Renewable Energy: Requirements to Operate a Solar Business in Nigeria

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BY SEUN TIMI-KOLEOLU AND PROMISE ITAH

Introduction

Renewable energy is rapidly transforming the global power landscape, with solar energy emerging as a key solution to electricity challenges. In Nigeria, where millions of homes and businesses face unreliable power supply, the demand for alternative energy sources has surged. Among other renewable energy sources — such as hydropower, wind energy, and geothermal energy—there is a rapid and growing reliance on solar energy, which presents immense opportunities for businesses looking to provide sustainable power solutions. It is therefore essential, in order to navigate this expanding market in Nigeria, for businesses to understand the legal and regulatory framework governing operations in the solar energy sector.

In this newsletter, we highlight key regulatory considerations to operate a solar energy business in Nigerian.

Key Regulatory Considerations

For businesses looking to set up operations in Nigeria, the following key requirements must be met:

1. Business Registration

All businesses must first register with the Corporate Affairs Commission (CAC) to legally operate in Nigeria. This process includes choosing a name, submitting necessary documentation, and paying registration fees. The CAC issues a certificate evidencing registration, which is required to open a business bank account and for various other regulatory processes. For other considerations on business registration and available business structures, please see our newsletter on Frequently Asked Questions (FAQ) here. For foreigners intending to set up business in Nigeria, please see our newsletter providing guidance here.

2. Importer/Exporter Number from Nigerian Customs Service

To import or export solar products, businesses must register with the Nigerian Customs Service (NCS) and obtain an Importer/Exporter Number (IEN). This number is essential for proper documentation and clearance of goods through Nigerian ports.

Required documents to accompany application for registration with the NCS include: Certificate of Incorporation, Tax Identification Number (TIN) from the Federal Inland Revenue Service (FIRS), Bank Reference Letter, Identification of business owners or directors, and Company contact information.

The process typically takes 1-2 weeks, and the applicable fees may vary.

3. Standards Organisation of Nigeria Certification for Solar Products

Solar products must undergo certification by the Standards Organisation of Nigeria (SON) through the SON Conformity Assessment Programmes. This ensures the products meet local quality and safety standards.

Certifications:

· Mandatory Conformity Assessment Programme (MANCAP): This is a quality assurance initiative established by SON to ensure that locally manufactured products meet the required quality and safety standards before introducing the product to the market. A MANCAP certificate and MANCAP logo is issued to a manufacturer by SON upon application, after formal inspection and product testing have been conducted by SON. A MANCAP certificate is valid for three years, after which the product will have to undergo recertification.

Required Documents for SON Registration include CAC certificate, picture of the product, power of attorney (if you are an importer), manufacturer’s agreement (if you are an importer), trademark certificate (if you have a brand name).

Fees and timelines vary based on product type and completeness of documentation.

· Product Certificate: For products to be imported into Nigeria, the first step to certification with SON in Nigeria is obtaining the product certificate from the manufacturing country. The product certificate confirms that the product meets the required quality standards. It contains information relating to the product, the testing and details of the product manufacturer.

· SON Conformity Assessment Programme (SONCAP): Upon arrival in Nigeria, imported products must be registered with SON. When the registration of the product is completed and successful, a SONCAP Certificate will be issued to confirm compliance with the required quality and safety standards.

Required Documents for SON Registration include: duly completed application form, valid product certificate, company certificate of incorporation, photographs of the product, manufacturer’s agreement, trademark certificate (if applicable), list of items to be imported and sample proforma invoice.

The SONCAP certificate is issued after product inspection and payment of fees. Fees and timelines vary based on product type and completeness of documentation.

4. Generating Set Import Clearance from the Nigerian Electricity Regulatory Commission

To be able to import solar-powered generators, clearance certificate must be obtained from Nigerian Electricity Regulatory Commission (NERC). The clearance certificate is valid for six months and can be renewed upon payment of renewal fees.

Required information and documents for obtaining the clearance certificate include: name of applicant and quantity of generators to be imported; noise level (not more than 35Db) and pollution control; make of generators as well as the technical and environmental rating, purpose of importation; country of origin and capacity of the generator; copy of the Certificate of Incorporation; three years Tax Clearance Certificate; Value Added Tax registration certificate, commercial invoice/proforma invoice; SONCAP Certificate; and proof of conformity with extant environmental regulations (emissions, noise etc).

The associated fees are dependent on the size (kVA) of the generating set. The timeline for the issuance of the clearance certificate is dependent on the availability of the required documents and NERC’s satisfaction with the application.

Other Regulatory Considerations

In addition to the key regulatory considerations outlined above, other regulatory factors to be considered include:

· Import Duty and Tariffs: While solar panels are exempt from import duties, other solar energy products may be subject to duties unless exempted.

· Customs Clearance: Imported solar products must undergo clearance at Nigerian ports. Documents required for customs clearance include Bill of Lading, Commercial Invoice, Certificate of Origin, and Packing List.

· Environmental Impact Assessment (EIA): For large-scale solar projects, an EIA must be obtained from the National Environmental Standards and Regulations Enforcement Agency (NESREA).

· Electrical Safety and Installation Standards: Businesses engaging in the installation and maintenance of solar energy products must have a qualified engineer who will oversee solar installations to ensure compliance with safety regulations.

· Electricity Licensing: NERC license must be obtained before businesses can generate solar power exceeding 1 MW.

Conclusion

As solar energy becomes a key solution to Nigeria’s power challenges, businesses in the sector must navigate essential regulatory requirements. By understanding and adhering to these legal frameworks, businesses can effectively tap into the potential of the solar energy sector and contribute to a sustainable energy future. The foregoing is, however, not exhaustive, and it is advised that businesses stay up to date on regulatory and compliance requirements for their operations.

Tax Reforms: Guidelines on Advance Pricing Agreements in Nigeria

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BY ADERONKE ALEX-ADEDIPE AND EBIKENIYE BEST

Tax Reforms – Guidelines on Advance Pricing Agreements in Nigeria

Introduction

On November 27, 2024, the Federal Inland Revenue Service (FIRS) issued the Guidelines on Advance Pricing Agreements (“the Guidelines”) pursuant to Section 8(1)(u) of the FIRS (Establishment) Act, 2007 and Regulation 9(12) of the Income Tax (Transfer Pricing) Regulations, 2018 to clarify the procedures and conditions for obtaining APAs, thereby enhancing tax compliance and reduce transfer pricing disputes.

In this newsletter, we have highlighted some of the key provisions of the Guidelines.

What is an Advance Pricing Agreement (APA)?

An APA is a formal agreement between a taxpayer and the tax authority that establishes the transfer pricing methodology, defines relevant comparables, and specifies any necessary adjustments for future transactions between the taxpayer and related parties. The purpose of the APA is to determine the transfer prices for future transactions in compliance with the Arm’s Length Principle, for a fixed period[1], based on the fulfillment of the agreed terms and conditions.

What are the types of APA?

As indicated in the Guidelines, an APA may be unilateral, bilateral or multilateral.

Unilateral APA – this is an agreement between the FIRS and a taxpayer concerning the transfer pricing of related -party transactions.

Bilateral APA – this involves the FIRS, a taxpayer, its connected person(s) resident in a foreign country and the competent tax authority in that country.

Multilateral APA – this involves the FIRS, a taxpayer, its connected persons resident in two or more countries and the competent tax authorities in those countries.

What are the eligibility criteria and threshold for an APA application?

To be eligible to apply for an APA, a taxpayer must be a resident or a non-resident company that has a taxable presence in Nigeria and the commercial transactions that have occurred or contemplated must meet the following minimum thresholds:

  1. Single Transaction – the equivalent of $10 million for each commercial transaction in each year; or
  2. Group Transactions: the equivalent of $50 million in the case of a group of commercial transactions (group of transactions) in each year.

What is the application process and costs?

Taxpayers who meet the eligibility criteria are required to begin the application process by submitting a proposal for an APA to the FIRS. Once the proposal is submitted, the application proceeds through the following stages:

Stage 1: Pre-filing Meeting

A mandatory pre-filing meeting must be held at least 30 days after the submission of the APA proposal, between FIRS and the applicant. The purpose of this meeting is to discuss the feasibility of a successful APA and to address key issues such as the nature and scope of the proposed APA, the transfer pricing method to be used, and any other relevant matters. This meeting must take place before the formal APA application is submitted.

Stage 2: Formal Application

Where the FIRS agrees that the APA is feasible, the taxpayer can proceed with the formal application within the agreed timeline. This application must be comprehensive, outlining the type of APA sought, the entities involved in the commercial transactions, any relevant treaty partners (if applicable), a general description of the market conditions, the proposed transfer pricing method, and any other relevant terms and conditions including key assumptions.

At this stage, the taxpayer is required to pay a non-refundable application fee of $20,000 and the evidence of payment is to be included in the APA application.

Stage 3: Analysis and Evaluation

Following the submission of the formal application, the FIRS will analyze the documentation, assess the data provided, and request additional information or documents if necessary to make an informed decision on the APA.

Stage 4: Negotiation and Agreement

At this stage, the FIRS will enter into discussions with the taxpayer to align and finalize the terms of the APA. If the APA is bilateral or multilateral, discussions will also involve the tax authorities of the relevant treaty partners.

Stage 5: Drafting, Execution, and Monitoring

Once the terms are agreed upon, the APA will be executed. Upon execution, the APA will be subject to ongoing monitoring to ensure compliance with its terms. Additionally, the FIRS will verify that the facts, assumptions, and circumstances remain consistent.

The taxpayer is responsible for all costs related to the processing of the APA by FIRS, including but not limited to travel expenses for field visits and consultancy fees (where the FIRS engages an expert). If the costs incurred by the FIRS exceed this amount, the taxpayer must reimburse the additional costs directly related to the processing of the APA.

What is the timeframe for applying for an APA?

The Guidelines specify that the APA application process in the case of a unilateral APA may be completed within 24 months from the acceptance of a taxpayer’s formal application, and within 36 months for bilateral or multilateral APAs. However, the actual timeframe may vary depending on factors such as the prompt submission of required information, the complexity of the issues involved, and the pace of negotiations with treaty partners.

What is the term of an APA?

An APA becomes effective from the date specified in the agreement and remains valid for up to three (3) years, with a possible rollback of up to three (3) prior years if conditions are met.

In what instances can an APA be terminated?

In line with the provisions of Regulation 9(9) of the Income Tax (Transfer Pricing) Regulations, 2018, an APA may be terminated by either the taxpayer or the FIRS through the issuance of a notice of termination, in the event of a change in the nature of the covered transaction(s), any alteration to the critical assumptions supporting the APA, or a change in tax laws that significantly impacts the terms of the APA.

What other regulatory requirements must be fulfilled by a taxpayer under the Guidelines?

Once a taxpayer has successfully negotiated an APA with the FIRS, it is required to prepare and submit an Annual Compliance Report (ACR) for each year covered by the APA. The ACR must be submitted by the deadline for filing the taxpayer’s annual Companies Income Tax returns. This report should provide comprehensive details of the taxpayer’s actual financial outcomes for the year and demonstrate full compliance with the terms outlined in the APA.

Conclusion

Given the increasing concerns among taxpayers regarding the uncertainties around transfer pricing, driven by the complexities and subjectivity in transactions, as well as the potential tax liabilities arising from transfer pricing disputes, the Guidelines, which took effect on January 1, 2025, represent a welcome development for eligible taxpayers. It is hoped that the implementation of these Guidelines will significantly reduce the occurrence of tax disputes.Bottom of Form

[1] For more information on transfer pricing, please see our newsletter at https://pavestoneslegal.com/the-arms-length-principle-and-its-implication-on-taxation-in-nigeria/

SETTING UP A NON-INTEREST BANK IN NIGERIA

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BY SEUN TIMI-KOLEOLU AND OLAWALE ATANDA

Setting Up a Non-Interest Bank in Nigeria

Introduction

Non-interest banking is gaining traction in Nigeria as an alternative to conventional banking. This model operates on the principles of ethical finance, risk-sharing, and asset-backed transactions. It prohibits interest-based lending while promoting profit-sharing mechanisms.

In this newsletter, we explore the regulatory and compliance considerations for setting up a Non-Interest Financial Institutions (NIFI) in Nigeria and highlight the licensing process and governance requirements.

Non-Interest Banking and Regulatory Framework

Non-interest banking services in Nigeria are carried out by NIFIs licensed by the Central Bank of Nigeria (CBN). The CBN classifies these banks as specialized institutions. Under its Guidelines for the Regulation and Supervision of Institutions Offering Non-Interest Financial Services in Nigeria, the categorizes them into two types:

  1. Institutions offering Islamic Financial Services (Islamic Banking) – Based on Islamic commercial jurisprudence.
  2. Other Non-Interest Financial Institutions (Other Non-Interest Banks) – Operating under any other established non-interest principle.

Licensing Categories

Non-interest banking licenses fall into two main categories: National and Regional. In March 2024, the CBN increased the minimum share capital for a National non-interest banking license from ₦10 billion to ₦20 billion while a Regional license went from ₦5 billion to ₦10 billion. These changes take effect in April 2025 for new applicants, while existing NIFIs must comply by March 2026. The share capital must be fully paid up to meet the CBN requirement.

In addition to these, NIFIs providing Islamic Banking services can register as Microfinance Banks (MFBs) under the CBN’s Guidelines for the Regulation and Supervision of Non-Interest (Islamic) MFBs. The registration requirements align with those of conventional MFBs.*

Licensing Stages

There are three licensing stages for obtaining a NIFI license.

1. Pre-Approval Stage (Application for a Banking License)

Applicants must submit a formal application to the CBN which will include:

  • a cover letter signed by the promoters;
  • non-refundable application fee (determined by CBN);
  • evidence of meeting the minimum capital requirement (including the source of funds);
  • a detailed business plan/feasibility report covering the objectives and nature of the proposed bank, ownership structure, shareholding, and governance framework, financial projections for at least five years, Shariah governance framework, including the Advisory Committee of Experts (ACE) [for Islamic Banking]
  • board composition, detailing qualifications and experience of proposed directors and key officers;
  • draft copies of incorporation documents, including Memorandum and Articles of Association (indicating non-interest banking operations);
  • evidence of deposit with CBN (minimum capital requirement must be deposited in an escrow account with CBN).

2. Approval-in-Principle (AIP) Stage

If the application meets CBN’s requirements, the bank will be granted an Approval-in-Principle (AIP) which will be valid for six months. During this period, the promoters must:

  • register the bank as a limited liability company with the Corporate Affairs Commission (CAC);
  • secure office premises and operational infrastructure;
  • appoint a Board of Directors and Management Team, subject to CBN approval;
  • implement an IT and banking system for operations; and
  • recruit and train staff on non-interest banking principles.

3. Final License Approval

After fulfilling AIP conditions, the promoters must apply for the final banking license by submitting the following:

  • a final inspection report from CBN confirming the operational readiness of the NIFI;
  • certified copies of CAC incorporation documents;
  • evidence of capital deposit confirmation by CBN;
  • internal policies on risk management, anti-money laundering (AML), cybersecurity, and corporate governance;
  • list of management staff and board members, with CBN’s approval.

Upon successful review, CBN will issue the final license which permits the bank to commence operations.

Corporate Governance

The CBN Corporate Governance Guidelines for Commercial, Merchant, Non-Interest, and Payment Service Banks** set out governance requirements for NIFIs, based on the Nigerian Code of Corporate Governance. Key provisions of the code include:

  • Board Composition: The board of a NIFI must have between 7 and 15 members, with at least three independent non-executive directors for National NIFIs and two for Regional NIFIs.
  • Diversity Requirements: The board must reflect gender diversity.
  • Executive Roles: The Managing Director (MD) is subject to a maximum tenure of 10 years. The Company Secretary’s role must be distinct from that of the Head of Legal/Legal Adviser.

For Islamic Banking, additional governance requirements such as these will apply:

  • Shariah Review and Compliance (SRC) Function: NIFIs carrying out Islamic Banking must establish an SRC unit responsible for regular assessments to ensure operations align with Shariah principles.
  • Internal Shariah Auditor (ISA): NIFIs providing Islamic Banking must appoint an ISA as the head of the internal Shariah audit function, holding a position not lower than Assistant General Manager.

Difference Between Islamic Banking and Other Non-Interest Banks

There are certain differences between Islamic Banking and Other Non-Interest Banks. Some are explained below.

1.Underlying Principles

  • Islamic Banking: Operate based on Islamic commercial jurisprudence (Shari’ah law), which prohibits interest (riba) and ensures financial transactions align with Islamic ethical standards.
  • Other Non-Interest Banks: Operate on alternative non-interest principles that do not necessarily align with Islamic jurisprudence but still avoid interest-based transactions.

2. Shari’ah Compliance

  • Islamic Banking: Must have a Shari’ah Advisory Board to ensure compliance with Islamic financial principles.
  • Other Non-Interest Banks: Not required to adhere to Shari’ah principles and do not require a Shari’ah Advisory Board.

3. Permissible Transactions

  • Islamic Banking: Engage in profit-sharing models (e.g., Mudarabah, Musharakah), asset-backed financing (e.g., Ijarah), and trade-based contracts (e.g., Murabaha).
  • Other Non-Interest Banks: May adopt models such as ethical banking or other non-interest structures that do not necessarily follow Islamic finance contracts.

4. Regulatory Considerations

  • Islamic Banking: Subject to both CBN regulations and Shari’ah governance frameworks, ensuring all transactions comply with Islamic finance principles.
  • Other Non-Interest Banks: Only subject to CBN regulations without an Islamic governance framework.

5. Target Market

  • Islamic Banking: Primarily cater to individuals and businesses seeking Islamic-compliant financial services.
  • Other Non-Interest Banks: Serve a broader audience, including individuals and institutions looking for non-interest financial solutions without a religious requirement.

Conclusion

The growing adoption of non-interest banking in Nigeria underscores the need for a clear understanding of its regulatory framework. From licensing requirements to corporate governance, NIFIs must comply with CBN guidelines to ensure operational efficiency and sustainability. As the sector evolves, adherence to these regulations will be important in fostering trust, financial inclusion, and long-term stability in Nigeria’s banking sector.

Footnotes

* Please see our article on the categorization and license requirements for MFBs here https://pavestoneslegal.com/pavestones-regulatory-update-the-draft-revised-guidelines-for-the-regulation-and-supervision-of-microfinance-banks/

** Please see our article on the CBN Corporate Governance Guidelines for Commercial, Merchant, Non-Interest, and Payment Service Banks here – https://pavestoneslegal.com/regulatory-update-cbns-new-corporate-governance-guidelines-for-banks-commercial-merchant-non-interest-and-payment-services-banks/

CORPORATE GOVERNANCE: THE DUTIES AND RESPONSIBILITIES OF DIRECTORS UNDER NIGERIAN LAW

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BY ADERONKE ALEX-ADEDIPE AND HILLARY OKOROTIE

Introduction

Corporate Governance plays a fundamental role in impacting the success and sustainability of any company and at the heart of a company’s governance structure is its Directors.  The Directors are the decision-makers with fiduciary responsibilities to the company, its shareholders and other stakeholders including, employees, creditors, and regulators. Understanding the duties and responsibilities of directors is therefore crucial. In this newsletter we examine some of these responsibilities and their importance.

Who is a Director?

A director is an individual appointed to oversee and manage the affairs and operations of a company. The Board of a company may comprise executive directors who are responsible for the day-to-day operations, non-executive and independent directors who provide external oversight. Under the Companies and Allied Matters Act (CAMA) 2020, directors owe fiduciary duties to the company, requiring them to act in good faith, and in the best interests of the company and its shareholders. These fiduciary duties include:

1. Duty to Promote the Business of the Company

Under the CAMA and the Nigerian Code of Corporate Governance, directors must act in a way that promotes the business of the company. In fulfilling this duty, directors must consider the impact of the company’s operations on the environment and society and the impact of their decisions on the company’s stakeholders, shareholders and employees. To fulfill this obligation, directors must ensure that the company operates in a manner that maximizes its profitability. This includes making strategic decisions, managing risks effectively, and ensuring compliance with legal and regulatory requirements

2. Duty to exercise Care and Diligence

A director is obligated to exercise reasonable care, skill, and diligence in performing his duties. This duty requires directors to act in good faith and in the best interest of the company, its members and stakeholders in the course of operations. A director’s obligation to exercise care implies that his actions must be conducted in a manner in which a reasonable man would conduct themselves in dealing with the company’s affairs.

3. Duty to Avoid Conflicts of Interest

Directors have a fiduciary duty to ensure that their personal interests do not conflict with those of the company. They are obligated to disclose any actual or potential conflicts and, where necessary, recuse themselves from related decision-making processes. Additionally, directors are prohibited from using their position for personal gain or deriving undisclosed financial benefits from the company, while discharging their duties.

4. Duty to Exercise Independent Judgment

Directors are required to exercise independent judgment when making decisions on behalf of the company. In essence, a director must make decisions based on his personal opinion and skills, without any bias or undue influence by a third party. A director must not fetter his discretion by committing in advance to vote in a particular way, as doing so may compromise their ability to act in the best interests of the company.

5. Duty to Act Within Authorized Powers

A director’s powers are defined by the company’s articles of association and the board charter. Directors must act within the scope of these powers and cannot make decisions that exceed their authority or contradict the provisions of the articles or board charter.

What Happens When Directors Breach Their Duty?

When directors fail to exercise the duties stated above, the consequences may range from regulatory sanctions and civil liability to criminal prosecution. Some of these consequences include:

Loss of Investment: While the directors are responsible for the day to day operation of the company, they are also responsible to the shareholders and investors of the company. Where the directors are in breach of their duties, it may affect investor confidence, and such an occurrence may lead to withdrawal of investment.

Civil Liability: Legal action may be filed against the director for breaching his fiduciary duty. Directors may also face removal from the board of the company or other personal liability for financial mismanagement, fraud etc.

Criminal Liability: A director can also be held criminally liable for offences such as insider trading or fraud committed during the course of operation of the company. Under the Investments and Securities Act, for example, a person convicted of insider trading may be fined ₦500,000 or an amount equivalent to twice the profit gained, or face imprisonment of up to seven years. In the event that a director is convicted, the director will be disqualified from holding office as a director in any company for a period of 10 years.

Regulatory Sanction: The impact of breach of directors’ duties often extends beyond the personal liability of the director. Failure to manage the affairs of a company in accordance with regulatory requirements may lead to sanctions against the company by regulators. A notable example is the recent withdrawal of the banking license of a Nigerian commercial bank by the Central Bank of Nigeria (CBN), demonstrating that regulatory bodies can take decisive actions in response to corporate governance failure.

Conclusion

The obligations and duties of directors are crucial in ensuring adherence to corporate governance framework. Therefore, directors must continue to discharge their fiduciary duties to the company while balancing multiple responsibilities, from strategic decision-making to financial management and compliance and risk management.