THE LEGAL FRAMEWORK FOR UNDERTAKING BUSINESS …trp-ng.com/pdf-files/The Legal Framework for Undertaking Business... · THE LEGAL FRAMEWORK FOR UNDERTAKING BUSINESS IN NIGERIA YINKA

THE LEGAL FRAMEWORK FORTHE LEGAL FRAMEWORK FORUNDERTAKING BUSINESS INUNDERTAKING BUSINESS IN

NIGERIANIGERIA

YINKA AGIDEEYINKA AGIDEETHE ROCK AND PARTNERSTHE ROCK AND PARTNERSGlobe Building( 3Globe Building( 3rdrd Floor)Floor)25,25, Adeyemo AlakijaAdeyemo Alakija StreetStreetVictoria Island, Lagos, NigeriaVictoria Island, Lagos, Nigeria

INTRODUCTIONINTRODUCTION

Investor FriendlyInvestor Friendly EnvironmentEnvironment

•• Repeal of protectionist/regulatory legislationsRepeal of protectionist/regulatory legislations

•• 100% foreign ownership now permitted100% foreign ownership now permitted

•• Liberalized capital importationLiberalized capital importation

BREAKING INTO THE MARKETBREAKING INTO THE MARKET

nn Compliance with Industry RegulationsCompliance with Industry Regulations

•• Dependable/Resourceful Local ContactsDependable/Resourceful Local Contacts

•• Local Embassy for verification of contacts andLocal Embassy for verification of contacts andinformationinformation

•• Reputable Legal Adviser and other relevantReputable Legal Adviser and other relevantconsultantsconsultants –– invaluable source of reference.invaluable source of reference.

MAIN LEGISLATIONSMAIN LEGISLATIONS•• Companies and Allied Matters Act (CAMA)Companies and Allied Matters Act (CAMA)

19901990

•• National Investment Promotion Act 1995National Investment Promotion Act 1995

•• Foreign Exchange (Monitoring & MiscellaneousForeign Exchange (Monitoring & MiscellaneousProvisions) Act 1995Provisions) Act 1995

BUSINESS VEHICLESBUSINESS VEHICLES

•• Agency/FranchisingAgency/Franchising

•• Acquisition of shares in existing local companyAcquisition of shares in existing local company

•• Establishment of aEstablishment of a companycompany –– 100% foreign100% foreignownership/joint ventureownership/joint venture

AAGENCY/FRANCHISINGGENCY/FRANCHISING•• Incorporation not requiredIncorporation not required

•• Suitable for sale and supply of branded goods andSuitable for sale and supply of branded goods andservicesservices

•• Define the nature of transactionDefine the nature of transaction –– exclusive/nonexclusive/nonexclusive relationshipexclusive relationship

•• Protect trademarks and other intellectual propertiesProtect trademarks and other intellectual properties

•• Establish mechanism for dispute resolution andEstablish mechanism for dispute resolution anddetermination of contractdetermination of contract

•• Agencies no longer encouraged.Agencies no longer encouraged.

AcquisitionAcquisition ooff sshareshares iinn eexistingxistingllocalocal ccompanyompany

•• Incorporation not requiredIncorporation not required

•• Suitable for portfolio investmentSuitable for portfolio investment

•• Conduct Due DiligenceConduct Due Diligence

•• Not common except if buying into jointNot common except if buying into jointVenture (JV) enterpriseVenture (JV) enterprise

Establishment of aEstablishment of a companycompany

•• 100%100% Foreign Equity ShareholdingForeign Equity Shareholding

•• Joint Venture with NigeriansJoint Venture with Nigerians

100% Equity Shareholding100% Equity Shareholding

•• Structural SimplicityStructural Simplicity

•• Uncomplicated management and FinancialUncomplicated management and FinancialControlControl

•• Uncomplicated Profit/Capital RepatriationUncomplicated Profit/Capital Repatriationarrangementarrangement

Joint VentureJoint Venture•• knowledge of local terrain and relevant contactsknowledge of local terrain and relevant contacts

•• Joint venture agreement before incorporation to defineJoint venture agreement before incorporation to definethe following issues;the following issues;

** Scope, objective and duration of the ventureScope, objective and duration of the venture** Equity Structure and returns on investmentEquity Structure and returns on investment** Management and Technical functions andManagement and Technical functions and controlcontrol** Buyout and TerminationBuyout and Termination** Supremacy of JV agreementSupremacy of JV agreement** Dispute ResolutionDispute Resolution

GENERAL REQUIREMENT FORGENERAL REQUIREMENT FORESTABLISHING A COMPANYESTABLISHING A COMPANY

•• INCORPORATIONINCORPORATION

•• OBTAIN POBTAIN PRERE--OPERATIONAL TAXOPERATIONAL TAXCLEARANCE CERTIFICATE AND VATCLEARANCE CERTIFICATE AND VATREGISTRATIONREGISTRATION

•• OBTAIN FOREIGN INVESTMENTOBTAIN FOREIGN INVESTMENTAPPROVALSAPPROVALS

•• CONCLUDE ICONCLUDE IMMIGRATION FORMALITIESMMIGRATION FORMALITIESFOR EXPATRIATEFOR EXPATRIATE EMPLOYEESEMPLOYEES

INCORPORATIONINCORPORATIONSTATUTORY REQUIREMENTSSTATUTORY REQUIREMENTS

•• MinimumMinimum authorisedauthorised share capital of N10,000.00share capital of N10,000.00of which 25% must be allotted to the subscribersof which 25% must be allotted to the subscribers ––for foreign investors minimum paid up share capitalfor foreign investors minimum paid up share capitalof N10,000,000.00 (approxof N10,000,000.00 (approx US$75,200.00)US$75,200.00)required for the grant of a business permitrequired for the grant of a business permit

•• Minimum of 2 ShareholdersMinimum of 2 Shareholders –– foreign shareholderforeign shareholder+ local nominee, individuals/corporate citizens+ local nominee, individuals/corporate citizensallowedallowed

••Minimum of 2 DirectorsMinimum of 2 Directors -- both may be nonboth may be non -- residentresidentbut one Nigerian advisablebut one Nigerian advisable

PROCEDUREPROCEDURE

••Obtain Incorporation FormsObtain Incorporation Forms

••Prepare memorandum and Articles of AssociationPrepare memorandum and Articles of Association((MemartMemart))

••Have a designated registered office in Nigeria, whichHave a designated registered office in Nigeria, whichcannot be a post office box or private mail bag addresscannot be a post office box or private mail bag address

•• Pay Statutory ChargesPay Statutory Charges

••File Incorporation forms andFile Incorporation forms and MemartMemart at the CAC, obtainat the CAC, obtainCertificate of IncorporationCertificate of Incorporation

PPRERE--OPERATIONAL TAXOPERATIONAL TAXCLEARANCE CERTIFICATE ANDCLEARANCE CERTIFICATE AND

VAT REGISTRATIONVAT REGISTRATION..•• Registration with the Federal Board of InlandRegistration with the Federal Board of Inland

Revenue (FIRS) for corporate tax and VATRevenue (FIRS) for corporate tax and VATpurposespurposes

•• ObtentionObtention of a preof a pre –– operational tax clearanceoperational tax clearancecertificate and VAT certificate. These documentscertificate and VAT certificate. These documentsare required to process the companyare required to process the company’’s businesss businesspermit.permit.

FOREIGN INVESTMENT APPROVALS.FOREIGN INVESTMENT APPROVALS.•• National Investment Promotion CouncilNational Investment Promotion Council

(NIPC)(NIPC) -- RegistrationRegistration

•• Business permitBusiness permit –– to enable a foreignto enable a foreign investorinvestorto hold shares in a company incorporated into hold shares in a company incorporated inNigeria. In practice, it is possible toNigeria. In practice, it is possible toincorporate and then obtainincorporate and then obtain a business permita business permitlaterlater

•• Expatriate quotaExpatriate quota –– to enable the company toto enable the company toemploy expatriate staff to fill key (usuallyemploy expatriate staff to fill key (usuallymanagement or technical) positions. Multiplemanagement or technical) positions. Multiplequota positions are morequota positions are more favourablyfavourably consideredconsideredin respect of highlyin respect of highly capitalisedcapitalised companies.companies.

CONCLUDECONCLUDE IMMIGRATIONIMMIGRATIONFORMALITIESFORMALITIES

•• Obtain Residence permit for expatriate employees.Obtain Residence permit for expatriate employees.

•• ApplyApply to the Nigerian embassy in the country into the Nigerian embassy in the country inwhich the expatriates reside, requesting that they bewhich the expatriates reside, requesting that they begranted business visas subject to regularisationgranted business visas subject to regularisation(STR) on their arrival in Nigeria.(STR) on their arrival in Nigeria.

•• EExpatriatexpatriate employee to call at the Nigerian embassyemployee to call at the Nigerian embassywith the following documents:with the following documents:

•• letletterter of appointmentof appointment

•• letter of acceptance of the employment offer.letter of acceptance of the employment offer.

••The NIPC or Federal Ministry of internal AffairsThe NIPC or Federal Ministry of internal Affairsletter granting the company expatriate quotaletter granting the company expatriate quotapositionspositions

•• Original and certified true copies of theOriginal and certified true copies of theprofessional qualification certificate of the employeeprofessional qualification certificate of the employeeor cor certifiedertified translations if not in English.translations if not in English.

••aa copy of the companycopy of the company’’s letter applying for the STRs letter applying for the STRVisa.Visa.

••Certified copies of marriage documents/birthCertified copies of marriage documents/birthcertificates in respect of any accompanying spousecertificates in respect of any accompanying spouseor children.or children.

After the documents have been vetted andAfter the documents have been vetted andapproved, an STR visa is granted. The expatriate isapproved, an STR visa is granted. The expatriate isalso given a package by the embassy officialsalso given a package by the embassy officialscontaining authenticated documents. These arecontaining authenticated documents. These aresubmitted to the immigrations department aftersubmitted to the immigrations department afterarrival in Nigeria and will be used to process hisarrival in Nigeria and will be used to process hisresidence permit.residence permit.

CAPITALCAPITAL IMPORTATIONIMPORTATION

Investment capital can be in cash or kind i.e.Investment capital can be in cash or kind i.e.equipment/machinery.equipment/machinery.

CASHCASH•• foreign capital can be imported into Nigeria throughforeign capital can be imported into Nigeria through

domicilliarydomicilliary accounts operated with any of theaccounts operated with any of thelicensed banks in Nigeria and may be repatriatedlicensed banks in Nigeria and may be repatriatedthrough the same channelsthrough the same channels

•• Importation evidenced by CCI issued by the bank.Importation evidenced by CCI issued by the bank.

EQUIPMENTEQUIPMENT

••Importation of plant, machinery and raw materialsImportation of plant, machinery and raw materials

••CCI issued by local bank upon receipt ofCCI issued by local bank upon receipt ofshipping, customs documents evidencing theshipping, customs documents evidencing theimportation and board resolution of companyimportation and board resolution of company

TECHNOLOGY TRANSFERTECHNOLOGY TRANSFER

•• Any contract or agreement involving the importationAny contract or agreement involving the importationor transfer of foreign technology must be registeredor transfer of foreign technology must be registeredwith thewith the National Office of Technology AcquisitionNational Office of Technology Acquisitionand Transfer (NOTAP)and Transfer (NOTAP)

•• Fees/royalties are regulated and range from 1% toFees/royalties are regulated and range from 1% to5% of net sales for technical assistance and 2% to5% of net sales for technical assistance and 2% to5% profits before tax for management services.5% profits before tax for management services.

OIL INDUSTRY ACCREDITATIONOIL INDUSTRY ACCREDITATION(DPR PERMIT)(DPR PERMIT)

•• All companies operating in the oil and gasAll companies operating in the oil and gassector must be accredited annually by thesector must be accredited annually by theDepartment of Petroleum Resources (DPR)Department of Petroleum Resources (DPR)

•• Accreditation process involves theAccreditation process involves thecompletion and submission of applicationcompletion and submission of applicationform with relevant documentation.form with relevant documentation.

TAXATIONTAXATION•• Companies Income TaxCompanies Income Tax

•• Withholding TaxWithholding Tax

•• Personal Income TaxPersonal Income Tax

•• Value Added TaxValue Added Tax

•• Other taxesOther taxes

•• Double Taxation Treaty (DTT)Double Taxation Treaty (DTT)

COMPANIES INCOME TAXCOMPANIES INCOME TAX

•• Nigerian registered companies in the oil serviceNigerian registered companies in the oil servicesector are subject to companies income taxsector are subject to companies income taxchargeable at the rate of 30% on the profitchargeable at the rate of 30% on the profit* accruing in* accruing in* derived from* derived from* brought into or* brought into or* received in Nigeria* received in Nigeria

••Foreign companies liable to tax on a deemed profitForeign companies liable to tax on a deemed profitbasis (presently 20%) on the turnover of thebasis (presently 20%) on the turnover of thecompanycompany’’s operations in Nigerias operations in Nigeria

••Effective tax rate would amount to 6% arrived asEffective tax rate would amount to 6% arrived asfollows:follows:

••deemed profitdeemed profit 20% of turnover20% of turnover

••tax liability (CITA)tax liability (CITA) 30% of deemed profit30% of deemed profit

••final tax liabilityfinal tax liability 6%6%

WITHHOLDING TAXWITHHOLDING TAX

TThe Che Companiesompanies Income Tax Act (CIncome Tax Act (CITAITA)) providesprovidesfor tax tofor tax to be withheld at source from a receivingbe withheld at source from a receivingcompany orcompany or individual at various rates depending onindividual at various rates depending onthe income generatingthe income generating activitactivityy as follows;as follows;

•• dividendsdividends 10%10%•• all aspects of building, constructionall aspects of building, construction 5%5%

and related serviceand related servicess•• contracts for supplycontracts for supply 5%5%

••commissioncommission 10%10%

••rentsrents 10%10%

Withholding tax is treated as an advance tax on aWithholding tax is treated as an advance tax on acompanycompany’’s final tax liability. Accordingly, a nons final tax liability. Accordingly, a non--resident company assessed on a deemed profit basisresident company assessed on a deemed profit basiswould only be obliged to pay the balance of 1%,would only be obliged to pay the balance of 1%,having already had 5% withheld at source.having already had 5% withheld at source.

VALUE ADDED TAXVALUE ADDED TAXIImposedmposed by the provisions of the Value Added Taxby the provisions of the Value Added Tax(VAT) Act 1993 and made payable on the value of goods(VAT) Act 1993 and made payable on the value of goodsand services listed in the schedule to the Act at the rateand services listed in the schedule to the Act at the rate ofof5%5%

Machinery and equipment imported by a local subsidiaryMachinery and equipment imported by a local subsidiarysubject to 5% VAT, calculated on an aggregate value ofsubject to 5% VAT, calculated on an aggregate value ofcost, insurance and freight, customs duties and all othercost, insurance and freight, customs duties and all othercharges on the imported machinery or equipmentcharges on the imported machinery or equipment

It is the statutory responsibility of persons registered toIt is the statutory responsibility of persons registered tocollect on supplying taxable goods or servicescollect on supplying taxable goods or services andand renderrendermonthly returns to the Federal Inland Revenue Servicemonthly returns to the Federal Inland Revenue Service(FIRS)(FIRS)..

PERSONAL INCOME TAXPERSONAL INCOME TAX

•• On a sliding Scale fromOn a sliding Scale from 5% to 25%5% to 25%

•• Liability based on 183 day residence in aLiability based on 183 day residence in aconsecutive 12 month periodconsecutive 12 month period

•• Expatriates generally assessed on a deemedExpatriates generally assessed on a deemedsalary basis by revenue Authority but opensalary basis by revenue Authority but opento negotiationsto negotiations

DOUBLE TAXATION TREATYDOUBLE TAXATION TREATY

BETWEEN NIGERIA AND THE UKBETWEEN NIGERIA AND THE UK

The taxes covered by the DTT between Nigeria andThe taxes covered by the DTT between Nigeria andthe UK is embodied in Article 2 of the Federalthe UK is embodied in Article 2 of the FederalRepublic of Nigeria and the United Kingdom ofRepublic of Nigeria and the United Kingdom ofGreat Britain and Northern Ireland) Order madeGreat Britain and Northern Ireland) Order madepursuant to Section 34(1) of CITA as followpursuant to Section 34(1) of CITA as follows;s;

•• IIncomencome tax;tax;•• CCorporationorporation tax;tax;•• CCapitalapital gains tax; andgains tax; and•• PPetroleumetroleum revenue tax.revenue tax.

TThe general principles, which guide the taxation ofhe general principles, which guide the taxation ofcompanies in one contracting state in the othercompanies in one contracting state in the othercontracting State, are the principles ofcontracting State, are the principles of ““PermanentPermanentEstablishmentEstablishment”” andand ““Attribution of ProfitsAttribution of Profits””

““the profits of an enterprise of a contracting state shallthe profits of an enterprise of a contracting state shallbe taxable only in that state unless thebe taxable only in that state unless the enterpriseenterprisecarries on business in the other contracting statecarries on business in the other contracting statethrough a permanent establishment situatedthrough a permanent establishment situatedthereintherein……..””

OTHER TAXESOTHER TAXES

•• Educational TaxEducational Tax –– chargeable at the rate 2% of thechargeable at the rate 2% of theassessable income of the companyassessable income of the company

•• State and Local Governments rates and levies asState and Local Governments rates and levies asmay be levied e.gmay be levied e.g

•• Tenement rateTenement rate•• Business Premises leviesBusiness Premises levies•• etcetc

GOVERNMENT POLICIESGOVERNMENT POLICIES

•• Local Content PolicyLocal Content Policy

•• Coastal and Inland Shipping RegulationsCoastal and Inland Shipping Regulations

LOCAL CONTENT POLICYLOCAL CONTENT POLICY

•• To enforce theTo enforce the deliberate utilisation of Nigeriandeliberate utilisation of Nigerianhuman and material resources and services in thehuman and material resources and services in theexploration, development,exploration, development, exploitation,exploitation,transportation and sale of Nigerian crude oil and gastransportation and sale of Nigerian crude oil and gasresourcesresources..

•• TTo ensure sustained and measurable increase in theo ensure sustained and measurable increase in theuse of Nigerian personnel, materials and servicesuse of Nigerian personnel, materials and servicesand increase quantum of composite value added toand increase quantum of composite value added toor created in the Nigerian economyor created in the Nigerian economy..

COASTAL & INLAND SHIPPINGCOASTAL & INLAND SHIPPINGREGULATIONSREGULATIONS

The Coastal and Inland Shipping(CThe Coastal and Inland Shipping(Caabotagebotage) Act) Act20032003

PProhibitrohibitionionEveryEvery vessel other than those wholly owned,vessel other than those wholly owned,manned, built and registered in Nigeriamanned, built and registered in Nigeria prohibitedprohibitedfrom engaging in domestic coastal carriage of cargofrom engaging in domestic coastal carriage of cargoor passengers within Nigerian territorial waters.or passengers within Nigerian territorial waters.

EExexemmptionptionss

••fforeignoreign salvage vesselssalvage vessels

••licenseslicensesWaiversWaivers

OOn application waivers may be granted to the followingn application waivers may be granted to the followingclasses of vesselsclasses of vessels amongst others;amongst others;

•• Shipping companies and vessels owned by a JVShipping companies and vessels owned by a JVbetween Nigerians/Nonbetween Nigerians/Non--Nigerians with at least 60%Nigerians with at least 60%beneficial Nigerian holding;beneficial Nigerian holding;

•• Nigerian registered vessels owned byNigerian registered vessels owned by NigerianNigerianregistered companies, provided they are inregistered companies, provided they are incompliancecompliance with the Act.with the Act.

EXPORT FREE ZONEEXPORT FREE ZONEBUSINESS INCENTIVESBUSINESS INCENTIVES

•• CALABARCALABAR -- Cross River StateCross River StateGGeneraleneral Export free ZoneExport free Zone

•• ONNEONNE -- Rivers StateRivers StatePPlatformlatform for oil and gas industry supportfor oil and gas industry support

AVAILABLE INCENTIVES:AVAILABLE INCENTIVES:

••Exemption from local incorporation requirementsExemption from local incorporation requirements

••Exemption from local corporate taxes, custom andExemption from local corporate taxes, custom andexcise duties within the zoneexcise duties within the zone

••Unrestricted remittances of dividends, profits andUnrestricted remittances of dividends, profits andcapital repatriationcapital repatriation

••Deregulated foreign exchange dealingsDeregulated foreign exchange dealings –– goods andgoods andservices may be traded in foreign currencyservices may be traded in foreign currency

SUMMARYSUMMARYnn FAMILIARISE YOURSELF WITH REGULATORYFAMILIARISE YOURSELF WITH REGULATORY

FRAMEWORKFRAMEWORK –– SEEK PROFESSIONAL ADVICESEEK PROFESSIONAL ADVICEEARLYEARLY

nn REGISTER LOCAL SUBSIDIARYREGISTER LOCAL SUBSIDIARY –– 100% EQUITY100% EQUITYRECOMMENDED UNLESS OTHERWISE REQUIREDRECOMMENDED UNLESS OTHERWISE REQUIREDBY CONTRACT ACTIVITYBY CONTRACT ACTIVITY

nn ALLIANCE/PARTNERING, NOT AGENCY, THE WAYALLIANCE/PARTNERING, NOT AGENCY, THE WAYTO GOTO GO

nn HAVEHAVE DEMONSTRABLE LOCAL CONTENTDEMONSTRABLE LOCAL CONTENTSTRATEGYSTRATEGY

nn ENSURE EFFECTIVE EXIT STRATEGYENSURE EFFECTIVE EXIT STRATEGY