SETTING UP BUSINESS NIGERIA

SETTING UP BUSINESS IN NIGERIA

General Aspects

Nigeria is a country located in West Africa and is one of the most populous countries in Africa. It is bordered by Niger to the north, Chad to the northeast, Cameroon to the east, and Benin to the west. Nigeria has a diverse population of over 200 million people, with more than 250 ethnic groups and languages spoken across the country.

The official language of Nigeria is English, which is widely spoken and understood across the country. However, there are also several other major languages spoken in Nigeria, including Hausa, Yoruba, and Igbo, among others.

The unit of currency in Nigeria is the Nigerian Naira (NGN), which is divided into 100 kobo. The exchange rate of the Naira fluctuates depending on various factors such as oil prices, foreign exchange reserves, and government policies.

In terms of the economy, Nigeria is considered one of the largest economies in Africa, with a GDP of over $500 billion. The country is heavily dependent on oil exports, which

Legal Forms of Business Entities

Legal form Feature

account for a significant portion of its foreign exchange earnings. However, there are also other sectors such as agriculture, telecommunications, and manufacturing, which are increasingly contributing to the country’s economy.

Despite its vast economic potential, Nigeria faces various challenges such as corruption, inadequate infrastructure, and security concerns, which can impact the ease of doing business in the country. However, the government has implemented various reforms in recent years to improve the business environment, such as the establishment of the Presidential Enabling Business Environment Council (PEBEC) and the introduction of new laws to promote ease of doing business.

Overall, Nigeria offers significant business opportunities for international companies looking to expand into West Africa. However, it is important to carefully navigate the unique challenges of the Nigerian business environment and work with trusted local partners to ensure success

Sole proprietorship This is a form of business owned and run by an individual whereby there is no legal distinction between the owner and the business.

Remarks

Suitable for small businesses and start-ups.

A foreigner would not be able to engage in a lawful business activity as a sole proprietorship except he is able to obtain citizenship or residency status for immigration purposes

Partnership And This is a form of business arrangement in which two or more individuals own a business and are personally responsible for the debts and other obligations of the business up to a maximum of 20 partners except for certain professions such as law and accountancy

Foreign participation is possible where investors are able to obtain residency status for immigration purposes and a work permit.

Limited Liability Company (LLC)

Separate legal entity from its owners, with limited liability for shareholders

Medium to large businesses and those seeking external investment

Public Limited Company (PLC)

Similar to LLC, but shares can be publicly traded

Large businesses seeking to raise significant capital through public investment

A company with foreign shareholding must have minimum share capital of N10 million (circa US$22,000 at official exchange rate and circa $13,000 at parallell market rate) in order to obtain a business permit from the Nigerian Investment Promotion Council (NIPC) please section of other

The Nigerian Investment Promotion Commission (NIPC) Act allows for 100% foreign ownership of companies in all sectors of the Nigerian economy, except for those on the negative list

A company with foreign shareholding must have minimum share capital of N10 million (circa US$22,000 at official exchange rate and circa $13,000 at parallel market rate) in order to obtain a business permit from the Nigerian Investment Promotion Council (NIPC) please section of other

The Nigerian Investment Promotion Commission (NIPC) Act allows for 100% foreign ownership of companies in all sectors of the Nigerian economy, except for those on the negative list

Setting up Company in Nigeria

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Name of the proposed company The first step to incorporating a company in Nigeria is to conduct an “availability search” at the Corporate Affairs Commission (CAC), which serves as the company registry. This search confirms that the desired name for the company is available for use and not identical or similar to the name of an existing company, trademark, or trade name, or otherwise unacceptable to the CAC.

Business of the company In general, non-Nigerian individuals or entities are allowed to engage in any business in Nigeria except for enterprises involved in the production of arms and ammunition, production and dealing in narcotic drugs and psychotropic substances, and the production of military and paramilitary wears and accouterments.

If the proposed business of the company involves rendering professional services, the Corporate Affairs Commission (CAC) may require a proficiency certificate from one of the directors of the proposed company before such an object can be registered.

Remarks

Typically, the availability search involves submitting two (2) or three (3) alternative names for consideration. If the desired name is available, it will be reserved for an initial period of sixty (60) days, with the option to renew for additional sixty (60) day periods. During this reservation period, no other company can be registered with the reserved name or any other name that the CAC deems identical or similar to the reserved name.

It is important to note that there may be additional regulations or requirements specific to certain industries or sectors that foreign investors must comply with in order to operate in Nigeria.

Required documents 1) Memorandum and Articles of Association (“MemArts”)

The constitutional documents of the company are the Memorandum and Articles of Association (Mem Arts), which set out the main objects of the company and regulate its internal governance and administrative procedures.

The Mem Arts must be subscribed to by at least two individuals or companies, both of which can be non-Nigerians and must jointly take up a minimum of 25% of the company’s authorized share capital.

If any of the proposed promoters of a new company is an incorporated entity, the CAC requires that such promoter must be represented by an individual who will sign the incorporation documents and affix the promoter’s common seal thereto.

The process of incorporating a company in Nigeria involves fulfilling specific requirements set by the CAC. The documents required for incorporation include the Mem Arts, which set out the company’s main objects and internal governance procedures. The Mem Arts must be subscribed to by at least two individuals or companies, both of which can be non-Nigerians. If a promoter of the new company is an incorporated entity, an individual must represent the entity and sign the incorporation documents, in addition to affixing the entity’s common seal.

Form CAC 1.1 Application for Registration of Company

When incorporating a company in Nigeria, the company incorporation form must include details about the type of company, its reserved name, registered office address, authorized share capital, and particulars of the first directors and company secretary.

Foreigners should note that the registered office address must be a physical location within Nigeria, and the type of company must be indicated in the form. Details of the authorized share capital, along with the signature of a director, should also be included.

For directors, their names, addresses, and identification documents must be provided. It is important to note that every company must have a Company Secretary, and the name and address of the individual or corporation must be provided with their signature or common seal.

To comply with Nigerian law, a statutory declaration of compliance with the requirements of CAMA must be included in the form, made by a legal practitioner

Share capital

As per the Nigerian Companies and Allied Matters Act (CAMA), the minimum authorized share capital for a private company is N10,000 while a public company must have a minimum authorized share capital of N500,000.

However, if any subscriber to the company’s Memorandum and Articles of Association is a foreign entity or individual, the company’s authorized share capital must be a minimum of N10,000,000 as prescribed by the Nigerian Investments Promotion Commission (NIPC).

The shareholders must take up at least 25% of the company’s authorized share capital, but they need not be fully paid up.

A Nigerian company must have a minimum of two shareholders, and there are no restrictions on a foreign entity wholly owning a Nigerian company. There is no statutory requirement for a minimum amount of a company’s issued share capital to be paid up.

Foreign nationals must obtain a business registration certificate and a business permit before undertaking any business in Nigeria, and if they are subscribers to the company’s Memorandum and Articles of Association, the company’s authorized share capital must be a minimum of N10,000,000 as prescribed by the NIPC.

MANAGEMENT Every Nigerian company operates through its members in general meetings or its Board of Directors, who are the two main organs of the company. The company can also act through officers, managers, or agents appointed by the members in general meeting or the Board of Directors. It is common practice for the Articles of Association of companies to allow the Board of Directors to delegate functions to a Managing Director, other executive directors, or committees of the Board of Directors.

Under Nigerian law, there are no restrictions on the nationality or residence of the directors of a Nigerian company. However, if a Nigerian company intends to employ expatriate personnel, they must obtain Expatriate Quota Approval. Non-executive directors who visit Nigeria for board meetings and functions would not be considered as employees.

Unless otherwise specified in the Articles, a company can have any number of directors, but the statutory minimum is two. Furthermore, there is no requirement for a director to hold shares in the company.

OTHER PERMITS REQUIRED (INVESTMENT APPROVALS)

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Certificate of Capital Importation (“CCI”)

A CCI is a certificate that serves as evidence of foreign currency imported into Nigeria for investment purposes. FEMMA allows foreign investors to invest in a Nigerian enterprise with foreign currency, which can be converted into Naira through an authorized dealer.

The CCI guarantees the unconditional transferability and convertibility of the foreign currency and any yields on the investment funds. It assures the unhindered remittance of investment capital and any accretion in any convertible currency.

The remittance of these monies is usually at the prevailing official exchange rate of the Naira on the relevant date. The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, Cap. F34, LFN 2004 (“FEMMA”) also permits the operation and maintenance of domiciliary accounts, and the authorized dealer must issue a CCI within 24 to 72 hours of funds inflow. Commission and administrative fees may be charged by the authorized dealer for their services, and the amount varies from bank to bank.

Certificate of Business Registration By virtue of the Nigerian Investment Promotion Commission Act Cap N117 LFN 2004 (NIPC Act), a Nigerian company with foreign equity participation must register with the NIPC and obtain a Certificate of Business Registration before carrying on business.9 Until such a company is registered with the NIPC, it is not entitled to commence business in Nigeria

Business Permit Section 36(1)(b) of the Immigration Act, 2015 prohibits a non- citizen of Nigeria from establishing a business or registering a company for that purpose without the consent of the Minister responsible for immigration matters. In practice, the consent is obtained after the incorporation of the company has been concluded in the form of a

“Business Permit” issued by the department of citizenship of the Federal Ministry of Interior (“FMI”). Application Form is N30,000, Automation Fees is N51,000 and Registration Fee is N100,000. The timeline for processing business permit certificate ranges from 4 to 6 weeks

Expatriate Quota Approvals

Combined Expatriate Residence Permit and Alien Card (“CERPAC”)

• Employment of foreign nationals in Nigeria is prohibited without permission from the Comptroller-General of Immigration.

• Expatriate Quota Approval is granted in the form of two types of quotas: Permanent Until Reviewed (PUR) and Ordinary quotas.

• Companies must justify the requirement for employing expatriates and disclose plans for the employment and training of Nigerians.

• Ordinary quotas are valid for an initial period of 3 years and renewable every 2 years thereafter, while PUR quotas are valid for a period of 10 years and renewable every 10 years thereafter.

• Application fee is N25,000 and non-refundable filing fee is N50,000, with a processing fee of N10,000 per granted slot/position.

• Monthly returns must be filed by companies in respect of expatriate quota positions, indicating the names of the employees holding the positions and details of the Nigerians understudying them.

• It takes between 2-3 months for ordinary quotas and 3-4 months for PUR quotas to be granted.

• Expatriate employees must obtain a CERPAC to reside and work in Nigeria

• CERPAC is issued by the Immigration Office upon arrival in Nigeria

• Expatriates must obtain a “Subject To Regularization” (STR) Visa from Nigerian Embassy/High Commission in their home countries before arriving in Nigeria

• STR visa allows them to take up employment during the period when CERPAC is being processed

• Application for CERPAC is made on a CERPAC form addressed to the Minister of Interior

• CERPAC form is valid for three (3) months from date of purchase

• CERPAC is usually issued within 6-8 weeks from the date of application

• CERPAC is valid for two (2) years.

Labor requirements

The 1999 Constitution of the Federal Republic of Nigeria provides for “equal pay for equal work without discrimination on account of sex, or any other grounds whatsoever”.

The Law provides that every employer must give to each of its employee; a written contract within 3 months of engagement sufficiently stating the particulars of the employer and the employee, the position and job description/functions, terms and conditions of the contract, confidentiality clauses, intellectual property rights, hours of work, remuneration, holiday and holiday pay, etc.

Employment of expatriates

The Immigration Act precludes any person other than a Nigerian citizen from accepting employment (not being employed by the Federal or State Government) without the consent in writing of the Minister of Interior. For a non-resident individual coming into Nigeria to work, there are three main entry permits available:-

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Business visa This is issued mainly to enable foreign nationals to attend business meetings in Nigeria

Temporary Work Permit (TWP)

This is issued to enable foreign nationals to gain entry into Nigeria for the purpose of executing short-term assignments. It is a single entry visa which is usually given for a period of 3 months. It can be extended once for another 3 months upon application.

Expatriate Quota (EQ) Companies seeking to employ expatriates must first apply for and be granted an (EQ). The EQ scheme is designed to prevent the indiscriminate employment of expatriates where there are qualified and suitable Nigerians to fill such positions.

The validity of the employer’s EQ position determines the EQ awarded. Employees will be considered residents for tax purposes from the first day of the employment assignment. A company that has been issued an EQ may apply for its renewal when it expires at the discretion of the Ministry.

Combined Expatriate Residence Permit and Aliens Card (CERPAC)

Every non-Nigerian who enters Nigeria legally and who wishes to reside and/or work in Nigeria must make an application for a CERPAC which when issued is valid for 3 years and becomes renewable.

Taxation

There are several taxes and levies imposed on people, goods and services in Nigeria which are collected by the 3 tiers of government. The major taxes are listed below:-

Tax Feature Remarks

Companies Income Tax Act (CITA)

CITA forms the legal basis for the taxation of the profits of companies other than companies engaged in oil exploration and production in Nigeria. CITA imposes tax upon the profits of any company accruing in, derived from, brought into, or received in Nigeria in respect of a trade or business. Companies are taxed at a rate of 30% of taxable profits.

Nigerian companies are liable to tax on their global or worldwide income while nonresident companies are liable to tax only on the profit or income deemed to be derived from Nigeria

Certificate of Acceptance

Companies are required to obtain a Certificate of Acceptance for individual assets purchased with a value of N500,000 and above. This certificate is obtained from the Inspectorate Division of the Federal Ministry of Industries. It is necessary to present the certificate if the tax authorities challenge the capital allowances. Capital allowances are claimable on qualifying capital expenditure in lieu of depreciation. Different rates apply for qualifying expenditures for both initial and annual capital allowances. Agro and manufacturing companies can claim 100% capital allowances, while other companies can claim a maximum of 2/3rd of assessable profits.

Excess dividend tax

If a company pays out a dividend that is more than its taxable profit, the excess will be charged to tax at 30% as if the dividend is the taxable profits of the company.

Double Tax Agreement (DTA)

Nigeria has ratified tax treaties with several countries, offering tax advantages to companies and individuals’ resident in a treaty country. These include higher thresholds to trigger a taxable presence in Nigeria and a lower withholding tax rate of 7.5% on dividends, royalties, and interest payable to a non-resident.

Pioneer tax incentive

Companies categorized as pioneer industries can obtain pioneer status upon satisfaction of certain conditions. This status qualifies them for a tax holiday for 5 years, with special rules on computing profits and withholding tax exemptions. The updated list of industries and products that qualify for pioneer status can be obtained from the NIPC website.

Taxation of non-resident companies

Non-resident companies may be liable for tax in Nigeria based on passive income and business income. Passive income is liable to a withholding tax rate of 10%, while business income is liable to tax in Nigeria to the extent that it is derived from Nigeria through a Permanent Establishment (PE) or fixed base. Tax liabilities for such companies will be based on audited accounts similar to Nigerian companies.

Personal

Income Tax Act

The Personal Income Tax Act (PITA) 2011 (as amended) is the legal basis for the imposition of personal income tax in Nigeria. The Act requires an employer to deduct and remit its employees’ income tax under the Pay-As-You-Earn (PAYE) scheme and grants certain allowances and reliefs to individuals to reduce their tax payable.

Liability for Employment Income

An individual is required to pay tax in Nigeria if they earn employment income from an employer in Nigeria, except if their work duties are entirely carried out and their remuneration paid outside of Nigeria. If their employment duties are partly or wholly performed in Nigeria, then tax is applicable, except under certain circumstances.

Tax Rates

Personal income tax rates are applied on a graduated scale, based on the taxable annual income. A non-taxable personal relief of 20% of income is applied to every individual, in addition to other non-taxable allowances. Due to these reliefs and tax-free allowances, the marginal tax rate is 19.2%. Income tax rates are as follows: 7% on the first N300,000, 11% on the next N300,000, 15% on the next N500,000, 19% on the next N500,000, 21% on the next N1,600,000, and 24% on anything above N3,200,000.

Petroleum Profits Tax

Withholding Tax (WHT)

Value Added Tax (VAT)

The Petroleum Profits Tax Act (PPTA) is the primary legislation that governs the taxation of companies engaged in upstream petroleum operations. The tax is levied on the profits earned by these companies, but not on risk service contractors and other oil and gas contractors. Petroleum companies are taxed at a rate of 85%, which is reduced to 65.75% during the first 5 years of operation. However, oil companies operating under a production sharing contract (PSC) are taxed at a lower rate of 50%.

WHT is a tax deduction made from payments on qualifying transactions and serves as an advance payment of income taxes. The remittance must be made to either the FIRS or the relevant SIRS within a certain time frame. WHT rates differ for various transactions and may be used as a tax credit against the corporate income tax liability of the company that incurred the WHT

VAT is charged at a flat rate of 5% on goods and services, except those that are exempted or zero-rated under the Act. VAT on purchases made by oil and gas companies and government agencies should be remitted directly to the FIRS. Non-resident companies only need to register for VAT using their local counterparty’s address and include the tax on their invoices. The local company should remit the VAT directly to the FIRS rather than paying it to the non-resident company.

Other Taxes Luxury taxes are additional charges imposed on luxury items such as private jets, yachts, luxury cars, champagnes, wines, spirits, and mansions. The import surcharges vary depending on the item being purchased, with private jets and yachts being subject to the highest import surcharges of 10% and 39%, respectively. Luxury cars are subject to a 5% import surcharge, while champagnes, wines, and spirits are subject to a 3% luxury surcharge. Additionally, there is a 1% Mansion Tax on residential properties with a value of N300 million and above in the Federal Capital Territory, Abuja.

Cabotage Levy

The Coastal and Inland Shipping (Cabotage) Act was enacted in Nigeria to promote the growth of domestic shipping by giving preference to indigenous players. Under this Act, vessels are assessed based on specific local content criteria, which improves their chances of executing contracts in Nigeria. Upon registration with the Nigerian Maritime Administration and Safety Agency (NIMASA), each vessel is required to pay a surcharge of 2% of the contract sum on any contract performed by the vessel. This surcharge is payable by the vessel owner.

Nigerian Content Development (NCD) Levy

The Nigerian Oil and Gas Content Development and Monitoring Board (NCDMB) is responsible for implementing the provisions of the Nigerian Oil and Gas Industry Content Development Act 2010 (Local Content Act) and monitoring compliance within the oil industry. The Act imposes a levy of 1% of the contract sum to be deducted at source from any contract awarded to any operator, contractor, subcontractor, alliance partner or any other entity in any project, operation, activity, or transaction in the upstream sector of the industry. Companies can increase their chances of obtaining contracts by having high local content ratings.

Nigerian Communications Commission (NCC) Levy

The Nigerian Communications Commission requires all network providers in the telecommunications industry to pay an Annual Operating Levy (AOL) of 2.5% of their annual income as well as a 2% levy on electronic gadgets. These regulations are intended to ensure that network providers contribute to the development of the telecommunications sector in Nigeria.

Taxation 3 Transfer Pricing (TP)

Tax Feature

Overview The Income Tax (Transfer Pricing) Regulations No 1, 2012 were created to establish guidelines for the taxation of intercompany transactions, particularly those between connected persons. These regulations set out the obligations of taxpayers regarding compliance and documentation for transfer pricing. Additionally, the regulations allow connected taxpayers to engage in Advance Pricing Agreements (APAs) with the Federal Inland Revenue Service (FIRS) or jointly with the competent authority of the taxpayer’s country of residence, provided there is a relevant treaty with a minimum annual transaction value of NGN250 million (about US$1,250 million).

Documentation Under Nigeria’s Transfer Pricing (TP) regulations, taxpayers must maintain relevant documentation that allows the Federal Inland Revenue Service (FIRS) to verify whether the pricing of controlled transactions is consistent with the arm’s length principle. The compliance documentation must be prepared in consideration of the complexity and volume of transactions involved. The TP legislation in Nigeria requires connected taxpayers to include a TP declaration form, a Disclosure form, and a Documentation report based on principles consistent with the OECD or UN guidelines in their documentation. Connected taxpayers must have a TP Documentation Report in place before the income tax return’s due date for the year in which the documented transactions occurred. Upon request, this documentation must be provided to the FIRS within 21 days.

Tax Incentives

The Nigerian government provides tax incentives and reliefs to both local and foreign investors to promote economic development, investment and reduce the burden of taxes. Tax incentives and reliefs are granted based on the nature, form, and size of the business.

Incentives for Agricultural Sector

Companies engaged in agricultural trade or business are not liable to minimum tax. They also enjoy tax exemption on the interest earned from agricultural loans, no restriction of capital allowance claimable for companies in the agro-allied business, and VAT exemption on tractors, ploughs and agricultural implements purchased for agricultural purposes.

Incentives for Energy Sector

Companies in the energy sector are offered incentives such as gas utilization incentive, tax-free period of 3 years which may be renewed for further 2 years or 35% investment allowance, additional investment allowance of 25% on plant and machinery, accelerated capital allowance after the tax-free period and tax-free dividends during the tax-free period.

Petroleum upstream operations also enjoy lower tax rates and graduated royalty rates to encourage offshore production, dividends distributed are not subject to withholding tax, petroleum investment allowance, and investment tax credits.

Incentives for Power Sector

Investors in power generating companies may enjoy a pioneer status incentive as well as gas utilization incentives such as exemption from VAT on plant and equipment acquired to generate electricity through the utilization of Nigerian gas, and exemption from import duties on plant and equipment imported to generate electricity through the utilization of Nigerian gas.

Incentives for Export Processing Zones

Export-oriented companies carrying on businesses in these zones, especially manufacturing companies, are granted tax incentives such as tax holiday from all federal, state, and local government taxes, customs duties, rates and levies arising from operations within the zones, waiver for import and export licenses, and tax and duty-free on raw materials and component goods imported for export.

Incentives for Foreign Capital Contribution

Companies with at least 25% foreign equity contribution are exempted from minimum tax provision. Interest on foreign loans received for business is exempt from taxes at different periods and graduated rates, and such loans must be brought in through Government Approved Channels (i.e. a Nigerian Bank) with a Certificate of Capital Importation processed in respect of the loan capital

Minimum Tax Exemptions

Companies that have made no taxable profits or made a profit less than the minimum tax will pay minimum taxes. Tax exemptions are available where the company has at least 25% foreign equity contribution, is engaged in agricultural trade or business manufacture, or within the first four calendar years of commencement of business.

Pioneer Status Incentives

Companies in certain industries are granted corporate income tax exemptions to encourage further development of the economy and promote business activities. The incentives are exemption of profits from company income taxes during the tax holiday, dividends distributed from profits made in the pioneer regime are exempted from withholding tax, and tax losses and capital allowances incurred during the pioneer period can be utilized against taxable profits after the pioneer period.

This guide has been prepared by PILLARCRAFT, independent member of Antea

PILLARCRAFT 15 Onikekpo Akande, Lekki Phase 1, Lagos State, Nigeria. Tel.: +23 48033219619 bayode.agbi@pillarcraft.com www.pillarcraft.com/

Mallorca, 260 àtic

08008 – Barcelona

Tel.: + 34 93 215 59 89

Fax: + 34 93 487 28 76

Email: info@antea-int.com www.antea-int.com

SETTING

UP BUSINESS IN NIGERIA

This publication is intended as general guide only. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This information should not be relied on as a substitute for such an advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, not Antea Alliance of Independent Firms neither its members accepts no responsibility for any errors or omission it may contain whether caused by negligence or otherwise, or forany losses, however caused, sustained by any person that relies upon it.

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