Legal and Regulatory Regime
Companies and Allied Matters Act (Chapter C20), LFN 2004 (“CAMA”) This is the principal statute regulating the establishment and operation of companies in Nigeria. The CAMA establishes the Corporate Affairs Commission
(“CAC”) as Nigeria’s companies’ registry, and the body responsible for the regulation and supervision of the formation, incorporation, registration, management and winding up of companies. The CAMA also makes provision for the registration of business names and the incorporation of trustees.
Foreign companies that wish to do business in Nigeria are required to do so through a separate locally incorporated entity. Section 54(1) of the CAMA provides that every foreign company intending to carry on business in Nigeria must take steps necessary to incorporate as a separate legal entity with the CAC. Section 56 of CAMA empowers the Federal Executive Council to grant exemptions from the mandatory incorporation requirement to a limited category of foreign companies. It is an offence for a foreign company to carry on business in Nigerian without being
Legal Requirements for Incorporation
Pursuant to Section 54 of CAMA, every foreign entity that is desirous of carrying on business in Nigeria is to incorporate a company in Nigeria for that purpose.
However, Section 56 of CAMA empowers the Federal Executive Council (that is, the highest body in the executive arm of the Federal Government of Nigeria) to grant exemptions from the requirement toincorporate a Nigerian
company in the following instances: companies engaged by or with the approval of the Federal Government to execute specific projects;
- companies undertaking approved loan projects on behalf of donor countries or international organisations;
- foreign government owned companies engaged wholly in export promotion activities;
- engineering consultants or technical experts working on specialist projects under contract with any government of the federation or one of its departments or under approved contracts with any other persons.
Under Nigerian company law, a company having a share capital may either be registered as a private limited liability company or public limited liability company or unlimited company. Most non-Nigerians desirous of setting up entities in Nigeria, usually establish private limited liability companies, at inception and may then, based on
their business models, convert these to public limited liability entities at a later date. A private limited liability company cannot have more than fifty (50) shareholders. It is important to state that the minimum share capital for a company with foreign participation is Ten Million Naira (N10, 000, 000).
Certificate of Capital Importation (“CCI”)
The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, Cap F34 LFN 2004 (“FEMMA”) provides that any person may invest in a Nigerian enterprise with foreign currency imported into Nigeria through an Authorized
Dealer by telegraphic transfer, cheques or other negotiable instruments converted into Naira.
Upon such importation of foreign investment capital, the Authorized Dealer is required to issue a CCI, evidencing receipt of the foreign investment capital, within 24 hours of receipt of the imported funds. A CCI assures the foreign
investor of unhindered remittance of investment capital and yields1 thereon, in any convertible currency.
Foreign Ownership of a Nigerian Company
By virtue of the provisions of the Nigerian Investment Promotion Commission Act, Cap N117, LFN 2004 (the “NIPC Act”) it is possible for foreign investors to own 100% of the equity of a limited liability company. Accordingly, there is no requirement that the company to be established in Nigeria should have Nigerian shareholders and other than certain matters set out in the “negative list”, and regulated sectors like the broadcasting and oil and gas sectors, a Nigerian company that is 100% foreign owned may engage in the same businesses as a Nigerian company that is wholly or partially owned by Nigerians. There are areas of business that are prohibited – “the negative
Foreign Investment Approvals
Business Registration (Certificate of Registration of Company with Foreign Participation) In order for a company registered in Nigeria with foreign shareholders to do business it must register its business. The NIPC Act provides that all companies with foreign participation in their capital structure should register with the NIPC after they are incorporated. Following the registration of the business at the NIPC, a company registered in Nigeria with foreign
shareholders, must apply for a business permit in order to do business. A business permit is the authorisation that must be obtained in order for the company to carry on business in Nigeria.
Fiscal Regime – Administration of Taxes
A company incorporated in Nigeria is required to be registered with the relevant tax authorities for tax purposes. Following the incorporation of the company, an application is made to applicable tax office requesting the issuance of a tax clearance certificate and value added tax (“VAT”) registration.
The administration of tax in Nigeria is vested in the three tiers of government. Taxes payable to the Federal Government are administered by the Federal Inland Revenue Service Board through its operational arm, the Federal Inland Revenue Service (FIRS), while those payable to the State Governments are administered by the Internal Revenue Boards of the thirty-six states of the Federation and the Federal Capital Territory of
Abuja through their respective operational arms, known as the State Internal Revenue Service. Local Governments also administer taxes collectible by them through their various councils. State Boards apply uniform rules in respect of tax deductions and their activities are co-ordinated by the Joint Tax Board (JTB).
The country provides attractive incentives to encourage foreign investment. There are tax holidays for pioneer companies that establish new industries or expand production in important sectors of the economy Also non-tax incentives are granted to non-pioneer firms.
A company granted pioneer status is not required to withhold tax on dividends paid to its shareholders during this period, and persons making payments to the company will not be required to deduct withholding tax when they are
making payments for services rendered to them by a pioneer company. Losses made by the company during the tax holiday can be carried forward indefinitely after the expiry of the 5year tax holiday and the company can also offset
capital allowances in respect of qualifying capital expenditure incurred by the company during the tax holiday. Any unutilized allowances may also be carried forward indefinitely.
Several categories of tax are levied. Those that are likely to prove of most interest to a foreign investor are companies’ income tax, personal income tax, capital gains tax, value-added tax, education tax, stamp duties and the various
withholding taxes. Other categories of tax include local government rates and levies. Penalties may be imposed for failure to pay taxes when due.
All taxes, except for value added tax, stamp duties, customs and excise duties and capital gains tax, are calculated in accordance with a tax year that runs from January 1st to December 31st in each year. Provided taxes are duly paid,
a taxpayer will be issued a Tax Clearance Certificate. This Certificate confirms that all taxes due in the three years immediately preceding the year in which it is issued have been paid. A Tax Clearance Certificate is required for virtually all official transactions. Investment and Securities Act No. 29 of 2007 (the “ISA”) The ISA governs investments in the capital markets generally, and provides for the establishment of the Securities and Exchange
Commission (the “SEC”) as the apex regulatory authority for the Nigerian capital market. Also relevant are the Securities and Exchange Commission Rules and Regulations (the “SEC Rules”), which are made by the SEC pursuant to powers which it has been granted by the ISA to regulate capital market activities and operators, including mergers, acquisitions, take-overs, and collective investment schemes.
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