Learning Outcomes

1. Identify the various laws regulating participation in business in Nigeria by foreigners.
2. Identify companies/entities exempted from registration.
3. Identify the difference between foreign direct investments and foreign portfolio investments.
4. List the various incentives, permits and approval available under the law to encourage foreign participation in business in Nigeria.
5. Draft documents to be submitted to the relevant government agencies seeking reliefs and approval on behalf of companies.
6. Give a checklist of documents to be attached in support of application to relevant Regulatory Agencies (NIPC, NOTAP & Immigration).

 

Incentive is the same as tax relief.

A foreigner is free to do business alone or in partnership with any other person. See 20(4) CAMA and s17 Nigerian investment prohibition act.

A foreigner is free to do business without anyone but he can’t do business that’s on the negative list – this is business prohibited for both nationals and foreigners.

Negative list:

• Production of military and paramilitary wears including those of the police, customs, immigration and prison.
• Such other items as the federal executive council may determine: 18 and 32 NIPC act

 

There are 3 main categories of foreigners doing business in Nigeria

Three categories

• Those exempted from registration – S 54 CAMA these are those that are not here to do business but just to execute certain projects
• Direct investors who invest in the Nigerian market with foreign currency
• Portfolio investors no actual participation: s 26 FEM act cap F34 L.F.N 2004

 

Portfolio investors

See reg 410. Sec rules 2013. Read it up, we would not deal with in detail.

Foreign portfolio investors should only use capital market operators who are registered with SEC

 

Legal regulatory framework

• CAMA and companies regulations 2012
• ISA 2007 and Regulations
• NIP act
• IMMIGRATION ACT and immigration regulations 2017
• Foreign exchange (monitoring and miscellaneous) act
• NOTAP act
• Industrial inspectorate act
• Companies income tax act
• Personal income tax act

CAMA

It provides that a foreign company must first registers as s separate entity before embarking on any kind of business operation in Nigeria – Section 54

And until incorporated it cannot carry on any business in Nigeria

They cannot have a place of business before registration but there can be an office where processes or receipts of documents will be delivered to as a prelude to incorporation

Consequence of non-compliance – any transaction the foreign company undertakes before/without registering is not only void but because a punishment is prescribed the transaction is illegal. So its void and illegal. The court will therefore not enforce the contract at the instance of any party to the transaction. SEE SOLANKE V ABED , 1962 1 ANLR 230.

 

If the wrongdoer is the one who initiates the action, the court will make the wrong doer pay back the money received from the contract. They cannot use their own wrong doing as a defence, the consequence. They can’t take the benefit and then claim the company hasn’t registered as a defence

 

Can a foreign company sue or be sued

• Yes : section 60 CAMA – DISTINGUISH a foreigner doing business in Nigeria and a foreigner doing business with Nigeria, nothing says a foreigner  cannot do business with Nigerian, the contract can still be enforced by the foreign company. The Nigerian cannot claim they have to register first before they can do business by virtue of s54 as a defence and so they wouldn’t pay the foreigner
• RITZ PUMENFABRIK GMBH & CO KG V TECHNO CONTINENTAL ENGINEERS NIG. LTD (1999) 4 NWLR (PT.598) 298, see also NBCI V EuropaTraders

 

Exempted Companies

If a company wants to do business in Nigeria they must be registered first except those who are exempted. These are foreign companies in Nigeria for a specific purpose can apply to the president for exemption from registration. Theyareexempted from registration but they must apply to the president first and go through the process of exemption.

 

Types of companies that are exempted from registration

These companies are:

• Foreign companies invited to Nigeria by federal government to execute any specified or loan project;
• Foreign companies which are in Nigeria for the execution of specific individual loan project on behalf of a donor country or international organisation
• Foreign government-owned companies engaged solely in export promotion activities and
• Engineering consultants and technical experts engaged on any individual specialist project under contract with any of the government in the federation or their agencies or with any other body or person, where such contract has been approved by the federal government: s56(1) CAMA

 

Application for exemption

An application for exemption from registration as a Nigerian company is addressed to the secretary to the federal government: s 56 CAMA it (the exemption) is considered and given by the president.

 

Contents of the letter

“Please find attached the information and documents stipulated by section 56(2) of the companies and allied matters act”– you have to state all the documents, don’t be lazy and just say documents contained in s56(2)

• (a) The name and place of business of the foreign company outside Nigeria;

• (b) The name and place of business or the proposed name and place of business of the foreign company in Nigeria;
• (c) The name and address of each director, partner or other principal officer of the foreign company;
• (d) A certified copy of the charter, statutes, or memorandum and articles of association of the company, or other instrument constituting or defining the constitution of the company and if the instrument is not written in the English language, a certified translation thereof;
• (e) The names and addresses of some one or more persons resident in Nigeria authorised to accept on behalf of the foreign company services of process and any notices required to be served on the company;
• (f) The business or proposed business in Nigeria of the foreign company and the duration of such business;
• (g) Particulars of any project previously carried out by the company as an exempted foreign company; and
• (h) Such other particulars as may be required by the Secretary to the Federal Government.

 

Period of exemption

Where exemption is granted, the company is given an exemption order, it is granted for a specified period. After which, they must leave the country unless they want to stay and do business, if that’s the case they then they go through the process of registration.

 

Revocation of exemption

 It is possible for the president to remove the exemption order. The president may revoke the exemption if he is of the opinion that the company has contravened CAMA or has not fulfilled any condition of the exemption order or for any good or sufficient reason. [s56]

 

Filing of reports with CAC

An exemptedcompany is exempted from registration but such a company must comply with minimal requirements of the Nigerian law, that is they must file annual reports at the CAC in the form prescribed by the CAC. see regulation 28 companies regulations 2012. It provides what must be contained in the annual reports:

1. Place/country of registration 

2. Date of registration and certificate number 

3. Principal place of business in place/country of registration 

4. Share capital of the company (if any)
5. Principal place of business in Nigeria
6. Date of exemption
7. Description of business in Nigeria
8. Expected date of completion of business in Nigeria
9. Name and address of each director, partner or other principal officers of the company since date of exemption and any changes therein

 

Status of an exempted company

The status of an exempted company is the same of the status of any unregistered company – section 58

• so they don’t pay taxes

 

FOREIGN DIRECT INVESTMENT

First thing they have to do is get registered as a Nigerian company.

 

Application to NIPC (Nigerian Investment promotion Commission)

The next thing he does is to apply for registration with NIPC.

From some federal ministries: section 2(2) NIPC act

And an executive secretary

NIPC is the agency of government that co-ordinates and monitors all investment promotion activities. It is called one stop investment centre (OSIC)

 

Functions of NIPC

• Registers all foreigninvestors
• Promotesinvestment in and outside Nigeria
• Identifiesspecific projects and invites interested investorsfor participation in those projects
• Disseminates information about investment opportunities in Nigeria
• Disseminates up to date information
• Advises government on policy matters to promote development of the economy
• Performs such other functions as are supplementary or incidental to the functions given to them by the act.

 

Documents to accompany the application to NIPC

• Governmenttreasuryreceipt evidencing the purchase of NIPC form;
• NIPC form 1
• Memorandum and articles of association;
• Receipts of stamp duty on the authorised share capital of the company
• Formal application letter to executive secretary of NIPC
• The joint venture agreement – this is not necessary
• Feasibility report and project implementation programme of the company
• Evidence of having sourced the plant and machinery to be used in the company’s business;
• Deed(s) of sub-lease tenancy agreement for the premises to be used for the company’s operation
• A list of the directors of the company; and their particulars / their nationalities
• Jobtitle designations of expatriate quota positions required, and cvs of people proposed for employment

 

After submission

 

Certificate of capital importation

Once they’re done with NIPC, the company must bring in foreign currency into the Nigerian economy through any authorised bank

having obtained the requisite NIPC registration, the foreign company (now a Nigerian company) the bank would given them a certificate of capital importation CCI.

All CCI’s are now electronic CCI’s . Paper CCI’s are no longer issued. eCCI must be given by the bank within 24 hours of the inflow of the money into the country.

 The capital that the foreigner must import into Nigeria doesn’t necessarily have to be cash, it can be in consideration other than cash e.g. form of plants and machinery, raw material, or through debt equity conversion programme (see later) and this would still entitle them to the CCI.

Safe keeping is no longer a problem, the turn around -24hrs-48hrs.

 

Advantages of CCI

• Entitles the foreign investor to open a foreign currency domiciliary account with any authorised dealer: s 17 FEM (Foreign exchange (monitoring and miscellaneous) act)
• Open a special non-resident naira account. Its tax free
• It enables the foreigner to buy shares in Nigerian companies out of the naira account.
• It entitle the foreigner to repatriate the capital, dividend and incomes at the autonomous market rates minus taxes

 

Acquisition of a foreign enterprise and payment of compensation

• No enterprise shall be nationalised orexpropriated by the federal governmentunless it necessary in the public interest to do so.

 

Consequences of expropriation

• Payment of compensation; and a right to access to the courts as to quantum of compensation. – so they don’t have a right to challenge the expropriation but they can challenge the quantum of compensation paid as a result of the expropriation.
• Compensation to be paid promptly and in foreign exchange: s 25(3) NIPC act

 

Dispute settlement procedures

• S 26, first by mutual discussion to reach an amicable settlement. If not settled then, they go to arbitration.
• Dispute between a Nigerian investor and government – the rules of procedure for arbitration are in Arbitration and Conciliation Act Cap A18 L.FN. 2004; or

Dispute settlement procedures

• Dispute between a foreign investor and government
• Does Nigeria have any bilateral or multilateral treaty with the country of the investor?

If so then they can use any machinery for settlement of investment disputes agreed on by the parties: see for example the UNCITRAL conciliation rules of 1980

Where there is no treaty between the foreign country and Nigeria; the rules of international centre for settlement of investment dispute shall apply.

 

 

Investment promotion and protection agreement (IPPA)

Another machinery is IPPA between Nigeria and many countries An e.g. of a bilateral agreement between Nigeria and china, Finland, France, Germany, Italy, Korea republic, Netherlands, Romania, Singapore, South Africa, Spain.

The objective is to replicate the assurances in NIPC act to encourage reciprocal treatment of investors in each country that is a party to the agreement.For e.g. investors from a contracting country.

 

Foreign exchange (monitoring and miscellaneous) act

Created an autonomous foreign exchange where transactions in foreign exchange are conducted foreign currency form the following sources may be freely sold in the market, that is foreign currency in domiciliary accounts.

S 12 nobody is required to declare any foreign currency in excess of US$5,000 or its equivalent and even then, the amount that is declared is for statistical purposes only.

 

Debt- equity programme

Capital can be brought into the country through the debt-equity programme of the federal government, whereby Nigeria’s debt instrument is bough at a discounted value from any stock exchange anywhere in the world the foreign investor will get the naira equivalent of the face value of the instrument.

Debt for equity programme was introduced by the babaginda regime in 1988. The debt conversion scheme is implemented by the Debt management office.

 

Participation

To participate a company must have a minimum

 

Eligible participants

Companies and individuals, Nigerian and non- Nigerians. Residents and non-residents.

 

Repatriation of income

They can repatriate the dividend at any time.

 

Immigration requirement of a foreigner

They are:

• Business permit
• Expatriate quota
• Visa – this goes back to executive order. Tourist and business entry visas must be issued or rejected with reason by the consular office of Nigerian embassies and high commissions within 48 hours of receipt of valid application.
• Residence permit
• Temporary work permit - this usually valid for a maximum of 2-3 months

 

Executive order 2017

Government agencies are required to publish a complete list of all requirements for obtaining permits, licences and approvals, including fees and timelines, in their premises and on their websites within the next 21 days

The Registrar general of CAC must fully automate registration.

 

Visa on arrival (VOA)

• See immigration Regulations S.I.3 2017
• A prospective applicant applies online to our high commission in his country
• 48 hours after submitting his application, he will receives Visa on arrival approval letter or letter of rejection with a reason.

Note: visa on arrival is available to citizens of all countries

VoA are available to frequent travel business persons of international repute, executive directors of multinational companies and members of government delegation.

It has now been extended to business travellers who may not be able to obtain a consular business visa because Nigeria does not have a consulate in their homes country, or due to the exigencies of urgent business travel.

 

Expatriate quota

 Any company that wants to employ a foreigner must have an expatriate quota. It is an offence to employ a foreigner to work in the business without a quota for him. 1 million naira fine or imprisonment or both if they contravene the provision

Ss 38 and 105 – this is the permission

 

Permanent residence permit

A foreign national who has imported an annual minimum “ threshold of capital” over a period of time may be issued a permanent residence permit, provided that the investment is not withdrawn.

 

Business permit

An expatriate who intends to take up employment consent of comptroller – general of immigration called business permit s 18 IA 2015.

Santos M. Batalha v west construction co. ltd. [2001] 18 N.W.L.R (pt.744) 95

OILFIELD SUPPLY CENTRE LIMITED V JOSEPH LLOYD JOHNSON (1987) 2 NWLR (Pt. 58) ‘625

It is now the responsibility/duty of the employer to remove the employee from Nigeria. They will bear the cost

All applications for business permit and expatriate quota have supporting documents.

 

Str visa

Process started with obtaining “ subject to Regularisation visa”. It’s the str visa that he would use to come to Nigeria and then covert it residence permit.

 Procedure

 

Certificate of acceptance on fixed assets (CAFA)

• Industrial inspectorate act

 

Personal income tax act 2004

 

Operating licences

• Companies manufacturing and processing food, drugs and allied products must obtain certification for its products and factory sites from relevant institutions such as NAFDAC, Pharmacists Council of Nigeria etc.

 

NOTAP

NOTAP registers

 

Registrable contracts/ agreements

• The supply of detailed engineering drawings;
• The supply of machinery and plant; and
• The provision of operating staff, managerial assistance and the training of personnel staff

 

Effect of non-registration

• Does not render the contract void, only that repatriation of fees profits, royalties

 

Refusal

• The director of NOTAP may refuse registration of contract on many grounds 918; s 6(2))

e.g. if the technology is available here . Where the contract involves the transfer

• Where the price is not commensurate with the technology to be acquired”
• Where the transferee is obliged

 

Tax incentives

Main categories

• Exemption
• Relief
• Grants
• Tax credits

 

Bonds

For those who invest in federal. State and local government and corporate bonds, securities such as treasury bills and promissory notes. No tax is payable on interest earned on the investment for 10 years

 

Industrial development (income tax relief act) 2004 

• Pioneer status certificate is issued by NIPC to the effect that the company is exempted from payment of tax for three years, which can be extended for a period of one year and thereafter another one year or for one period of two years (section 10 (2)(a)(b) industrial development in come tax relief act), but the regulatory body is the NIPC

 

Dividends by pioneer company

• If a pioneer company pays dividends during the pioneer period, such dividend is not liable to tax in the hand of the shareholder (section 17(3) IDITRA – industrial development income tax relief act); AND
• If a pioneer company pays dividends during the pioneer period such dividend is not liable to tax (within those 5 years of pioneer period)

 

Also read the pioneer regulations 2014

 

Loss

If pioneer company records loss during the pioneer period it can be carried forward to offset future profits after the tax-exempt period

 

Requirements

Applicant to show

• The industry is not being carried o in Nigeria on a scale suitable to the economic development and requirements of Nigeria or at all, or there are favourable prospects for further developments in Nigeria of such industry – that it is a pioneer business
• That it is of public interest to encourage a given industry by declaring it a pioneer industry
• The industry must be listed as a one eligible to be granted the status
• The minimum amount to qualifying capital investment is 10 million and above see pioneer status incentive
• See 2014 regulations a service charge of 2% based in estimated tax savings to be paid to the NIPC
• The company must be more than one year old from its commencement date of production

 

Double taxation treaties

• If a Nigerian company has paid or is, liable to pay tax proves that it has paid the tax in a commonwealth or another country that has double taxation treaty with Nigeria, then such a company will be

 

Countries

See also double taxation relief (between the federal republic of Nigeria and Canada;

 

There is a time limit within which you. Duty drawback application must be made within a maximum of two years from the date of exportation.

 

Application procedures:

 

Tax exemption

• A new company going into the mining of solid mineral shall be exempt from tax for the first three years
• 25% of incomes in foreign exchange collected by a hotel shall be exempt from tax provided that such income is put in a reserved fund to be utilised within five years for the expansion of new hotels, conference centres and new facilities for the purpose of tourism development see s 37 of CITA
• Interest on any loan to any company engaged in agricultural business, the fabrication of local plant or machinery or as working capital for any industry established under family economic advancement programme establishment, etc.) Act Cap. F3 LFN 2004 is exempt from tax . see s 11 of CITA

 

0% import duty on

• Equipment and machinery in the power sector
• Agricultural equipment and machinery
• Commercial aircraft operators

 

Foreign Loan – popular exam question

• Interest derived by the foreign company from that loan that is derived from Nigeria shall if the loan is not repayable before ten years then no tax is payable.

If the loan is not repayable before five years then the rate of tax is half: section 11 of this act.

• in order to enjoy the above incentives , the agreement for all foreign loans must be approved by the federal ministry of finance and copies thereof deposited with both federal ministry of finance and

 

Under the companies income tax act (CITA) there are 3 categories of tax relief

• Employment tax relief
• Work experience acquisition programme relief
• Infrastructure tax relief

 

Employment tax relief

• Company with minimum of 5 new employees
• Company retains employees for at least 2 years
• Then an exemption from CITA of 5% of its assessable profits

 

Infrastructure tax relief

This is a relief that is 30% of the cost of providing infrastructure of a ‘public nature’. Para 3 of the order grants qualifying companies a CIT exemption of 30%.

e.g. power roads and bridge ; water; health, educational and sporting facilities

- Compare with rural investment allowance (infra): it is very similar because it provides relief of providing infrastructure.

 

Work experience

• Any company with a minimum of 10 employees of which 6 are new graduates or been looking for job for 3 years after graduation.
• There is income tax relief of 50% of its assessable profits.

 

Exemption from VAT

• Sections 2 & 3 First schedule VAT Act list the goods and services exempted form VAT:
• All medical and pharmaceutical products
• Books
• Plays and performances conducted by educational institutions as part of learning; and

 

Investment tax credit

Section 11 PITA: where a resident derives income from a source outside Nigeria and the income is brought into Nigeria through government approved channels, he shall be allowed a tax credit against the tax payable by him, a cap is placed on the amount of credit

• Companies that are engaged in R & D activities for commercialisation are allowed 20% investment tax credit
• A company which engaged wholly in the fabrication
• A company, which purchases a locally manufactured plant, machinery or equipment for use in its business, is allowed 15% investment tax credit on such fixed asset. See s 30 of CITA
• Where a company buys a new machinery to replace an obsolete plant and machinery, there shall be allowed to that company See s41 of CITA

 

Petroleum investment allowance

A company in production sharing contract with the NNOPC is entitled to petroleum

 

Bonus for filing return on time

• A company which files return

 

Rural investment allowance

• Provision of electricity, water, tarred road, located at least 20 kilometres away from such facilities, - rural investment allowance: see s 34 of CITA telephone was removed in 2007
• Compare with investment tax credit and infrastructure allowance

 

Investment tax relief

• Section 40 CITA

 

Export free zone

• To invest in the free zone scheme, you can either come in as an enterprise in an existing free zone or request for a free zone of your own

Advantages

• Unrestricted remittance of profits and dividends earned by foreign investors in EPZ’S
• Though called EPZ companies are allowed to sell in the domestic market
• No import or export licenses required,
• Rent free land during construction of factory space
• 100 % foreign ownership is allowed

 

Conditions for citing in an EPZ

• New business
• New plants and machinery
• Export proceeds form 75% of its turnover
• Company repatriates at least 75% of the export earnings to Nigeria and places

 

ECOWAS Trade liberalisation scheme

• The scheme provides for trade liberalization among member countries
• It involves total exemption of duties and taxes;

Free movement of products and citizens