are subject to relevant taxes. Also, the tax exemption on companies are applicable as long as the company operates in the FTZ and meet the specific conditions for exemption.
Major Free Trade Zones in Nigeria and Their Unique Features
Lekki Free Trade Zone (LFTZ) – Lagos State
This FTZ is strategically located near the Lekki Deep Sea Port, it hosts the Dangote Refinery, the largest single-train refinery in the world and it is integrated with a planned Lekki International Airport, making it Nigeria’s largest economic hub in development.
Attracts investment in manufacturing, logistics, construction, energy, and fintech
2. Calabar Free Trade Zone – Cross River State
This is the Nigeria’s first operational FTZ, launched in 2001, developed as an industrial base for manufacturing, agro-processing, and assembly. It is close to Calabar Port facilitates import/export operations and present special opportunities for SMEs dealing in raw materials like timber, palm produce, and oil.
3. Kano Free Trade Zone – Kano State
It is located in northern Nigeria, facilitating trade with Niger, Chad, and Cameroon. The zone is targeted at attracting businesses in textile, agribusiness, and leather industries in order to serve as a regional hub for agro-allied processing and exports It present access to large regional market, local raw materials and labour.
4. Oil and Gas Free Zone, Onne – Rivers State (OGFZ)
This is Nigeria’s first oil and gas-specific FTZ, it hosts major international oil companies and service providers, covers over 1000 hectares with access to deep seaport facilities
It present sspecial oopportunities for businesses in oil and gas, logistics, fabrication, offshore services etc.
Tax Compliance Obligations in Free Trade Zones
Despite the tax incentives, businesses in FTZs are not completely free from compliance obligations. Here’s a breakdown of key requirements:
1. Annual Filing of Tax Returns
The Finance Act 2020 mandates all FTZ-licensed companies to file annual tax returns with the Federal Inland Revenue Service (FIRS). This is required even if the company does not have any tax liability due to its FTZ status. Penalty for non-compliance: ₦25,000 for the first month and ₦5,000 for every subsequent month of default.
2. PAYE and Employee Tax Compliance
FTZs are exempt from corporate income tax, but they must deduct and remit Pay-As-You-Earn (PAYE) tax for employees to the relevant State Internal Revenue Service (SIRS).
Withholding Tax (WHT)
Businesses are expected to deduct and remit WHT on qualifying payments (e.g., contracts, commissions, rent) even within the FTZ especially when the contract involves a vendor operating outside the FTZ.
4. Value Added Tax (VAT) on Transactions Outside the Zone
Sales or services rendered within the FTZ are VAT-exempt. However, when FTZ companies sell or provide services to customers in Nigeria’s customs territory, they are required to charge, collect, and remit VAT.
5. Transfer Pricing and Documentation
Multinational companies or those involved in related-party transactions must comply with:
Transfer pricing (TP) documentation
Annual TP returns
Country-by-Country Reporting (CbCR) where applicable
Tax Implication of Typical Transactions Carried Out by Businesses in The Free Trade Zone
To Further enable us understand the Free Tax Compliance for Businesses in Free Trade Zones, we have presented different transaction scenarios their respective tax implications:
1. Importation of Raw Materials into the Free Trade Zone
When a company operating in the FTZ and import raw materials or machinery from abroad into the zone for manufacturing or processing, the import is exempted from import duty and customs duties. Also, withholding tax or VAT is not applicable on transactions related to the importation of these materials. This exemption applies as long as the goods remain within the FTZ or are exported. Once they are moved to the Nigerian Customs Territory (NCT), they lose these privileges and become taxable.
2. Export of Finished Goods from FTZ to International markets
A manufacturer in the FTZ can export finished products directly to customers abroad; such export is exempted from export duties, levies and company income tax; also, goods exported from FTZ are zero-rated for VAT.
3. Sales of Goods from FTZ to the Nigerian Customs Territory (NCT)
In situation where a company in the FTZ sells its products to buyers within NCT. Such transaction is treated as imports into Nigeria. The buyer or importer must pay customs duty, VAT, and excise duties at the point of clearance into the NCT. Any payments made by the NCT buyer to the FTZ company may attract Withholding Tax (WHT) at standard rates. Exemption of Company Income Tax (CIT) do not apply once goods leave the FTZ for NCT.
4. Services Rendered by an FTZ Company to a Nigerian Entity
When an FTZ-based company provides technical, consulting, IT, or engineering services to a client located in the Nigerian Customs Territory, the Nigerian client is obligated to deduct and remit WHT on service payments (typically 5% or 10%, depending on the service type).
Services rendered are also subject to VAT at 7.5%, which is paid by the Nigerian company on the invoice amount and remitted to the FIRS by the FTZ-based company. The transaction is also not exempted from tax because the beneficiary is in the NCT.
5. Employment of Staff in the Free Trade Zone
If licensed operator in the FTZ employs Nigerian citizens and foreign nationals as part of its workforce. The company is required to deduct and remit Pay-As-You-Earn (PAYE) taxes for Nigerian staff to the State Internal Revenue Service. The company must secure an expatriate quota Companies must secure appropriate permits for foreign staff. Social Contributions: Pension, ITF, NSITF, and NHF deductions are required where applicable.
6. Rendering of Technical, Professional, Management, Consultancy, and Digital related services by Foreign Entities to FTZ Company
In line with the Significant Economic Presence (SEP) rule, FZEs are required to deduct WHT on payments to foreign entities that provide technical, professional, management, consultancy, and digital related services.
Conclusion
Free Trade Zones in Nigeria provide an attractive environment for investment through tax exemptions and trade facilitation. However, these tax exemptions are not cast in stone majorly because companies get involved in variety of transaction with each giving rise to peculiar tax situation especially when dealing with companies operating outside the FTZs. Therefore, it is advisable to engage the service of tax professional for advice on how to navigate the tax landscape and take full advantage of the tax exemptions available and avoid the penalties for non-compliance.
