Doing Business in Nigeria: A Guide to Foreign Investors

Nigeria is a developing capitalist economy. Free enterprise is the norm but there are some important sectors like Electricity and Water that are partially owned and controlled by the government.Most of Nigeria’s economic activities occur in the major metropolitan areas such Abuja, Lagos, Kano, Onitsha, and Port Harcourt. Oil and Gas is the major export and revenue earner for the country.

In 1989, the Nigerian government permitted 100% foreign ownership in any new venture except those involved in the production of arms and ammunition.

To every business owner with the main goal of successful enterprise, a sustainable and enabling business environment is very crucial and a deciding factor. For investors to settle for a jurisdiction to cite businesses, such jurisdiction must certainly be where the potential to advance their business objectives are enormous.

Nigeria has Africa’s largest economy, with a GDP of $477.38 billion in 2023. Nigeria is a big oil producer with a population of more than 225 million people. The country recently made amendments to local company and tax laws in order to create a more enabling business environment for local and foreign business owners including ratifying the African Continental Free Trade Area (AfCFTA) Agreement. The relatively recent development is aimed at positioning the country better to attarct foreign investments and establishes profitable business presence for foreign investors in Nigeria.

Establishing a Business with Foreign Shareholding in Nigeria

Under Nigerian law, foreigners can own a new company 100%. The first stage to foreign participation or ownership of a company in Nigeria is to establish the partners/shareholders and their respective percentage shareholdings in the proposed company. Thereafter, the promoters of the company would establish the name of the proposed company, initial authorised share capital and main objects of the proposed company.  Except in instances where the proposed company will be 100% owned by non-resident shareholders, the promoters should prepare Joint-Venture Agreement between prospective shareholders. The Joint-Venture may specify; inter-alia, mode of subscription by parties, manner of Board Composition, mutually protective quorum for meetings, specific actions which would necessitate share-holders approval by special or other resolutions.

Foreign Shareholders of a proposed company in Nigeria may grant a power of attorney to its Solicitors in Nigeria, enabling them to act as its Agents in executing incorporation and other statutory documents pending the registration with Nigerian Investment Promotion Commission (NIPC).

The first step towards incorporation of the new company is to conduct a search as to the availability of the proposed company name and, if available, reserve the name with the Corporate Affairs Commission.   The Nigerian solicitor would then effect payment of stamp duties, CAC filing fees and process and concludes registration of the company as a legal entity.

When the Certificate of Incorporation is issued, the new business should be registered with the Federal Inland Revenue Service (FIRS) for Value Added Tax (VAT) Certificate. In addition, the new company should prepare and submit simultaneous applications to the Ministry of the Interior (on the prescribed NIPC Application Form) for the following: –

– Registration and Expatriate Quota;

– Pioneer Status and other incentives (where applicable)

The application to the Ministry of the Interior should be accompanied with the following documents: –

    • Original and duplicate Copy of the duly completed NIPC Form 1;
    • Original Copy of the treasury receipt for the purchase of NIPC Form;
    • A Copy of the Certificate of Incorporation of the applicant company;
    • A Copy of the Tax Clearance Certificate of the applicant company;
    • Produce CAC’s Forms duly certified;
    • A Copy of the Memorandum and Articles of Association;
    • A Copy of treasury receipt as evidence of payment of stamp duties on the authorised share capital of the company as at date of application;
    • A Copy of the Joint-Venture Agreement -UNLESS 100% foreign ownership is envisaged;
    • A Copy of Feasibility Report and Project Implementation Programme of a company for its proposed business. It is advisable that quotations, letters of intent and other such documentation relating to industrial plant and machinery to be acquired by the company, be forwarded either as annexes or separately. In order to discourage the dissipation of administrative energy on speculative applications, the NIPC favours the applicant who has demonstrated positive intention to commence business as and when approvals are granted. Hence, the requests for evidence of acquisition of business premises and evidence of acquisition of the plant and machinery to be utilised in the company’s business;
    • A Copy of Deed(s) of Sub-Lease/Agreement evidencing firm commitment to acquire requisite business premises for the company’s operation. By implication, the ultimate NIPC approvals do incorporate approvals of the industrial site locations indicated in the application;
    • A Copy of training programme or personnel policy of the company, incorporating management succession schedule for qualified Nigerians;
    • Particulars of names, addresses, nationalities and occupations of the proposed directors of the company;
    • Job title designations of expatriate quota positions required, and the academic and working experience required for the occupants of such positions. It is pertinent to note that expatriate quota on a “Permanent Until Reviewed” (PUR) status is only accorded to a Managing Director, where the non-resident shareholders own a majority of the company’s shares, and the authorised capital of the company is N10 million and above;
    • Copies of information brochure on foreign shareholder (if available) as testimony of international expertise and credibility of the foreign partner in the proposed line of business.

Capital Importation

Once the NIPC approvals are obtained, the non-resident shareholder must take effective steps to import its foreign equity holding in the company. To ensure prompt importation of the foreign equity components, the NIPC may register company but defer approvals for Expatriate Quota and Pioneer Status and other applicable investment incentives, until evidence of capital importation is produced. After obtaining Certificate of Capital Importation from the bank, the NIPC is to be notified of this fact with the supporting documentation, in order for it to resume processing of pending approvals that might have been deferred on such ground. As soon as expatriate quota position are granted and the respective individuals to fill the quota positions are recruited, the company must embark on steps to obtain work permit and residency status for the expatriate employees and their accompanying spouses and children (if any).

Current Legal Regulation on the Appointment of Foreign Directors

The promoters of business ventures in Nigeria are free to appoint directors of their choice, either foreign or Nigerian, and the directors may be resident or non-resident. The application to the NIPC must reflect the names of the proposed Nigerian and foreign directors (with an indication of resident and non-resident directors). The Registration Certificate consequently issued following such application usually reflects the respective names of the proprietors of the company, as well as the directors representing each proprietor or co-proprietor.

Tax advantages to a “Pioneer Company”

By virtue of the Industrial Development (Income Tax Relief) Act, Cap. 17 Laws of the Federation of Nigeria, 2004, certain industries are declared to be “pioneer industries.” Thus, any company whose products fall within the categorised industries could be conferred with Pioneer Status.

This designation is not necessarily a reflection that a company was pioneer per se in the industry, as several companies within the same pioneer industry classification could qualify for Pioneer Status. Where the activities of a company include the production of pioneer and non-pioneer products, the tax relief available on conferment of Pioneer Status would be restricted to income derived from pioneer products only. Under the current industrial policy, conferment of Pioneer Status accords a company relief from income tax liability for a period of up to 5 years (tax-holiday status).

The Criteria for Granting Pioneer Status: –

(i)  the amount of qualifying capital investment in a company (N10 million and above) must be verifiable by physical inspection and supported by a report of the Industrial Inspectorate Division of the Federal Ministry of Industry before a Pioneer Certificate is granted;

(ii) the socio-economic advantages of a company’s activities to the Nigerian economy as set out in its Feasibility Study is also an important consideration.

Without prejudice to these conditions, NIPC is empowered to confer Pioneer Status and other investment incentives, in any other deserving circumstance as the Council of NIPC may approve in accordance with the provision of the Nigerian Investment Promotion Commission Act and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act in 1995.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Author: Mr. Adeola Austin Oyinlade

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