Tax Implications of Transfer of Assets and Shares in a Business Reorganization

This article seeks to examine the tax implications of business reorganization in Nigeria.

In recent decades, business reorganization has witnessed a geometric spike in Nigeria as companies have been forced to reorganize operations by regulatory demands, economic consequence in hopeful bid to stay afloat or simply as part of its business expansion objectives. Whichever, business reorganization has become more appealing.

Premised on this, the need to understand the necessary implication for businesses is now a growing concern especially given the recent changes in regulations. The amendments of several fiscal laws and policies have further contributed to this growing concern. Are there any tax benefits for businesses or parties reorganizing/restructuring? What are the tax obligations and implications borne by parties involved?

What is Business Reorganization?

Business reorganization is any change in the business strategy of an organization resulting in diversification, closing parts of the business, etc., to increase its long-term profitability or to help stabilize the prospect of the business. This fundamental change is what is referred to as business reorganization. Business reorganization in Nigeria take forms such as: recapitalization, business combinations, divestiture of assets, etc. While business reorganization in Nigeria is governed chiefly by the Companies and Allied Matters Act, its tax implications are governed by the various tax legislations. Summarily, these taxes are companies’ income tax, value added tax, capital gains tax, and stamp duties. More specifically, the taxes are applicable based on the uniqueness of each transaction. i.e., the nature of some of these transactions and the parties involved may affect the tax implications.

Value Added Tax Implications

Generally, the application of VAT is on all transactions involving the supply of goods or services except those covered under the First Schedule to the VAT Act or as otherwise prescribed. Interestingly, the Finance Act 2019 has now settled the conflict involving the application of VAT on intangible items such as intellectual property rights, contractual rights, etc. with exception to rights involving interest in land. With respect to business restructuring, any activity involving transfer of intangibles are subject to VAT charges. However, it is unclear whether this new provision extends to the sale of shares. Suffice to say, prior to the Finance Act 2019, shares were generally not subject to VAT.

Be that as it may, Section 45 of Finance Act 2019 exempts entities involved in the transfer of business assets for the purpose of business reorganization from VAT charges, provided that the entities are related parties with continuous relationship for a period of 365 days prior to such transfer and that the transferred asset cannot be disposed within 365 days after the transfer. Where such is transferred within this prohibited period, VAT shall apply retrospectively, and the transfer shall be treated as though it was never exempted from VAT.

Capital Gains Tax Implications

This is a tax charged on the disposal of chargeable assets. However, Section 30 of the Capital Gains Tax (CGT) Act exempts the disposal of shares from CGT. Hence, the sale of shares by a company whether undergoing restructuring or not shall not be subject to CGT.

Further, Section 32 of the CGT Act posits that CGT will not apply on the transfer of business assets where such is for the purpose of restructuring for the better reorganization of the company. Similarly reproducing the conditions as stated in the VAT Act, the parties which must be related by common ownership and control must have maintained such relationship 365 days prior to such reorganization and must maintain same 365 days after the reorganization otherwise they risk losing  the concessions provided by Section 32 of the CGT Act.

Companies Income Tax Act Implications

Section 29(9) of the Companies Income Tax, Act (CITA), provides that where a trade or business carried on by a company is sold or transferred to a Nigerian company for the purposes of better organisation of that trade or business or the transfer of its management to Nigeria and any asset employed in such trade or business is sold or transferred, if the Federal Inland Revenue Service (FIRS) is satisfied that one company has control over the other or that both are controlled by some other person or are members of a recognized group of companies, FIRS shall subject to its discretionary powers, suspend the application of the commencement and cessation rules. Hence, any entity winding up as part of a business reorganization shall be exempt from the cessation rule of Section 29(4) of CITA which lists the obligations of a company being wound up. In similar context, any entity created by reason of such restructuring shall not be regarded as a new company, thus, exempt from the commencement rule of Section 29(3) CITA.

Also, any asset transferred as part of the reorganization shall be deemed to have been transferred at the tax written down value. By implication, the assets acquired shall not enjoy any initial allowance. Accordingly, the standpoint of CITA with respect to business restructuring is to assume that companies involved in restructuring and are within a recognized group of companies are to be regarded as one and therefore the need to have them treated uniquely in respect of taxes.

Stamp Duty Act Implications

Generally, all contractual documents are subject to stamp duties. Thus, all documents and agreements used during the restructuring process are subject to stamp duties save for those exempted from such obligation. This implies that share transfer forms are dutiable instruments. Notably, stamp duty on the transfer of a company’s share capital is charged ad valorem. However, where such transfer is pursuant to an ongoing merger, Section 104 of the Stamp Duties Act exempts the transfer from stamp duty. In addition, Section 105 also exempts any transfer between related parties or companies with common association from stamp duty. Consequently, reorganization between related entities is exempt from stamp duty.


Section 29(12) of CITA provides that no form of business restructuring shall be undertaken without the consent and clearance of the FIRS. This provision sits at the core of business reorganization in Nigeria. To neglect the tax considerations in business restructuring is to take a downward slide in an already sloppy clime. Laudably, the amended extant regulations provide various tax reliefs. An understanding of this helps in better business reorganization. While there may be tax risks associated with business reorganization, there are also benefits which parties involved can leverage on to their advantage. 


Tax Implications of Transfer of Assets and Shares in a Business Reorganization
Tax Implications of Transfer of Assets and Shares in a Business Reorganization