The Finance Act 2021 clarifies that small companies (making N25 million or less annual turnover) and medium companies (making 25m and above but less than N100m) are expected to compute capital allowances on their qualifying capital expenditures in the years in which they are exempt from tax (or have reduced tax rate as in the case of medium companies). But such capital allowances and any capital allowance brought forward into or within the tax free years or tax reduced years will be deemed to be fully utilised within those years.
No such capital allowance unutilised or unabsorbed will be allowed to be carried forward to the periods when these companies will become fully taxable at 30%.
Only the residual values of the assets or qualifying capital expenditure (if any) can be carried forward for possible capital allowance computations and claim beyond the tax exempt periods.
For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.