A Roadmap for Foreign Participation in Nigerian Business

Legal Essentials for Foreign Entrepreneurs in Nigeria

A foreigner intending to carry out business in Nigeria must first register and obtain a separate entity under Nigerian Law before taking off.

Until incorporation, a foreigner cannot exercise the powers of a registered company nor have a place of business in Nigeria. If a Foreigner or a foreign company does not register before doing business in Nigeria, any transaction entered into is void and illegal. The court will not enforce the contract at the instance of any party to the transaction.

Different legislations and policies have been put in place to control foreign participation for ease of business in Nigeria, and every foreign investor should be aware of these laws and policies, primarily with respect to matters such as incorporation procedures, relevant licenses, permits, and incentives available to ease of business for foreign participation in Nigeria.

This article is therefore necessary to help inform foreigners intending to do business in Nigeria on key provisions of the relevant laws regulating foreign participation, the options available to investors for commencing business in Nigeria, relevant permits required, and incentives available to investors.

WHAT IS FOREIGN PARTICIPATION?

Foreign participation is the same as alien participation. Section 868 of the Companies and Allied Matters Act (CAMA) 2020 defines an alien as a person or association, whether corporate or incorporated, other than a Nigerian citizen or association, a company, business name, or association registered in Nigeria. Foreign participation is, therefore, a situation where a non-Nigerian individual or company, considered an “alien” under the law, holds shares or plays a vital role in the running of a company registered in Nigeria, Mostly allowing foreign investors to participate in Nigerian businesses by owning part or all of a Nigerian company.

OPTIONS AVAILABLE TO FOREIGNERS INTENDING TO COMMENCE BUSINESS IN NIGERIA.

The two (2) options available to foreign investors for the commencement of business in Nigeria are:

Foreign Portfolio Investment (FPI):  This means an investment in shares or other securities traded on the Nigerian Stock Exchange[1] A person, whether citizen of Nigeria or not, resident in Nigeria or not, may invest in securities traded on the Nigerian capital market or by private placements in Nigeria. FPI is simply the indirect participation in a business by purchasing Shares in an already incorporated Nigerian company, typically through Nigerian capital markets. It is the passive ownership of securities, with no active management or control by the foreign investor. FPI can be effected with foreign currency imported through an authorised dealer and converted to Naira at the official exchange rate[2] . The Authorised Dealer shall issue a Certificate of Capital Importation within 24 hours of the importation to the investor and shall, within 48 hours thereafter, make returns to the CBN, giving such information as the CBN may, from time to time, require[3].

Foreign Direct Investment (FDI): an alien or a foreign company may join in the formation of a company[4] Foreign Direct investment is, therefore, a mode of direct investment by foreign investors who invest in Nigeria by establishing a company for that purpose. A foreigner may, on his own or in conjunction with other Nigerians, incorporate a company in Nigeria.

It may include building a new facility and a lasting management interest, mergers, and acquisitions, building new facilities, and reinvesting profits earned from overseas operations. This may consist of participation in management, joint ventures, technology transfer, and expertise. It is important to note here that the company established must be registered unless it qualifies and obtains an exemption from registration[5]

LAWS REGULATING FOREIGN PARTICIPATION IN NIGERIA AND INSTITUTIONS:

 

Companies and Allied Matters Act 2020	Corporate Affairs Commission (CAC) – company registration, exemption, regulation, monitoring etc.
Investment and Securities Act 2007	Securities and Exchange Commission (SEC) – FDI and FPI registrations
Nigerian Investment Promotion Commission Act 1995	Nigerian Investment Promotion Commission (NIPC), One Stop Investment Centre (OSIC) – reg of companies with CAC, incentives processing
National Office of Technology Acquisition and Promotion Act	National Office of Technology Acquisition and Promotion (NOTAP) – tech registration, exemption
Immigration Act	Nigerian Immigration Service (NIS) – biz permits, residence permits, expatriate quota, CERPAC card (green card), issuance of visa etc.
Industrial Inspectorate Act	Industrial Inspectorate Division, Federal Ministry of Industries – approval of capital expenditure, issuance of cert of acceptance of fixed assets
Foreign Exchange (Monitoring and Miscellaneous Provisions) Act	Autonomous Foreign Exchange Market (AFEM) – capital importation and waiver of interest for capital importation
Central Bank of Nigeria (CBN)	Central Bank of Nigeria (CBN) – general regulation of the economy
Companies Income Tax Act
Personal Income Tax Act
Pioneer Status Incentive Regulation

REGISTRATION OF BUSINESS IN NIGERIA BY FOREIGNERS SEEKING TO DO BUSINESS IN NIGERIA

Although the law allows an alien or a Foreigner to join in the formation of a company, The CAMA expressly prohibits a Foreigner from carrying on any business or parading as a company unless it is registered in Nigeria or exempted from registration.[6] Every Foreign company incorporated outside Nigeria and intending to carry on business in Nigeria shall obtain incorporation as a separate entity in Nigeria for that purpose. Still, until so incorporated, it shall not carry on business in Nigeria or exercise any of the powers of a registered company. It shall not have a place of business or an address for service of documents or processes in Nigeria for any purpose other than receiving notices and other documents, as matters preliminary to incorporation S78 CAMA.

By the provisions of Section 78 of the Companies and Allied Matters Act (CAMA), 2020, every foreign company intending to conduct business in Nigeria must register with the Corporate Affairs Commission (CAC) before starting business in Nigeria. After incorporation, the company must obtain a TIN. This registration is done at the Federal Inland Revenue Service (FIRS). This is the number that the company will use to pay corporate tax and other taxes, as well as to register for VAT.

Registration with the Nigerian Investment Promotion Commission(NIPC):

The NIPC is tasked with attracting Foreign Direct Investment (FDI) in Nigeria. The  NIPC Act provides for the participation and registration of enterprises envisaged to commence foreign participation in Nigerian businesses[7]. The aims and objectives of the NIPC are to promote, encourage, and coordinate all investments in Nigeria.

One of the notable benefits of registering with the NIPC is that foreign-owned enterprises or establishments shall not be expropriated or nationalized by any government in Nigeria after proper registration with the NIPC.

ONE STOP INVESTMENT CENTRE (OSIC):

Foreigners interested in carrying on business in the country must obtain investment approvals after incorporating their companies. The practice has been that company incorporation and foreign investment approvals are processed by different authorised government agencies. This process was characterised by delays usually caused by government bureaucracy, which also stifled the smooth start-up of foreign businesses in Nigeria.

To ensure ease of business in Nigeria by foreign investors, the NIPC established OSIC to reduce the stress of moving from one agency to another to establish business in Nigeria as a foreigner. All the necessary institutions saddled with the responsibility of registering and issuing relevant documents for carrying out business in Nigeria have been brought under the canopy of OSIC.

OSIC, as a brainchild of the NIPC, was established for the following reasons:

1. Eliminates delays in dealing with multiple government agencies in several locations
2. Removal of abuse of discretion and lack of transparency in granting permits, approvals and licenses.
3. Substantially reduces the cost of establishing a foreign direct investment and
4. Provision of investment information

Notable Incentives Available to Foreigners Doing Business in Nigeria Upon Registration Under The Necessary Institutions:

Pioneer Status Incentive (PSI)

The Pioneer Status, once granted, exempts qualifying industries and products from paying corporate income tax for three years, with the option to extend it for one or two more years. The Companies Income Tax Act has been amended to encourage potential and existing investors and entrepreneurs.

The purpose of PSI is to promote Foreign Direct Investment (FDI) in Nigeria.

For a company to be eligible for PSI, the business in which the company is involved must be part of the industries approved as a pioneer industry by the Federal Executive Council (FEC). Some approved pioneer industries are Agriculture, mining and quarrying, information and communications, manufacturing, electricity and gas supply, construction, etc.

 Capital Importation and Repatriation

This refers to the importation of foreign currency into Nigeria in the form of cash or other products (natural resources, tools, and devices).

Foreigners can bring any recognized foreign currency into Nigeria to fund their investment. This is, however, subject to money laundering restrictions. These funds must be brought in through an authorized dealer. The foreign investors must first obtain a Certificate of Capital Importation (CCI) from the authorized dealer to be able to import foreign currency to fund their investment. Also, to open a foreign currency Domiciliary Account with any authorized dealer,[8] open a special non-resident Naira account, and buy shares in Nigerian companies from the naira account.

Foreign investors are also free to repatriate all profits and dividends net of taxes, through an authorized dealer in freely convertible currency.
Without a CCI, foreign exchange cannot be purchased from the official foreign exchange market for easy repatriation of the proceeds of the foreigner’s investment from Nigeria.

Duty Drawback Scheme

The Duty Drawback Scheme reimburses duties/surcharges on raw materials, including packing and packaging materials, used in the manufacture of products upon effective exportation of the finished products.

The Duty Drawback Committee shall grant any balance where applicable or request refunds for any overpayment made after the processing of exporters’ claims. . The new Duty Drawback scheme shall give automatic refunds (60%) on initial screening by the Duty Drawback Committee and upon the bond presentation from a recognized Bank, Insurance Company, or other financial institution.
The Bond will cover 60% of the refund to be made to the exporter and will only be discharged after final processing of the application has been made. At the end of the processing of the exporter’s claims, the Duty Drawback Committee shall grant any balance where applicable or request refunds for any overpayment made.
Double Taxation Agreements:

DTAs are agreements entered into with a view to affording relief from double taxation in relation to taxes imposed on profit taxable in Nigeria and any taxes of similar character imposed by the law of the country concerned.
The method of relief from double taxation under Nigeria’s tax treaties is by way of a “tax credit”.

Guarantees against Expropriation[9] •

No enterprise shall be nationalized or expropriated by the Federal Government unless the acquisition is in the national interest or for public purpose.

Also, no person (including foreigners), whether in part or whole, shall be compelled to surrender his investment to another person. Where nationalized or expropriated, compensation must be paid, and a right of access to the courts as to the amount or quantum of compensation to be paid promptly and authorisation for repatriation in the convertible currency where applicable.

Dispute Resolution[10]

The NIPCA provides as follows:

Where a dispute arises between an investor and any Government of the Federation in respect of an enterprise, all efforts shall be made through mutual discussion to reach an amicable settlement. Any dispute between an investor and any Government of the Federation in respect of an enterprise to which this Act applies which is not amicably settled through mutual discussions, may be submitted at the option of the aggrieved party to arbitration as follows— (a) in the case of a Nigerian investor, in accordance with the rules of procedure for arbitration as specified in the Arbitration and Mediation Act; or (b) in the case of a foreign investor, within the framework of any bilateral or multilateral agreement on investment protection to which the Federal Government and the country of which the investor is a national are parties; or (c) in accordance with any other national or international machinery for the settlement of investment disputes agreed on by the parties.

Where in respect of any dispute, there is disagreement between the investor and the Federal Government as to the method of dispute settlement to be adopted, the International Centre for Settlement of Investment Disputes Rules shall apply.

RELEVANT APPROVAL AND PERMIT REQUIRED FOR EASE OF BUSINESS IN NIGERIA BY FOREIGN INVESTORS:

A foreign investor interested in doing business in Nigeria must be abreast with the necessary information about the laws regulating immigration to Nigeria. The Nigerian Immigration Service, in collaboration with the Nigerian Ministry of Interior, handles foreigners’ immigration requirements.

Below are the necessary permits required for foreign participation in Nigerian Business:

• Expatriate Quota: this can be obtained from the Minister of Interior as part of regulatory requirements.
• Residence permits: this is necessary to enable working in Nigeria and, if necessary, to remit their salaries abroad.
• Business permit: A foreigner who wholly owns a company in Nigeria must obtain a Business Permit in order to conduct business in Nigeria.

A foreign company must also inquire about the licenses required to conduct business in the proposed industry sector. Some industries may have special licensing requirements that operators must obtain before the commencement of business in Nigeria. Therefore, It is important for a foreigner intending to conduct business in Nigeria to seek and obtain the necessary information and guidance to avoid breaching the legal frameworks regulating foreign participation in Nigeria.

PROFITABLE SECTORS FOR FOREIGN DIRECT INVESTMENTS

The main sectors attracting FDI inflows into Nigeria include oil and gas, telecommunications, manufacturing, real estate, agriculture, Trading, Banking, Electricity, Capital market, Financing, Transportation, Water, Recycling, and Energy. A foreigner can expect to earn attractive returns on investments in these areas.

Conclusion:

Nigerian Government has, to a large extent provided an enabling environment for foreign participation in businesses in Nigeria to thrive. With the establishment of OSIC by the NIPC, Tax reforms, friendly immigration process, abundance of human and natural resources, capital repatriation, and tax incentives, foreigners seeking to do business in Nigeria can be sure of an easy process and sound business environment and profit return on their investments.

This article is for informational purposes only and should not be considered legal advice. For specific legal guidance, please contact our team directly.

For expert guidance on foreign direct investment matters or registration of foreign entities in Nigeria], please contact our specialized team in the Corporate and Commercial Law practice group; Part of our full-service offering across Lagos, Abuja, and Abakaliki. Please contact our partner Hans Offia on [email protected]

 

[1] S31 NIPCA.

[2] S15 FEMMPA.

[3] S15 FEMMPA.

[4] S20(4) CAMA

[5]Section 80 CAMA

[6] S78 CAMA

[7] Sections 17 and 18, NIPCA

[8] S17 FE(M&M)PA.

[9] Section 25 of NIPCA

[10] S26 NIPCA