NIGERIAN FOREIGN BUSINESS POLICY

Most countries have business policies which have been put in place to serve as a guideline for foreign companies and expats who intend to establish a business in their country. Nigeria, however isn’t different from any other country as we have certain policies in place which we expect any foreign company to take note of before and after they establish their business in Nigeria.

Below are some of the major Nigerian foreign business policies

1.  INCORPORATING A BUSINESS IN NIGERIA

In our previous post I already addressed issue pertaining to registering your business in Nigeria, however I would be elaborate on it in this post.

Any foreign investor wishing to set up business operation in Nigeria needs to take all steps necessary to obtain local incorporation of the Nigerian branch or subsidiary from the Corporate Affairs Commission (CAC). Foreign companies may set up representative offices in Nigeria. A representative office however, cannot engage in business or conclude contracts or open or negotiate any letters of credit. It can only serve as a promotional and liaison office and its local operational expenses have to be sent in from the foreign company. A representative office has to be registered with the CAC.

A foreign company can however be exempted from incorporating locally in an event where

• The company was invited by or with the approval of a the Federal Government of Nigeria to execute specified individual project

• The company is executing a project on behalf of a donor country or international organization

• The company is here solely for export activities, or an engineering and technical activities under contract with the Federal Government of Nigeria or any agencies or bodies whose contract has been approved by the Federal Government of Nigeria

2.  IMPORTING GOODS INTO NIGERIA

• All persons intending to import physical goods into Nigeria are required in the first instance to process their Form ‘M’ through any bank irrespective of the value and whether payment is involved or not

• All the supporting documents shall be clearly marked “Valid for Forex” or “Not Valid for Forex”, depending on whether or not foreign exchange remittance would be  involved

• Consignments shall bear name of products, country of origin, specifications, date of manufacture, batch or lot number, standard(s) to which they were produced and in case of items such as food and drinks and such related products, they should carry Expiry Date or the shelf life as well as active ingredient(s) where applicable

• All goods to be imported into the country must be labelled in English in addition to any other language or translation; otherwise the goods would be confiscated

3. PIONEER STATUS

The Nigerian government foreign policy grants pioneer status to certain foreign companies. The grant of Pioneer Status to an industry is aimed at enabling the industry concerned to make a reasonable level of profit within its formative years.

Pioneer status is a tax holiday granted to qualified or (eligible) industries anywhere in the Federation and seven-year tax holiday in respect of industries located in economically disadvantaged local government area of the Federation.

To qualify, a joint venture company or a wholly foreign-owned company must have incurred a capital expenditure of not less than five million Naira whilst that of qualified indigenous company should not be less than N150,000.00.

In addition, an application in respect of Pioneer Status must be submitted within one year the applicant company starts commercial production otherwise the application will be time-barred.

4. COMPANY TAX

All companies operating in Nigeria are expected to pay tax hence foreign companies are expected to pay the company income tax. The Companies Income Tax Act has been amended in order to encourage potential and existing investors and entrepreneurs. When you register or incorporate a company, you are expected to register with the nearest tax office to you, in order to open a file for all of your future tax transactions.

The law requires every company (including a company granted exemption from incorporation) to, at least once in every year without notice or demand, make and deliver to the Board a return in the forms of:
(i)      The audited accounts, tax and capital allowances computations and a true and correct statement in writing containing the amounts of its profits from each and every source;
(ii)      A declaration which shall be signed by a director or secretary of the company that the returns contain a true and correct statement of the amount of its profits computed in respect of all sources and that the particulars in such returns are true and complete.
• For newly incorporated companies, the submission shall be within eighteen months from the date of its incorporation or not later than six months after the end of its first accounting period, whichever is earlier.
• For Existing Companies – companies that have been in business for more than 18 months – the submission shall be not more than six months after the close of the company’s accounting year.

Companies Income Tax Rates

1. Rate of Tax (on Total profit) is 30% for all companies except for those in the petroleum sector

2.  Lower Rate of Tax: The law, however, prescribes lower rate of tax for certain companies. Companies enjoying lower rates are classified as either “small companies” or those in “preferred sectors.”

   Small companies are those companies having an annual turnover of N1, 000,000.00 or less. Companies in the preferred sector are those in manufacturing, agricultural production, and mining of solid minerals or wholly in export trade.

   The Lower rate of tax of 20% is payable by these companies in the preferred sector of the Nigerian economy for the first 5 years of commencement of business.

3. Minimum Tax is paid by a company which has (1) no total profit, (2) whose total profits results in no tax payable or (3) tax payable is less than minimum tax.

   If the turnover of the company is N500,000 or below and the company has been in business for at least 4 calendar years, the minimum tax will be the highest of the following:

   • N500,000 OR Below
   A. 5% of gross profits; or
   B. 0.5% of Net Assets: or
   C. 0.25% of paid up capital; or
   D. 25% of Company’s annual turnover

   • Above N500,000
   If the turnover is higher than N500,000 the minimum tax will be whatever is payable on a turnover of N 500,000 and any excess over N500,000 will be taxed in addition at 50 per cent of the rate first used for the first N 500,000

Exception to Minimum Tax

• The minimum tax is not applicable to a company during the first four years of its commencement of business;

• It is also not applicable to agricultural trade or business as defined in Section 9 (8) of Companies Income Tax Act: and

• It is not applicable to any company with at least 25 per cent imported equity capital.

5.  PROVISIONS RELATING TO INVESTMENTS

Notable amongst the provision relating to investments are the following:

• A non-Nigerian may invest and participate in the operation of any enterprise in Nigeria;

• An enterprise in which foreign participation is permitted, shall after its incorporation or registration, be registered with the NIPC.

• A foreign enterprise may by the shares of any Nigerian enterprise in any convertible foreign currency.

Good luck as you bring your business to Nigeria