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A FOREIGNER’S GUIDE TO ESTABLISHING A BUSINESS IN NIGERIA

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Aderonke Alex-Adedipe and Oghenekaro Faith Isiorho

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INTRODUCTION

As the most populous African nation, Nigeria continues to attract an increasing number of foreign investments annually. In 2020, the United Nations reported that Nigeria’s inflow of Foreign Direct investments (FDI) increased by 4.3% despite the outbreak of COVID-19. As the market expands, the government continually issues policies aimed at creating a conducive business environment. As a result of the existence of multiple regulations, however, a potential foreign investor may require some guidance in relation to establishing a business and navigating the Nigerian business environment.

 

In this article, we highlight some crucial considerations for foreigners seeking to do business in Nigeria.

 

  1. Company Registration

Generally, any individual or company registered outside Nigeria and having the intention of carrying on business in Nigeria must be registered at the Corporate Affairs Commission(“CAC”), except such company is exempt by law.[1]  The company is permitted to have 100% foreign shareholders except it operates in specific sectors such as oil and gas, aviation, domestic coastal carriage, etc, which require local ownership and control. A foreign entity must also have a minimum of two shareholders and two directors. Other requirements for registration may vary from one sector to another.

  1. Nigerian Investment Promotion Commission (NIPC) Registration:

The NIPC is empowered by the Federal Government to promote foreign investments in Nigeria. Every business with foreign participation is mandated to register with the commission and obtain a certificate of registration. To obtain a NIPC certificate the evidence of registration at the CAC is required.

  1. Business Permit

A business permit is issued by the Ministry of Interior in Nigeria. Every company with foreign participation in Nigeria is required to apply and secure the permit before commencing business activities. The process for the application has now been fully automated, thus registration can be made online.

  1. Tax Registration

It is important that after incorporation a registered company registers with the Federal Inland Revenue Service (FIRS) and obtains a Tax Identification Number (TIN). The TIN is often required to secure other licenses and operate a bank account. It is also necessary to register with the State Inland Revenue Service located in the state in Nigeria where it wishes to carry on business.

  1. Trademark Protection/Registration

 Companies that already have an existing trademark in their home countries are encouraged to register such trademarks in Nigeria to secure their usage by the company. A search must be conducted at the trademark registry to determine if the trademark is already in existence before registration will be approved or rejected.

Note that approval for trademark registration will not be granted where the trademark is already registered by another company unless permission or assignment of that trademark has been granted by that company.

  1. Operating a Bank Account

 A company will generally require capital to set up its business in Nigeria. Commercial banks in Nigeria are appointed by the Central Bank of Nigeria as authorized dealers for the purpose of importing foreign exchange and guaranteeing repatriation of foreign capital which may have been imported through a Commercial Bank. Commercial banks also play a crucial role in facilitating the importation of goods into the country.

Generally, the requirements for operating a bank account vary from one bank to another. Evidence of company registration, identities of a company’s directors, TIN of the company, proof of registered address, are however standard requirements.

  1. Sector-Specific Licensing

 A foreign company must enquire about the licenses required to do business in its proposed sector of operation.  Some sectors may have special licensing requirements which must be fulfilled by operators. For instance, a foreign company interested in the sale of cosmetics in Nigeria must first obtain a permit from the National Agency for Food and Drug Administration and Control; a company seeking to import and distribute electronics must obtain a certificate from the Standard Organisation of Nigeria (SON); also, a company that wishes to provide logistics services must be licensed by the Nigerian Postal Service (NIPOST).

  1. Advertising

 It is worthy of note that a license to operate may not always confer permission to advertise. A foreign company must ensure it obtains the requisite advertising permit before advertising to its consumers.[2]

CONCLUSION

It is advisable that a foreigner interested in doing business in Nigeria engages the services of a business lawyer who will offer transactional guidance specifically tailored to the sector which it seeks to operate.

 

 

[1] S. 80 of the Companies and Allied Matters Act 2020, exempts foreign companies engaged in specific individual loan projects on behalf of the donor country or international organization, export promotion activities or engineering consultants or technical experts engaged in individual-specific projects with the government or any of its agencies, from registration at the CAC.

[2] In Lagos state, the agency empowered to issue advertising licenses is the Lagos State Signage and Advertisement Agency (LASAA).

 

THE REGULATION OF TECHNOLOGY COMPANIES IN NIGERIA – THE PROPOSED NITDA ACT 2021

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By Seun Timi-Koleolu and Eustace Aroh

The National Information Technology Development Agency (NITDA) was created under the NITDA Act 2007 (the “Act”) to implement the Nigerian Information Technology Policy and coordinate general Information Technology development in Nigeria. NITDA, however, recently shared a proposed law with stakeholders titled the National Information Technology Development Agency Act 2021 (the “Bill”) which if enacted would repeal and replace the Act.

In addition to repealing the Act, the bill seeks to establish a framework for mandatory licenses to be obtained by Technology companies from NITDA; expand the regulatory oversight of NITDA; and generally, foster the development of the Nigerian information technology sector and the digital economy. In this article, we have analysed the provisions of the Bill.

  1. Companies to be Regulated

The Bill grants power to NITDA to regulate and license companies involved in digital services, products and platforms. This includes companies that use any digitally enabled system in the provision of service or products; and companies that carry out a business within the information technology space in Nigeria.

  1. Licensing and Registration Requirement

One of the major changes proposed under the Bill is the introduction of mandatory licenses to be obtained by companies regulated by it.  More specifically, it states that operators within the information technology and digital economy sector are to apply and obtain licences and authorisation from NITDA to operate. Furthermore, it provides that companies that fail to obtain the requisite license may be guilty of an offence and subject to a fine of N30,000,000 or imprisonment of its principal officers.

The Bill seeks to create three categories of licenses namely: (i) Product Licence, (ii) Service Provider Licence; and (iii) Platform Provider Licence. The Bill, however, does not clearly state the factors that would be considered by NITDA in determining which of the licenses a company is to obtain.

In addition to issuing licences,  the Bill empowers NITDA to maintain a register of operators within the information technology and digital economy sector and publish the register for the general public’s information.

  1. Tech Companies to be Levied

Similar to the Act, the Bill establishes the National Information Technology Development Fund (NITDF) to be used for advancing the nation’s digital economy objectives and related purposes. The NITDF will be funded by a levy of 1% of the profit before tax of regulated companies, amongst other funding sources set out in the Bill.

It is pertinent to note, that the existing Act already requires certain companies to pay a similar levy to NITDA which was however limited. The Bill now seeks to extend the list of the companies required to pay levies as follows:

i.mobile and fixed telecommunications companies;

ii.information technology, e-commerce companies; (new)

iii.digital platform operators and providers; (new)

iv.foreign digital platforms targeting the Nigerian market; (new)

v.pensions managers and pension-related companies;

vi.banks, financial institutions and companies providing financial services using information technology tools;

vii.insurance companies; and

viii.such other companies and enterprises as determined by regulations from time to time by the Agency. (new)

  1. Other Notable Changes

The Bill seeks to empower the NITDA, with support from the Standard Organisation of Nigeria, to develop standard requirements for operators within the information technology space. The Bill also confers a duty on NITDA to regulate amongst other things, the use of digital signature and digital contracts; and the use of data for business analytics and intelligence.

Conclusion

An Act that seeks to uniformly and fairly regulate the technology sector and startup space in Nigeria would be a welcome development. The Bill appears to be an attempt at achieving this uniformity. This, however, cannot be achieved by NITDA in silos. The effect of a standalone regulation like the Bill is that companies in the tech space in Nigeria would be over-regulated and weighed down with excessive levies and licensing requirements.

To successfully regulate the Tech space, NITDA must work with other regulators such as the Central Bank of Nigeria, the Securities and Exchange Commission, the Nigerian Communications Commission, and the National Insurance Commission to streamline licences, levies and develop regulations that adequately govern the activities of Tech companies without stifling their growth.

In addition to the foregoing, there are certain ambiguous terms in the Bill that should be clarified which includes terms like “operators within the information technology and digital economy”, “foreign digital platforms targeting the Nigerian market” and “digital economy”. Furthermore, the licensing categories to be established by the Bill should be clarified to ensure companies are clear on the licence they are to obtain.

Key Developments In The New Finance Act 2020

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By Aderonke Alex-Adedipe and Eustace Aroh

 

On December 31, 2020, the President of Nigeria signed the Finance Act 2020 (the “Act”) into law. The Act amended fourteen federal tax and finance legislations and came into effect on  January 1, 2021. The provisions of the Act are in line with the Government’s agenda to improve the ease of doing business in Nigeria, promote investments and develop key sectors of the economy.

The table below highlights some of the salient provisions of the Act.

 

Applicable Section Legislation Affected Implications
Section 25 Personal Income Tax Act Profits from trades or businesses of non-resident “individuals” providing technical, management and consultancy services to Nigerians shall be deemed to be derived from Nigeria and subject to personal income tax provided they have significant economic presence as declared by the Minister of Finance.
Section 30 Personal Income Tax Act Individuals who earn the national minimum wage or lower, are exempt from paying personal income tax on the wages earned.
Section 23 Industrial Development (Income Tax Relief) Act Small or medium-sized companies with annual gross turnover of between 25 Million to 100 Million Naira, engaged in primary agricultural production such as raw or semi-processed goods, live animals and their direct produce, all kinds of fish and forestry products, may apply for tax exemption for a period of 4 years and an additional 2 years.
Section 60 Companies and Allied Matters Act 2020 (CAMA) The law requires that dividends that are unclaimed by shareholders of private companies, after a period of 12 years should be shared among the shareholders as profit. In the case of public companies quoted on the Nigerian Stock Exchange, unclaimed dividends shall be transferred to the Unclaimed Funds Trust Fund after a period of 6 years and shall be a debt owed by the federal government which can be claimed by the shareholder subsequently.
Section 48 Stamp Duties Act The introduction of the Electronic Money Transfer Levy of N50 (Fifty Naira), imposed on electronic transactions exceeding the sum of N10,000 in any financial institution.
Section 34 Tertiary Education Trust Fund Act Small companies (as defined in CAMA) are exempted from payment of the tertiary education tax.
Section 43 Value Added Tax Act (VATA) Non-residents individuals are obligated to register under the VATA where they make a taxable supply of goods or service in Nigeria and obtain a Tax Identification Number.
Section 45 Commercial aircrafts, engines and spare parts; air transportation with registered airlines; and lease of agricultural equipment are goods and services which are now exempt from VAT.
Section 13 Companies Income Tax (“CIT”) Act The minimum CIT for companies which have recorded a loss or no profit between the period of 1st January 2020 and 31st December 2021 has been reduced to 0.25% of the annual gross turnover of the company as opposed to the otherwise applicable 0.5%.

This relief was created to support businesses affected by the COVID 19 pandemic.
Section 16 All non-resident companies deriving profit from Nigeria are now required to submit audited financial statements identifying their Nigeran operations to the tax authorities.
Section 38 Customs and Excise Tariff (Consolidation) Act Import duties for the following goods have been reduced as follows:

(i) Tractors, from 35% to 5%

(ii) Cars and motor vehicles for transport of persons, from  30% to 5%

(iii) Vehicles for transportation of above 10 people or goods, 35% to 10%.

Procedure For Registration Of A Limited Liability Partnership In Nigeria

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By Seun Timi-Koleolu and Praise Adetunmibi 

 

Introduction
In our article on the Companies and Allied Matters Act (CAMA) 2020 (the “Act”), we had highlighted some of the key developments introduced by the Act. A significant development was the introduction of a Limited Liability Partnership (LLP) as an entity that can be set up in all states in Nigeria. At the time the Act was signed into law, the procedure to be adopted by the Corporate Affairs Commission (CAC) for the implementation of the changes introduced by the Act (including the LLP) was yet to be provided.

The Nigerian Ministry of Industry, Trade and Investment has now published the Companies Regulation 2021 (the “Regulation”) which provides details and clarity on the implementation of the changes introduced by the Act.

In view of the substantial requests we have received, with respect to how an LLP can be incorporated in Nigeria, we are pleased to set out below, the process for the incorporation of an LLP as detailed in the Regulation.

 

The LLP Structure
An LLP is a body corporate with perpetual succession and a separate legal personality from its partners. It is a structure that combines the benefits enjoyed by the business name structure and the limited liability status enjoyed by companies limited by liability.

By Sections 747 and 748 of the Act, every LLP is to have at least 2 partners who may be an individual or body corporate, provided such person has not been found by a court in Nigeria or elsewhere to be of unsound mind and is not an undischarged bankrupt.

 

Procedure for registration of an LLP

  1. A name availability check should be conducted at the CAC and when the proposed name is available, the name is to be reserved.
  2. A Form CAC/LLP 01 is to be completed with the following information:
  1. the approved name of the LLP;
  2. the proposed business of the LLP;
  3. the proposed registered address of the LLP;
  4. the full name and particulars of each partner and their contribution;
  5. the full name and particulars of each person who is to be a designated partner (a designated partner is a partner that will be responsible for compliance with the provisions of the Act and will be liable for all penalties imposed as a result of a contravention of the law). There must be at least 2 (two) designated partners who are individuals and at least one of them must be resident in Nigeria;
  6. details of any partner in the LLP that will have significant control (i.e. an individual, company or other entity that directly or indirectly holds at least 5% of the interest or voting rights or holds the right to appoint or remove a majority of the partners or has the right to exercise significant control or influence over the LLP); and
  7. any other information as may be prescribed by the CAC from time to time.

 

3. The required fee for registration is to be paid to the CAC.

4. Where the above requirements have been complied with, the CAC shall within 14 days of the submission of the application register the LLP and issue a certificate of incorporation stating the name, date, and registration number of the LLP.

Conclusion
In addition to the foregoing, it is useful to note that a foreign LLP may apply to the Minister of Industry, Trade and Investment for exemption from incorporation in Nigeria where the LLP is: (i) invited by the Federal Government to execute a specified individual project; (ii) in Nigeria to execute a specific individual loan project on behalf of a donor country or international organisation; (iii) owned by a foreign government and engages solely in export promotion activities; or (iv) an engineering and technical expert engaged by any government of the federation or its agencies to carry out any individual specialist project.