REGULATORY UPDATE: NIGERIA’S CARBON MARKET APPROACH

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By Aderonke Alex-Adedipe and Sharon Okpo

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Introduction

In a previous publication, we discussed the Africa Carbon Market Initiative (ACMI) which is geared towards initiating and scaling a carbon credit market across the continent. In furtherance of Nigeria’s commitment to the ACMI, the Federal Government passed the Climate Change Act of 2021 (the “Act”) into law and established the National Council on Climate Change (NCCC).

On June 24, 2023, the NCCC published a notice titled “Regulatory Guidance on Nigeria’s Carbon Market Approach” (“Publication”), wherein it emphasised its commitment to the global efforts to reduce emissions that contribute to climate change and made a proposal for appropriate governance framework and processes for the proper implementation of cooperation mechanisms under the Paris Agreement.

In this article, we highlight. the existing framework and structure of the voluntary carbon market and the proposed methods of achieving its commitment to the ACMI and the Paris Agreement as indicated in the Publication.

Provisions of the Paris Agreement on the Voluntary Carbon Market.
The Paris Agreement is an international treaty on climate change, adopted by 196 countries including Nigeria.

Article 6.2 of the Paris Agreement makes provisions for voluntary cooperation between and among contracting states/countries by enabling trade in mitigation outcomes to achieve emission reduction targets. The trade in mitigation outcomes allows for two contracting states to enter into an agreement whereby one party reduces carbon emission (in line with its Nationally Determined Contributions (NDC) to the reduction of carbon emissions) and transfers the credit gained from the reduction to the other party who then counts it towards its own NDC targets. This is usually followed by financial compensation paid by the receiving party. This is generally referred to as internationally transferred mitigation outcomes (ITMO) and can be executed by state actors or a private sector actor (to assist the country in meeting and/or exceeding its own NDC). This arrangement will be considered as an investment by the receiving party in the selling party to assist in various carbon projects. Consequently, the consideration received by the selling party must be channeled towards low-carbon projects in its state.

It is important to note that the ITMO sold will not be counted towards the selling party’s NDC, and the parties are required to make the necessary adjustments in their respective accounts towards the fulfilment of their individual NDC (“Corresponding Adjustments”).

  • Corresponding Adjustments

Article 6.2 of the Paris Agreement requires that contracting states shall apply robust accounting to ensure the avoidance of double counting. Corresponding Adjustments require that where countries enter into an arrangement for ITMO, the emission sold is not counted as mitigation by both countries.
Essentially, where a country purchases credits gained from emission reductions from another country, it is considered that such buying country has funded a mitigation project in the selling country, and as such, the emission reduction bought will be counted to its credit as having fulfilled part of its own NDC under the Paris Agreement. the selling country, and as such, the emission reduction bought will be counted to its credit as having fulfilled part of its own NDC under the Paris Agreement. The selling country, however, will have the emissions sold deducted from its ‘account’, and it will not be counted to its credit as having fulfilled its own NDC.

States are advised to develop proper accounting mechanisms to ensure that emission reductions are not counted twice. It is important to note that only Authorised Emissions Reductions (AERs), which are emissions sold by state actors, are subject to corresponding adjustments and the requirement to establish a double-entry book-keeping mechanism to ensure that the emissions are not claimed twice. Where the emissions, however, are sold by non-state/private sector actors (Mitigation Contribution Emissions Reductions- MCERs), they will not be subject to corresponding adjustments, as they are not subject to the accounting framework of the Paris Agreement. Where the MCER is however used by these non-state actors to comply with any national laws/regulations on carbon emission reduction, it will then be subject to the Paris Agreement’s accounting framework.

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DOING BUSINESS IN NIGERIA: UPDATE ON THE NIGERIAN FOREIGN EXCHANGE MARKET

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By: Seun Timi-Koleolu and Feyijuwa Akinyanmi

 

 

Introduction
On June 14, 2023, the Central Bank of Nigeria (“CBN”) issued a press release (“Press Release”) to authorized dealers and the general public, concerning changes to be implemented in the operation of the Nigerian Foreign Exchange Market (the “FX Market”). A key change reflected in the Press Release is the absorption of the different segments of the FX Market into the Investors and Exporters Window (“I&E Window”) and the re-introduction of the “Willing Buyer and Willing Seller” model in the I&E Window. These changes which became effective on the date of publication of Press Release, are in tandem with President Ahmed Bola Tinubu’s key economic policies which he announced during his inaugural ceremony on May 29,2023.

Our newsletter will give insights on the provisions of the Press Release and the major implications.

Major Provisions of the Press Release

1. Abolition of the segmentation in the Forex Market: By virtue of the Press Release, the CBN has abolished all other segments of the Forex Market excluding the I&E Window. These segments have now been absorbed by the I&E Window, which is by implication the official foreign exchange window in Nigeria.
Key segments abolished by the Press Release include windows through which the CBN intervened in the Forex Market to boost liquidity through the sale of foreign currency to authorized dealers for sale at the CBN’s official rates. These windows include the Secondary Market Intervention Sales (SMIS) Window (for entities such as importers of raw materials and machineries, entities involved in agriculture etc); the Invisibles window (this catered to individuals that required foreign exchange for Business and Personal Travel Allowances (BTA/PTA), school fees, hostel accommodation, maintenance allowance and medical expenses abroad) e.tc.

2. Re-instatement of the “Willing Buyer and Willing Seller” Model– By virtue of the abolishment of all other foreign exchange windows, entities that wish to purchase foreign currency are required to do so through the I&E Window. While, the participants, were previously required to sell foreign currency at the CBN rate, the CBN has announced that the foreign exchange rate at the I&E Window would be determined using the “Willing Buyer and Willing Seller” Model (the “Model”).

The Model, which was earlier introduced by the CBN in the year 2017 permits the buyer and seller of foreign currency to agree on an exchange rate. This implies that the rate of foreign exchange in the Forex market, would now be determined by market forces of demand and supply.

3. Abolition of the CBN’s Dollar Rebate Schemes– On March 5, 2021 and February 25, 2022 respectively, the CBN launched the: Naira4Dollar Remittance Scheme (which allowed for payment of N5 for every dollar remitted); and the RT200 Rebate Scheme. .

It is worthy of note that the CBN abolished these scheme, effective June 30, 2023, as they have become redundant. This is due to the fact that exporters of non-oil proceeds and other beneficiaries of the rebate scheme will no longer need to be persuaded to inflow their foreign currency into Nigeria in view of the Model.

Implications of the Press Release:

1. Foreign Exchange Market
With these changes, the foreign exchange rate will now be determined by the market forces of demand and supply. In view of this, it is expected that sellers and buyers of foreign currency will be encouraged to conduct their transactions through the Forex Market.
Please note, however, that only eligible foreign exchange transactions can be funded through the I&E Window. Examples of eligible transactions include Contract Service Fees (including consultancy fees, directors’ fees e.t.c.), profits and dividends, remuneration for expatriates, importation of visible goods (Form M) e.t.c.[1] Entities that intend to fund transactions that are ineligible for foreign exchange are still required to source for foreign currency outside the I&E Window[2].

2. Repatriation of Proceeds of Foreign Investment
It is advisable that foreign investors that wish to invest in the Nigerian market comply with the following as nothing in the Press Release abolishes these requirements:
a. all investments should be inflowed through an authorized dealer. Investors should and obtain a Certificate of Capital Importation evidencing the inflow; and
b. all technology transfer agreements should be registered with the National Office for Technology Acquisition and Promotion (NOTAP). Please see our newsletters on obtaining a CCI and registering technology Transfer Agreements here.
It is important to note that the foregoing would now be done to comply with regulatory obligations as the applicable rate for the purchase of foreign currency would be the prevailing market rate at the I&E Window.

Conclusion
The unification of the Forex Market and the introduction of the Model is a welcome development for foreign and local businesses in Nigeria. Over the years, a number of foreign investors have refrained from investing in the Nigerian market due to repatriation difficulties. It is expected that, the foregoing changes will encourage foreign investment, boost forex liquidity in the Nigerian market; ensure ease in repatriation for foreign investors; and encourage transparency.

1. Please see other examples in the CBN Foreign Exchange Manual, 2018
2. Please see some of the transactions ineligible for forex here

 

POWERING NIGERIA’S FUTURE: INTRODUCING THE ELECTRICITY ACT 2023

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By Aderonke Alex-Adedipe and Qasim Ogunjimi

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Introduction

Electricity is a necessity for any thriving economy. For several years, however, factors such as inadequate infrastructure, inefficient legal/regulatory frameworks, and limited private sector participation have impeded the availability of reliable and affordable electricity to millions of Nigerians. To tackle these challenges, the Nigerian government embarked on a comprehensive reform journey, starting with the amendment of the Constitution of the Federal Republic of Nigeria (as amended) (“Constitution“) to address key issues related to the generation, transmission, and distribution of electricity. These issues were discussed in our previous newsletter. Following the constitutional amendments, the enactment of the Electricity Act, 2023 (the “Act”), which repeals the Electricity and Power Sector Reform Act of 2005, marks the completion of the second phase of the reform process and sets the stage for a brighter and more sustainable future in the Nigerian power sector.

The development of the Act was driven by the overarching goal of transforming Nigeria’s power sector into a modern, efficient, and competitive industry. By doing so, the Government seeks to attract significant private sector investments, promote renewable energy deployment, expand access to electricity, and ensure fair and transparent regulations that protect consumer interests.

In this newsletter, we explore the key provisions and implications of the Act, highlighting the reforms aimed at promoting competition, attracting investment, and expanding access to reliable electricity across Nigeria. Additionally, we examine the investment opportunities, which local and foreign investors may explore within the sector.

WHAT ARE THE KEY FEATURES OF THE ACT AND THEIR IMPLICATIONS

The Act introduces a range of key features that aim to revolutionize Nigeria’s power sector. Some of these features are as follows:

  1. De-Monopolization of the Power Sector: The Act ensures the de-monopolization of Nigeria’s electricity generation, transmission, and distribution at the National level and empowers states, companies and individuals to generate, transmit and distribute electricity. These efforts allow for increased private sector participation, attracting new investors and promoting innovation in the sector. Under the Act, states can issue licenses to private investors who may operate mini-grids and power plants within the state. The Act however, precludes interstate and transnational electricity distribution. The licenses obtainable by private investors under the Act, include (i) generation licenses, (ii) transmission licenses, (iii) system operations licenses, (iv) trading licenses, and (v) distribution and supply licenses. These licenses enable private entities to participate in different aspects of the electricity value chain, promoting competition, and encouraging innovative solutions to meet the growing energy needs of Nigeria. It is noteworthy that any individual may construct, own, or operate an undertaking for generating electricity of a maximum of one megawatt in aggregate at a site, or an undertaking for distribution of electricity with a capacity not exceeding 100 kilowatts in aggregate at a site, without obtaining a licence.
  2. Focus on Renewable Energy and Sustainability: Recognizing the importance of clean energy sources and in pursuance of Nigeria’s commitment under the Paris Agreement, the Act prioritizes the development and utilization of renewable energy. The Act encourages the integration of renewable energy technologies into the existing grid system. Under the Act, electricity generation licensees are obligated to meet renewable energy generation obligations as may be prescribed by the Nigerian Electricity Regulatory Commission ( the “Commission”). The Act also introduces mechanisms to incentivize investment in renewable energy projects, such as feed-in tariffs -a policy that guarantees a fixed price for renewable electricity fed into the grid-and tax incentives. The focus on renewable energy and sustainability within the Act aligns with global efforts to mitigate climate change, reduce greenhouse gas emissions, and promote a sustainable energy sector.
  3. Strengthened Regulatory Bodies: The Act enhances the powers and independence of regulatory bodies overseeing the power sector. The Act not only strengthens the Commission’s authority to enforce compliance, regulate tariffs, and effectively resolve disputes within the sector but also provides for the delegation of regulatory authority to state regulators once they are constituted. As of date, Lagos, Edo, and Kaduna States have established their own power market regulations and it is expected that they will begin regulating their respective markets. However, in states where such regulations do not exist, the Commission will continue to fulfill its regulatory responsibilities. To ensure transparency and accountability, the Act establishes clear guidelines for the licensing, monitoring, and supervision of market participants. These guidelines provide a framework that prevents anti-competitive practices and ensures a level playing field for all players in the industry. In addition to empowering the Commission, the Act also establishes other specific bodies with distinct mandates. These bodies include the National Hydroelectric Power Producing Area Development Commission, the Rural Electrification Agency, the Nigerian Electricity Management Services Agency, and the National Power Training Institute of Nigeria.
  4. Rural Electrification: The Act recognizes the critical importance of extending electricity access to rural and underserved areas of Nigeria. To address this crucial aspect, the Act establishes the Rural Electrification Agency (the “Agency”) and tasks it with the responsibility of implementing rural electrification initiatives and bridging the electricity gap in remote and marginalized communities.
  5. Consumer Protection Measures: The Act places a strong emphasis on consumer rights and protection. It mandates the establishment of mechanisms to ensure fair pricing, accurate billing, and quality service delivery. Consumer complaint resolution processes are streamlined, providing avenues for consumers to seek redress and voice their concerns. While the recent Customer Protection Regulation, 2023 (the “Regulation”) by the Commission aligns with the consumer protection provisions of the Act, it is essential to modify the Regulation to ensure harmonization with the Act’s specific provisions.
  6. Tariff Regulations and Transparency: The Act introduces a transparent tariff-setting process, ensuring that electricity tariffs are reasonable, cost-reflective, and based on efficient cost structures. It mandates the publication of tariff methodologies, allowing consumers and stakeholders to understand the basis for tariff calculations. Tariff regulations aim to balance the financial viability of power providers with the affordability of electricity for consumers.

WHICH INVESTMENT OPPORTUNITIES ARE AVAILABLE?

With the objective of attracting both domestic and foreign investments, the Act presents attractive investment opportunities within Nigeria’s power sector, including:

  1. Renewable Energy Projects: Opportunities in solar, wind, hydroelectric, and biomass projects with incentives like feed-in tariffs and tax benefits.
  2. Power Generation: Private sector participation in conventional and renewable power generation through issuance of licenses.
  3. Transmission and Distribution Infrastructure: Investments in transmission lines, substations, distribution networks, and smart grid systems.
  4. Mini-grids and Off-grid Solutions: Establishing mini-grids and deploying off-grid solutions for remote areas.
  5. Manufacturing and Equipment Supply: Manufacturing and supplying electrical equipment, promoting local content and economic development.

To safeguard investors’ interests in the power sector, the Act guarantees asset protection, the right to sell or transfer a licensee’s undertaking in the event of revocation of licenses, or compensation in the event of any forceful takeover in the interest of national security. The Act also offers a range of incentives, like tax incentives, to investors in the power sector.

CONCLUSION

The Act marks a significant milestone in Nigeria’s power sector reform journey. With its comprehensive reforms, the Act sets the stage for a brighter and more sustainable future. It addresses the challenges of inadequate infrastructure, inefficient frameworks, and limited private sector participation, paving the way for improved electricity provision to millions of Nigerians.

As the Act comes into effect, it is crucial for stakeholders, investors, and industry players to familiarize themselves with its provisions, engage with regulatory bodies, and seize the opportunities it presents. Collaboration between the public and private sectors will be vital in driving the successful implementation of the Act and realizing its vision for a more efficient, reliable, and sustainable power sector.

 

REGULATORY UPDATE: KEY PROVISIONS OF THE NIGERIA FINANCE ACT  2023

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By Seun Timi-Koleolu and Nuratulahi Yishawu

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Introduction

In our previous article, we highlighted some key provisions of the Nigeria Finance Bill 2022 (the “Bill”). In a final move by former President Mohammadu Buhari, the Bill, now the Finance Act 2023 (the “Act”) was signed into law on May 28, 2023, just before his last day in office.

The Act amends the relevant tax, excises, and duty statutes in line with the macroeconomic policy reforms of the Federal Government. It also includes additional provisions in specific legislation in connection with the public financial management of the country[1].

The Act, which came into effect on the day it was signed, brings forth significant tax changes which will impact various sectors of the Nigerian economy.

In this article, we have highlighted some of the key provisions of the Act.

1. Taxation of gains on the disposal of digital assets: Disposal of digital assets such as cryptocurrency will now be subject to a Capital Gains Tax (“CGT”) rate of 10%. This move aims to capture the growing digital asset market and ensure that taxes are appropriately levied on gains derived from these transactions. It is expected that further directives and guidelines on compliance by individuals and companies will be issued by the relevant authorities.

2. Set-off of losses: Losses incurred on assets subject to CGT can now be carried forward for a maximum of 5 years. This provision allows individuals and businesses to offset future gains against their previous losses on the same type of asset(s), providing some relief in taxable income.

3. Removal of investment allowance: The investment allowance on plant and equipment under the Companies Income Tax Act has now been removed. This change implies that businesses will no longer enjoy a specific allowance for investments made in plant and equipment, potentially impacting the decision-making process for capital expenditures.

4. Import levy: A new levy of 0.5% has been imposed on goods imported into Nigeria from outside Africa. This is in addition to existing customs duties and other applicable charges. It is stated that this duty will be used to finance capital contributions subscriptions, and other financial obligations to multilateral institutions like the African Union, African Development Bank e.t.c.

5. Payment of excise tax: All services, including telecommunication services, are now liable to excise tax at rates to be prescribed by the President. This expansion of the excise tax base brings more services under the tax net and is expected to generate additional revenue for the government.
6. Distribution of the Electronic Money Transfer (“EMT”) levy: A one-off levy of ₦50 (≈$0.11) which is imposed on the account which receives a transfer of ₦10,000 (≈$21.64) or above will now be shared between the various tiers of government at the rate of- Federal Government (15%), State Governments (35%).

7. Transfer pricing: Transfer pricing rules will now apply to Value Added Tax (“VAT”) on transactions between connected persons that are deemed artificial or fictitious. This measure seeks to prevent the manipulation of prices and transfer of profits between related entities to minimize tax obligations. For a better understanding of transfer pricing rules, please see our article here.

8. Remittance of VAT: Persons or companies appointed by the Federal Inland Revenue Service (“FIRS”) to withhold or collect tax must now remit the VAT to the FIRS on or before the 14th day of the following month. This provision enhances the efficiency of VAT collection and helps ensure timely remittance to the tax authorities.

9. Goods purchased via digital platforms: Taxable goods purchased online from non-resident suppliers that have been appointed as agents of the FIRS will not be further subjected to VAT, where the importer provides proof of appointment and registration with the FIRS, before clearing by the Nigerian Customs Service. This change helps address the challenges of taxing digital transactions and ensures that VAT is properly collected.

10. Permanently fixed structures: The definition of a building for VAT purposes has been redefined to exclude any structure not permanently affixed to land for all or most of its useful life. Radio and television masts, transmission lines, towers, and vehicles have been excluded. This clarification prevents the unwarranted application of VAT to temporary structures or assets that do not meet the specified criteria.

11. Increase of Tertiary Education Tax (“EDT”): The EDT rate has been increased from 2.5% to 3% of assessable profits. This change aims to generate additional funding for the country’s tertiary education institutions and support the development of the education sector.

12. Penalties under the Petroleum Profit Tax (“PPT”): Companies that do not comply with the provisions of the PPT Act will now face an increased penalty. In the absence of any specific penalty, such companies will be required to pay a penalty of N10,000,000 (≈$21,645) and an additional N2,000,000 (≈$4,329) for each day the non-compliance continues. Furthermore, a company (or persons) found guilty of an offence under the PPT Act, will be subject to a fine of N20,000,000 (≈$43,290) and/or a prison term of six months. In cases where the company has submitted inaccurate account statements or information that impacts its tax liability, it will be liable to pay a fine of N15,000,000 (≈ $32,467) and 1% of the amount of tax that was undercharged.

13. Establishment of Governing and Administrative Bodies: The Finance Act 2023 provides for the establishment of a Governing Council, Executive Board, and Management Team for the Ministry of Finance Incorporated- a corporation sole established by the Ministry of Finance Incorporated Act. They and the Minister of Finance are responsible for the administration, strategic direction and day-to-day management of the Ministry of Finance Incorporated.

Conclusion

Overall, the Finance Act 2023 introduces significant amendments to Nigeria’s tax landscape. It is therefore crucial for individuals, businesses, and professionals to familiarize themselves with the new provisions and seek appropriate guidance to comply with the updated tax regulations.

[1] Capital Gain Tax Act, Companies Income Tax Act, Customs and Excise Tariffs Etc. (Consolidated) Act, Personal Income Tax Act, Petroleum Profit Tax, Stamp Duties Act, Value Added Tax Act, Corrupt Practices and other related Offences Act, Tertiary Education Trust Fund (Establishment) Act, Public Procurement Act, and Ministry of Finance (Incorporated) Act.

 

DOING BUSINESS IN NIGERIA: KEY ECONOMIC POLICIES OF THE NEW PRESIDENT OF THE FEDERAL REPUBLIC OF NIGERIA

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By: Aderonke Alex-Adedipe and Feyijuwa Akinyanmi

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Introduction
From the year 2011 to 2020[1] , Nigeria was consistently ranked poorly out of about 190 countries in the World Bank’s Ease of Doing Business Rankings, with average or less than average doing business scores.
In its efforts towards creating an enabling environment for Micro, Small, and Medium Enterprises as well as Foreign Direct Investments to thrive, the immediate past administration of the Federal Government of Nigeria developed initiatives such as: i) the establishment of the Presidential Enabling Business Environment Council (PEBEC); ii)enactment of laws including the Business Facilitation Act, 2022, the Companies and Allied Matters Act, 2020 (“CAMA”), the Nigerian Startup Act, 2022 and other notable laws and regulations; iii) the introduction of a Tax Administration Solution (TaxPro-Max) etc.

Despite the foregoing, there still leaves much to be desired as Nigeria’s progress gives credence to the idiom “one step forward and two steps backward’’. This is especially the case with respect to the unavailability of foreign currency, the country’s foreign exchange policies, taxation regimes and difficulties in obtaining regulatory licenses and permits, all of which have made operating in the Nigerian market unsavory.

On May 29, 2023, Mr. Bola Ahmed Tinubu (the “President”) was sworn into power as the 16th President of the Federal Republic of Nigeria. During the inaugural ceremony, the President highlighted the Key Economic Policies of his tenure, which if adhered to, will largely promote ease of doing business in Nigeria and encourage investment in the Nigerian market. This newsletter briefly highlights the Key Economic Principles of the President, possible effects for the business environment and the process of setting up a business in Nigeria.

The President’s Key Economic Principles
1. Foreign Exchange– the President has now mandated the Central Bank of Nigeria to achieve a unified foreign exchange rate. If achieved, this will abolish the arbitrage within the foreign exchange parallel market and effectively reduce the foreign exchange rates.

2. Repatriation– ordinarily, the Nigerian Investment Promotion Commission Act guarantees foreign investors the unrestricted transferability of their capital and proceeds of investment through an authorized dealer (commercial banks) in freely convertible currency. However, in recent times, this has not been the case due to the pressure on the exchange rate which has led to the shortage of foreign currency. This has led to capital flight and deterred further investment in the Nigerian market.
To resolve this vital issue, the President highlighted his commitment to ensuring that foreign investors (foreign direct investment (“FDI”) or foreign portfolio investment) are able to repatriate their hard-earned dividends and profits.

3. Taxation-the President undertook to receive and review all complaints on multiple taxation and other anti-investment inhibitions. In the past, major complaints have been made concerning the number of taxes introduced within the last decade such as the Information Technology Levy, the Police Trust Fund Levy, the Banking Sector Resolution Fund levy etc. There have also been complaints on multiple taxation by the different tiers of government such as value added tax and consumption tax; and

4. Electricity– the President promised to ensure the accessibility and affordability of electricity in Nigeria. In line with the 5th amendment to the Constitution of the Federal Republic of Nigeria, 1999, he also promised to encourage states to develop local sources of electricity.

Prior to the amendment, the states governments were only permitted to make laws for the generation, transmission and distribution of electricity to areas not covered a national grid system within the state. Due to the ambiguity of the provision, the federal government assumed monopoly of power generation, transmission and distribution in the country. Unfortunately, the federal government despite its efforts, has been unable to ensure the country’s access to power supply. This is a major source of problem for both local and foreign investors, especially the manufacturing industry as they have to rely on alternative sources of electricity which increases the cost of production.

In view of the constitutional amendment and the commitment of the President, it is hoped that states will (in collaboration with players in the private sector), venture into the power sector to aid the reduction of electricity and increase accessibility.
The President’s inaugural speech presents a beacon of hope for businesses in Nigeria and foreign investors that wish to operate in the Nigerian market. Reportedly, many analysts argue that the President’s agenda seeks to tackle challenges of economic growth and will lead to an influx of FDI into the country, given its several business opportunities.
In view of the foregoing, this article briefly highlights the requirements for foreigners who may be interested in investing and commencing business in the Nigerian business environment.

Procedure for establishing a business in Nigeria
1. Registration of a Business Entity– persons or entities that intend to conduct business in Nigeria are required to register a business entity with the Corporate Affairs Commission (“CAC”). CAMA provides for the following business vehicles: a) limited liability companies (this can be either public or private); b) Unlimited liability companies; c) companies limited by guaranty; d) limited liability partnerships; e) limited partnerships; f) and a registered business name. The most common business vehicle used by foreign investors in conducting business in Nigeria is a private limited liability company. Private limited liability companies with foreign shareholders are required to have a minimum issued share capital of N10 million.
Foreign investors are also permitted to own 100% of the shares in the company unless they operate in specific sectors such as oil and gas, aviation, etc, which require local ownership and control.

2. Registration with the Nigerian Investment Promotion Commission (“NIPC”) – Nigerian companies with foreign shareholders are required to be registered with the NIPC and obtain a business registration certificate to commence business operations in Nigeria.

3. Obtaining a Business Permit– Companies with foreign shareholders are required to obtain a business permit from the Federal Ministry of Interior prior to conducting any business in Nigeria. The certificate remains valid for as long as the company’s operations do not violate Nigerian law.

4. Registration with the Federal Inland Revenue Service (“FIRS”)– Although companies are given a Tax Identification Number upon registration at the CAC, newly registered companies are required to visit the FIRS to update their profile and obtain a Value Added Tax clearance certificate.

5. Obtaining a Certificate of Capital Importation (“CCI”)– Investors intending to import capital into Nigeria are required to obtain a CCI from their commercial bank to enable them gain access to foreign currency at the official rate for the repatriation of capital and profits. The CCI will be obtained after the inflow of the funds through an authorized dealer (commercial bank). Please see our article on obtaining a CCI

6. Registration of Intellectual Property– Companies can register their names, logos, inventions and designs with the Trademarks, Patents and Designs Registry. Please see our article for information on the requirements and procedure for the registration of trademarks in Nigeria.

7. Employment of Staff– Companies that intend to employ foreign nationals are required to obtain an expatriate quota for the position which the foreign national is to occupy. An application for expatriate quota is granted by the Comptroller General. The application must justify the company’s requirement of expatriates for the specified positions and disclose the plans of company to employ and train Nigerians who will understudy the foreign experts for the purpose of the eventual take-over of the expatriate quota positions.

An expatriate quota is valid for a period of 3 years and renewable biennially within a life span of 7 (seven) years.

8. Obtaining Special permits and licenses-Companies operating in an industry must inquire about the licenses and permits required for conducting business and the primary regulatory authority for such industries. Examples of regulatory authorities include the Central Bank of Nigeria (for banking and other financial institutions), the National Insurance Commission (for insurance companies), the Nigerian Upstream Petroleum Regulatory Commission (for companies conducting business in the oil and gas upstream sector) etc.

 

[1] The World Bank’s Ease of Doing Business Rankings was discontinued after the year 2020.