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The Securities and Exchange Commission (SEC) is the regulatory body that oversees the investment activities of a real estate investment company through the provisions of the Investment and Securities Act (ISA). According to SEC guidelines, a Real Estate Investment Scheme (REIS) can be set up as a Real Estate Investment Trust (REIT) or as a Real Estate Investment Company (REIC). In addition, an entity operating under an REIS may acquire and hold full legal title to a property or choose to hold equitable and beneficial title to that property through a deed of trust or other structure which may be prescribed by the Commission. It can also own these land and income-generating buildings through a special purpose vehicle (SPV).

Mainly, there are three types of REITs available in the Nigerian market.

  • Real estate investment funds – these companies buy, own, manage and finance commercial and rental properties. The main source of income for this type of REIT is the acquisition and management of income-generating real estate. Equity REITs generate income primarily from property rents.
  • Mortgage REITs – invest and hold real estate mortgages, lend money for mortgages to real estate owners, and primarily lend money directly to real estate owners and operators. Much of the income comes from interest on mortgages.
  • Hybrid REITs – these REITs combine the investment strategies of stocks and mortgage REITs to develop their product. They invest in both properties and mortgages.

Taxation of REITs

Corporate income tax

Income from a REIT is generally rental income, dividend income from other REITs, gains from disposal of assets, fees and other income. However, exemptions are granted to dividend income earned by a real estate investment company (RREC) in accordance with Article 23 of the LIR provided that a minimum of 75% of such dividends or rental income is distributed within 12 month following the end of the fiscal year in which the dividend or rental income was earned.

On the other hand, the expenses incurred by a REIC to generate exempt income are not eligible for the tax deduction. In addition, any dividend or rental income not distributed beyond 12 months would be considered taxable income, therefore, expenses incurred to earn rental and dividend income, as well as dividends paid by the REIC to its members. shareholders will be allowed to be subject to tax deductions.

Nonetheless, income earned by a REIC other than dividends or rental income, such as gains from the disposal of assets, fees and other income would be taxed in accordance with the provisions of the relevant tax laws as there is no tax exemption for this income.

Section 19 (1) CITA is the basis for the taxation of excess dividends and provides the conditions under which dividends paid by a Nigerian company may be subject to tax. However, Article 19 (2) provides for the exemption of rental and dividend income distributed to shareholders of a real estate investment company from the excess dividend tax.

Finally, dividends distributed by an REIC to its shareholders are an eligible deduction in accordance with the provisions of Article 24 (1) (k) of the ITA. Therefore, such distribution should be considered a tax deduction.

Withholding tax

On the basis of Article 80 CITA, withholding tax would not apply to distributions or dividend payments made to an REIC operating in an REIS. Indeed, this income would not also constitute franked investment income. WHT treatment would be different when the REIC is not under an REIS. In this case, the payment of the dividend to the REIC would be subject to WHT at the rate of 10%.

The WHT exemption of dividends and rental income will only apply to payments to REICs. It does not apply when the REIC redistributes dividends and rental income to its shareholders. Accordingly, the WHT deducted would be the final tax on dividends and rental income received by shareholders.

Deferred tax

Generally, REICs acquire and hold properties for investment purposes. These assets are generally capitalized in the books of the REIC on the basis of the requirements of International Financial Reporting Standards (IFRS). The entity may choose to recognize the investment property at cost or at fair value.

Under IFRS, in particular International Accounting Standards (IAS) 40, when the fair value of an investment property cannot be measured reliably; the cost model must be adopted for the subsequent valuation of an investment property. Deferred tax for investment property carried at fair value should be measured using the tax base and rate that is consistent with collection through sale. Consequently, the deferred capital gains tax (CGT) of 10% would apply if the investment property is recovered by disposal.

When the REIC chooses to adopt the cost model, it means that the investment property would be recovered through its use, and therefore would be depreciated annually over its expected useful life. Consequently, a deferred tax would result from the difference between the book value and the tax base of the investment property. Please note that the deferred tax will be recognized at 30% since the investment property will be recovered through use and the recovery method is by way of depreciation.


Although the CITA makes the necessary provisions for the exemption of income earned by an REIC, certain circumstances have not been addressed by tax laws, resulting in differing interpretation and application by taxpayers and the tax administration.

One of these aspects is the treatment of the capital deduction that may be claimed on income-generating real estate, as there are instances where a REIT may be subject to income tax. There is no specific provision in the CITA which expressly indicates the treatment of the capital deduction for a REIC. In addition, there are no clear provisions on the exemption from higher education tax (TET). However, given that other income such as capital gains from the disposal of assets, commissions and other income would be subject to CIT, it can be inferred that this income would also be subject to TET.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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