Foreign Investment and Participation In Business In Nigeria

Foreign Investment and Participation In Business In Nigeria
Foreigners willing to do businesses in Nigeria can do so. All foreign companies intending to do business in Nigeria are to register as a Nigerian company. See S. 54 of CAMA.
Foreigners can own  any business except those in the Negative List which are:

1. Production of arms and ammunition
2. Production of military and paramilitary wears
3. Production of narcotics
4. Participation in coastal and inland shipping

See S. 17 of the NIPC Act
Modes or categories of alien participation in business in Nigeria are:

1. Unregistered exempted companies. See S. 56 and 54 of CAMA. Companies exempted from registration under s.54 CAMA and they carry on business as unregistered companies in Nigeria.
2. Portfolio Investment (PI). Investors having shares in a Nigerian company. See S. 26 Foreign Exchange Monitoring Act.
3. Foreign Direct Investment. (FDI )Investors who bring in foreign currencies to do business in Nigeria.

Legal Framework to be Complied with by Foreign Investors are:

1. The Companies and Allied-Matters Act
2. Investment and Securities Act 2007
3. Nigerian Investment Promotion Commission Act
4. Immigration Act
5. Foreign Exchange(Monitoring) Act
6. Companies Income Tax Act
7. Industrial development( Income Relief) Act
8. National Office of Technology Acquisition Promotion Act

Legal Implication of an Unregistered Company without Exemption.
An unregistered foreign company cannot set up an office in Nigeria to do business but can merely receive correspondence and appoint agent to be receiving correspondence on its behalf. S. 54, 56 CAMA

A foreign company can sue or be sued in Nigeria in its name. See S. 60 CAMA and RITZ PUMEM FABRIK & CO KG V.TECHNO CONTINENTAL ENGINEERING NIG. LTD where the plaintiff was a German company which supplied machinery to the Nigeria company which refused to pay. MRS OLOFU CO. LTD V. WALKERMAN SINGAPORE.
Exempted companies
These are foreign companies which ordinarily should register but which based on certain criteria set out under s.54 CAMA are exempted from registration under s.54 CAMA and thus carry on as unregistered companies in Nigeria. To be an exempted company, an application for exemption is to be made to the President through the Secretary to the Federal Government. The Federal Executive Council considers the application and upon its recommendation the President approves and issues the Exemption Orders for a fixed time.The approval can be revoke if in the opinion of the president the company has contravened or fail to fulfilled any condition of the exemption or for any good and sufficient reason.
The class of foreign companies qualified for exemptions are:

1. Foreign government-owned companies engaged solely in export promotion activities. S.56 CAMA.
2. Engineering consultants and technical experts engaged on any individual specialist project under contract with any of the government in the Federation or their agencies with any other body or person, where such contract has been approved by the Federal Government.S.56 (1)(d) CAMA. Foreign companies invited to carry out specific loan project for donor countries or international bodies
3. Foreign companies invited to Nigeria by or on the approval of Federal Government to execute any specified individual project. See S. 56(1) (a) of CAMA.
4. Foreign companies which are in Nigeria for the execution of specific individual loan projects on behalf of a donor country or international Organisation. S. 56(1) (b) CAMA

Legal status of an exempted company
An exempted foreign company has the status of an unregistered company s.57, 58 CAMA. However it is obliged to file Annual Returns with the Corporate Affairs Commission. See S. 57 of CAMA

• The effect is that the company is exempted from payment of all company taxes.

Packaging the Application for Exemption S.56(2) CAMA
An application shall be in writing address to the Secretary to the Secretary to the Government of the federation and shall set out:

1. The name and place of business of foreign company outside Nigeria.
2. The name and place of business of foreign company in Nigeria.
3. The name and address of each director, partner or other principal officer of the foreign company
4. A certified copy of the charter, status and status or memorandum and articles of association of the company
5. The name and address of persons authorized to accept on behalf of the company process
6. The business or proposed business business in Nigeria of the foreign company and the duration of such business.
7. Particulars of any project previously carried out by the company as an exempted foreign company

Steps towards establishing a Nigerian company with foreign participation(FDI):

1. Prepare a Joint Venture Agreement if any
2. Incorporate the company with CAC and obtain certificate of incorporation
3. Importation of capital through an Authorised Dealer (Approved Bank) and obtain Certificate of Capital Importation.
4. Register the Company with Nigeria Investment Promotion Commission accompanied with relevant documents.
5. Apply to SEC for registration of interest of foreigner in the shares of the company
6. Obtain relevant permits from the relevant Regulatory Agencies
7. Apply to obtain relevant incentives and Reliefs available for foreign investors in Nigeria

Steps towards acquisition of shares of a Nigerian company by foreign investor (Portfolio Investment)

1. Application for allotment of shares by the foreign investor to the Nigeria Company directly at primary market
2. Approval of allotment of share by the Board of Directors of the foreign Investor.
3. Importation of the capital through an authorized dealer and obtain certificate of capital importationissued by CBN and pay for the shares
4. Obtain shares certificates from the company’s Registrar, enlist the shares at the Central Securities Clearing System and obtain statements of stock holding
5. Apply to SEC for registration of security

The procedure for registration with the Nigerian Investment Promotion Commission is as follows:

1. Pay application fees of N10, 000.00 to the Commission
2. Fill and submit NIPC Form 1-Application for Registration
3. Attach the following documents with the NIPC Form 1:
4. 2 copies of receipt of payment of application fee
5. Receipt of payment of stamp duty on Form CAC 2

• CTC of the Certificate of Incorporation of the applicant company

1. CTC of the Memorandum and Articles of Association
2. The Joint-Venture agreement if the applicant company was formed with a Nigerian
3. Evidence of title deeds to land to show firm commitment to do business in Nigeria

• Feasibility report and project implementation programme of the proposedbusiness
• Tax clearance certificate of the applicant company

1. The training programme for Nigerian staff or personnel policy of the company
2. Particulars of Directors including “Non-resident” directors marked as “NRD”
3. Job title descriptions of expatriates and the qualifications

• Evidence of capital importation- Certificate of Capital Importation if any
• Information brochure of the foreign partner

4. After the submission of the NIPC Form 1, the Commission will register the applicant company within 14 days of the receipt of the application.

The functions of the Nigerian Investment Promotion Commission (NIPC) in foreign investment are:

1. To register all foreign investors/companies in Nigeria
2. To promote both local and foreign investments in Nigeria
3. To introduce the incentives/reliefs to foreign investors
4. To act as a liaison between foreign investors and the Government

See S. 4 of the NIPC Act.
Advantages of using the Certificate of Capital Importation (CCI) are:

1. It enables the opening of foreign currency domiciliary accounts with Banks in Nigeria
2. Buy shares in any Nigerian companies out of the naira account
3. It aids the repatriation of capital, dividends and incomes at the autonomous market rates without taxes being paid. See S. 24 of the NIPC Act.

Immigration requirements to be fulfilled by foreign investors
A foreigner must obtain the following in order to do business in Nigeria as follows:

1. Visa: This is a permit to enable a foreigner to enter a country. Cable Visa can be issued by the Comptroller-General of Immigration and it is subject to regularization, which is it is to be changed to residence permit within 3 months of its issue. Aliens after obtaining a visa into Nigeria are to convert it into CERPAC- Combined Expatriate Residence Permit and Alien Card within 56 days. The exceptions to holding a CERPAC are the Diplomatic convoy, Children below 15 years of age and ECOWAS citizens                                                                                                        Expatriate Quota: It is the duty of the Company employing a foreigner to obtain the expatriate quota.The expatriate quota may be:
2. Permanent until reviewed(PUR) issued to the Chairman/Managing Directors of the company
3. Temporary granted for a minimum of 5 years renewable for 2 years. S. 34 of the Immigration Act

Residence Permit
Business Permit: It is the company employing a foreigner that is to apply for it. It is issued by the Director of Immigration or the Citizenship and Business Department of Immigration
Services. See S. 8-10 of the Immigration Act and OILFIELD SUPPLY CENTRE LTD V. JOSEPH LLYOD JOHNSON where the Court held that the failure to obtain the permits which is a deportation Order cannot be used as a defence to evade lawful contract between a company and a foreigner, it cannot void the contract. ACRONYM: VERB
Other Legal regimes to be complied with by a foreign company/investor

• The Industrial Inspectorate Act: Under it, all machinery to be imported into Nigeria must be approved. The application for the approval is to be directed to the Director of Industrial Inspectorate.
• National Office of Technology Acquisition and Promotion Act (NOTAP Act): Any foreigner in an agreement to transfer technology to an agent in Nigeria must register with NOTAP.

The Contracts registrable under the Act are:

1. Grant of license to use Invention and trade mark of a foreign company
2. Importation of technological gadgets etc
3. Supply of machinery and plant
4. Provision of operating Staff and training personnel
5. Supply of basic or detailed engineering

See S. 4(d) of NOTAP Act
The principal function of NOTAP is to monitor continuously the execution of contracts and agreements so registered under it. See S. 4 of NOTAP Act. Upon registration with NOTAP, a Certificate of Registration is issued.
See S. 6(1) of NOTAP Act.
The Office may refuse the application for registration based on the following grounds:

1. That the technology is readily available in Nigeria
2. The price of the technology is not commensurate with market prices
3. There is a term of the contract permitting the supplier to regulate or intervene directly in its execution which is unnecessary etc

See S. 6 (2) of NOTAP Act
The effects of non-registration of such contracts registrable with NOTAP are:

1. It does not void the contract
2. Repatriation of fees and profits cannot be done through the CBN except it submits the Certificate of Registration with NOTAP.

See S. 7of the NOTAP Act.
NB: the agreement is to be registered within 60 days of its making.
Incentives / reliefs to foreign investors in Nigeria are:

1. Acquisition of a foreign company by Nigeria is attended with the payment of adequate compensation. Generally, no foreign enterprise shall be nationalized by the Federal Government unless it is in the public or National interest. The compensation must be paid if a foreign company is expropriated and the foreigner can access the Courts as to the quantum of compensation to be paid. The compensation is to be paid promptly and in foreign exchange. See S. 25(3) of the NIPC Act.
2. Pioneer Status Certificate: This is issued to exempt a company from payment of taxes for 3-5 years by the NIPC.

The conditions for its grant are that:

1. The company’s business is listed as a pioneer company under the Industrial Development (Income Tax Relief) Act 2004
2. The business is carried on a scale suitable to the economic development of Nigeria

• Its capital is not less than N50, 000 for local/indigenous controlled companies or N150, 000 for any other company.

1. it is carried out as a low-key company
2. There are favourable prospects for further developments in Nigeria of such industry. See S. 1 of the Act.

1. Double Taxation Treaties: This works if a Nigerian foreign company’s country has a double Taxation Treaty with Nigeria, the foreign Nigerian company is exempted from taxation provided its parent company abroad has paid its tax. See S. 33 of the Companies Income Tax Act
2. Duty draw back/ suspension scheme: Here importers of raw materials and other materials used in the manufacture of goods for export are entitled to claim the import duties earlier paid and the import duties will be refunded provided the manufactured goods are solely for export.
3. Reconstruction Investment allowance: 10 % of the actual expenditure incurred by a company on installation of plants and equipment are allowed and exempted from tax. See S. 32 of the Companies Income Tax Act.
4. Repatriation of all (100 %) capital imported without seizure is guaranteed to foreign investors. See S. 14(4) of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act.
5. Tax exemption: Here a company or person is completely free or partially excluded from payment of taxes as follows:

The exportation of goods and raw materials is exempted from payment of tax provided the proceeds are repatriated to Nigeria and used in the purchase of raw materials, plants etc. see S. 23 of the Companies Income Tax Act.

1. The profits of a 100 % export oriented manufacturing companies are exempted from payment of tax.
2. The interests on domiciliary accounts are not taxable

• The profits of companies involved in educational promotion and stationary are tax free.

1. Interests on foreign loan for agricultural business, fabrication of local plant etc are not taxable.
2. Investment tax credit: 15 % of a company’s income is allowed for a company that purchases/uses locally manufactured plant, machinery etc for its business. See S. 26 of the Companies Income Tax Act.
3. Petroleum Investment Allowances: 50 % of the income and profits are non-taxable for companies doing petroleum exploration.
4. Bonus for filing of Annual Returns on time: 1 % bonus is allowed for companies complying with early payment of tax by FIRS. See S. 57 of CAMA.
5. Tax exemption for company’s utilization of gas: There is 3 years tax free period which is renewable for 2 more years. See S. 39 of the Companies Income Tax Act and S. 4 of the Petroleum Profits Tax Act.
6. Rural Investment Allowance: This incentive is granted if a company establishes or provide electricity, water and road in rural areas of about 20 km away from such facilities. The allowances depend on the facility so provided as follows:
7. Electricity- 50% of the capital expended is free from tax
8. Water- 30 %

• Road- 15 %.

See S. 34 of the Companies Income Tax Act.

13. Export Free Zone Allowance (Onne and Calabar): The profits of export oriented businesses are given 100% tax exemption. No payments of import / export duties or permits are needed in export free Zones.

The conditions to be fulfilled for its grant are:

1. It is a new business
2. The business uses new plants and machinery
3. The export proceeds is solely up to 75 % of its turn over
4. The business is registered with the National Export Promotion Commission.

See S. 35 of the Companies Income Tax Act. 
The ECOWAS trade liberalization Scheme
The citizens of the member-States of ECOWAS- Economic Community of West African States- are exempted from payment of duties and taxes on the importation or exportation of persons/ product across the borders of a member State. Also, Visa is not needed before a citizen of a member State enters into the territory of another member State but an ECOWAS passport is needed. However, a citizen of an ECOWAS country wishing to do business in another member country is to obtain a Business and Residence permits within 3 months of his entry.