Nigeria: Capital allowances for work-in-progress, assets in periods of temporary disuse

Federal Inland Revenue Service guidance regarding the meaning of the term “in use” for purposes of the companies income tax law

Assets in periods of temporary disuse

The Federal Inland Revenue Service issued Information Circular No. 2021/20 regarding the meaning of the term “in use” for purposes of the companies income tax law.

Specifically, the circular provides guidance with regard to claims for capital allowances on capital works-in-progress and regarding assets during periods of temporary disuse.

Under the definition of a capital work-in-progress—the total accumulation of cost incurred on owned assets on which construction or production has not been completed as at the date of Statement of Financial Position (i.e., as at balance sheet date)—the cost incurred on such assets may not be recognized as qualifying capital expenditure until the asset is ready for use.

Regarding temporary disuse measures, the circular provides that an asset will be deemed to be in a state of temporary disuse when:

  • The asset is undergoing major repairs.
  • The company that owns the asset is dormant or in a state of recession and the asset is in a state of redundancy.
  • There is a force majeure due to unforeseen circumstances.

The circular outlines the conditions for a company to claim capital allowances with regard to a capital work-in-progress, as follows:

  • The expenditure must relate to qualifying building, manufacturing industrial plant, construction plant (excluding furniture and fittings), plant (excluding furniture and fittings), mining, plantation equipment, ranching and plantation, agricultural plant, and housing estate.
  • The asset must be for the purpose of the trade or business.
  • The cost of each asset is recorded in separate work-in-progress accounts.

Read a December 2021 report [PDF 1.1 MB] prepared by the KPMG member firm in Nigeria


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