Foreign Participation Regulations in Nigerian Businesses

Contributor: Romeo Osogworume Esq.

Nigeria’s status as a major economy in the continent has attracted a significant number of foreign companies and investors seeking to invest and set up companies in Nigeria. In 2020, the United Nations reported that Nigeria’s FDI inflow increased by 4.3 per cent despite the outbreak of COVID-19[1].

The government is tasked with the responsibility of regulating foreign participation in Nigerian businesses. In furtherance of this responsibility, it has enacted various legislations and policies that control foreign participation. These laws and policies contain critical information that every foreign investor should be aware of, such as incorporation procedures, relevant licenses and permits, and incentives available to encourage foreign participation. Due to the existence of multiple legislations governing foreign participation, every foreign investor must seek adequate guidance before engaging in business in Nigeria.

This article will examine key provisions that every foreigner with the intent of carrying out business in Nigeria should know.

WHAT IS FOREIGN PARTICIPATION?

Foreign participation is a type of cross-border investment in which a resident of one economy has control, or a significant degree of influence over the management of a resident of another economy.[2]

Foreign participation could occur in different ways such as establishing a branch/office of a company in Nigeria as a subsidiary of a foreign firm. It could also happen through the formation of a company in which a firm from the investing company has an equity stake, or through the establishment of fixed assets in the other country by nationals from the investing country.

There are two (2) options available to foreign investors for the commencement of foreign participation in Nigeria:

  1. Foreign Direct Investment (FDI): A foreign direct investment (FDI) is the acquisition of a stake in a company by another organization or investor domiciled outside of the country’s jurisdiction.

In general, the term refers to a business decision to buy a significant stake in, or buy a foreign company outright in order to expand its operations to a new region.

  1. Foreign Portfolio Investment (FPI): This entails the indirect participation in a business by purchasing Shares in an already incorporated Nigerian company, typically through Nigerian capital markets. It is the passive ownership of securities, with no active management or control by the investor.

The essential provisions relevant to foreign participation in Nigeria are highlighted below:

  1. Incorporation of Company

By virtue of the provisions of Section 78 of the Companies and Allied Matters Act (CAMA), 2020, every foreign company with the intention of carrying on business in Nigeria must register such company with the Corporate Affairs Commission (CAC), before the commencement of business in Nigeria.

Section 80 of CAMA provides for the exemptions wherein a foreign company may not seek a separate registration in Nigeria to include:

  1. Foreign companies invited to Nigeria by or with the approval of the Federal Government to execute any specified individual project;
  2. Foreign companies which are in Nigeria for the execution of specific individual loan projects on behalf of a donor country or international organization;
  3. Foreign government-owned companies engaged solely in export promotion activities;
  4. Engineering consultants and technical experts engaged in any individual specialist project, under contract with any of the governments in the federation or any of their agencies or with any other body, where such contract has been approved by the federal government.
  5. Tax Identification Number (TIN) and Value Added Tax Registration (VAT) Registration

After incorporation, it is necessary that the company obtain a TIN. This registration is done at the Federal Inland Revenue Service (FIRS). This is the number that the company will use for the payment of corporate tax and other taxes, as well as to register for V[3]AT.

     6. Registration with the Nigerian Investment Promotion Commission (NIPC)

The goal of the NIPC is to promote, encourage and coordinate all investments in Nigeria. Over the years, the Federal Government of Nigeria has tasked the investment promotion agency with attracting Foreign Direct Investment (FDI). Section 17 and Section 20 of the NIPC Act provide for the participation and registration of enterprises envisaged to commence foreign participation in Nigerian businesses.

Section 17 of the NIPC Act provides thus:

‘Except as provided in section 18 of this Act and subject to this Act, a non-Nigerian may invest and participate in the operation of any enterprise in Nigeria.’

Section 20 of the Act provided as follows

‘An enterprise in which foreign participation is permitted under section 17 of this Act shall, before commencing business, apply to the Commission for registration.’

The benefits of registering with the NIPC are numerous for investors. One of the notable benefits is that the Nigerian Investment Promotion Commission Act guarantees that no foreign-owned enterprise or establishment, shall be expropriated or nationalized by any government in Nigeria, after proper registration with the NIPC.

  1. Nigerian Immigration Laws

Any investor interested in doing business in Nigeria should be abreast with the necessary information about the laws regulating immigration to the country, and the transfer of foreign workers from another country. The Nigerian Immigration Service, in collaboration with the Nigerian Ministry of Interior, handle foreigners’ immigration requirements.

Foreign investors and offshore companies doing business or looking to establish in Nigeria, must obtain an Expatriate Quota from the Minister of Interior as part of regulatory requirements. Immigrant workers must obtain residence permits that allow them to work in Nigeria and, if necessary, remit their salaries abroad. In addition, a foreigner who wholly owns a company in Nigeria must obtain a Business Permit in order to conduct business in Nigeria.

     2. Obtaining Sector-Specific Licenses and Permits

A foreign company must inquire about the licenses required to conduct business in the proposed industry sector. Some industries may have special licensing requirements that operators must obtain before the commencement of business in Nigeria. For instance, a foreign company interested in establishing a sports betting company in Nigeria must first obtain a permit from the National Lottery Regulatory Commission (NLRC); Any company that is established to provide logistics services must be licensed by the Nigerian Postal Service (NIPOST), a company that is involved in energy services (such as generation, transmission and distribution of electricity), must obtain licenses and permits from the Nigerian Electricity Regulatory Commission (NERC).

Incentives Available to Foreign Investors

Upon registration, certain benefits can be explored by foreign-owned enterprises in Nigeria. The provision of Section 22 of the NIPC Act empowers the NIPC to consult with other government agencies to negotiate incentives for special investment. Section 22 of the NIPC Act in this regard, provides thus;

‘For the purpose of promoting identified strategic or major investment, the Commission shall, in consultation with appropriate Government agencies, negotiate specific incentive packages for the promotion of investment as the Commission may specify’

The incentives available to foreign investors includes:

  1. Pioneer Status Incentive (PSI)

The Pioneer Status Incentive is a tax break that exempts qualifying industries and products from paying corporate income tax for three years, with the option to extend it for one or two more years.

PSI is an incentive formulated to promote Foreign Direct Investment (FDI) in Nigeria. Pioneer status is a tax incentive that exempts companies acknowledged as ‘pioneers’ in certain industries from paying company income tax during their early years of development, granting the companies an opportunity to make a significant profit to reinvest back into the business.

For a company to be eligible for PSI, the business which the company is involved in, must be part of the industries approved as a pioneer industry by the Federal Executive Council (FEC). Some of the approved pioneer industries are; Agriculture, mining and quarrying, information and communications, manufacturing, electricity and gas supply, construction, etc.

     2. Capital Importation and Repatriation

Capital importation refers to the importation of foreign currency into Nigeria in the form of cash or other products (natural resources, tools and devices).

Foreigners are allowed to bring any recognized foreign currency into Nigeria to fund their investment, subject to money laundering restrictions. These funds must be brought in through a licensed dealer. Foreign investors must first obtain a Certificate of Capital Importation (CCI) from the licensed dealer (usually a commercial bank), to effectively bring in foreign currency to fund their investment. A CCI is also required when capital is not imported in the form of cash but rather in the form of other products.

Foreign investors are free to repatriate all profits and dividends net of taxes, through an authorized dealer in freely convertible currency under the provisions of the Foreign Exchange (Monitoring & Miscellaneous Provision Act No. 17 of 1995).

  1. Duty Drawback Scheme

The Duty Drawback Scheme reimburses duties/surcharges on raw materials, including packing and packaging materials, used in the manufacture of products upon effective exportation of the finished products. The new Duty Drawback scheme will provide automatic refunds (60%) upon initial screening by the Duty Drawback Committee, and presentation of a bond from a recognized bank, insurance company or other financial institution.[4]

The Bond will pay for 60% of the refund due to the exporter. The Duty Drawback Committee shall grant any balance where applicable, or request refunds for any overpayment made at the conclusion of the processing of exporters’ claims.

CONCLUSION

The Nigerian government is actively seeking to bring in foreign investors to the country by creating incentives that will improve foreign participation in the country, as foreign investment is a major source of revenue in the business sector of the country.

Although, these incentives are commendable, the government can also improve the environment for foreign investment by improving existing laws governing foreign participation. Also, improving the country’s security to ensure the safety of foreigners, and providing simple and straightforward immigration procedures to ensure that the immigration process is completed in a timely manner.

A major challenge in foreign participation is that foreign investors are not adequately abreast on how to properly utilize the incentives available to them. Thus, foreign investors with the intention to incorporate a company or an enterprise in Nigeria should seek adequate guidance when embarking on such a project, or any investment in Nigeria business sector.

REFERENCE

  1. Aderonke Alex-Adedipe and Oghenekaro Faith Isiorho, ‘A Foreigner’s Guide To Establishing A Business In Nigeria’ (2021) Pavestones < https://pavestoneslegal.com/a-foreigners-guide-to-establishing-a-business-in-nigeria/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=LinkedIn-integration> accessed 15 March 2022
  2. Manifield Solicitors ‘THE REGULATORY FRAMEWORK AND PROCEDURE FOR FOREIGN PARTICIPATION IN THE NIGERIAN ECONOMY’ (2020) https://www.manifieldsolicitors.com/2019/10/14/the-regulatory-framework-and-procedure-for-foreign-participation-in-the-nigerian-economy/ accessed 15 March 2022
  3. In recent times however Tax Identification Numbers are now being generated automatically and provided at the point of registration with the CAC.
  4. Industrial Renaisssance, ‘Manufacturing and Exports Incentives in Nigeria’ (2022) IR < Manufacturing and Exports Incentives in Nigeria – Invest in Nigeria | Importer of Record in Nigeria | IOR Service in Nigeria (indusren.com)> accessed 17 March 2022

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