AN OVERVIEW OF THE LEGAL REQUIREMENTS FOR FOREIGN PARTICIPATION IN BUSINESS IN NIGERIA

AN OVERVIEW OF THE LEGAL REQUIREMENTS FOR FOREIGN PARTICIPATION IN BUSINESS IN NIGERIA 

By Tomisin Farinola Valentine 

Abstract

Despite Nigeria's economy degradation, devaluation of naira currency and the outbreak of COVID-19. Nigeria still serve as one of the leading countries in Africa that continues to attract an increasing number of foreign investments. This statement was affirmed in year 2020 when the United Nations reported that Nigeria’s inflow of Foreign Direct Investments (FDI) increased by 4.3%.

As a result, the increase of foreign investments makes it important for government to regulate foreign participation in Nigerian businesses. In furtherance of this responsibility, the government has enacted various legislations and policies that control foreign participation, information that every foreigner should be aware of, such as incorporation procedures, relevant licenses and permits, and incentives available to encourage foreign participation.  Some of these laws include but not limited to: the companies and allied matters act (CAMA) 2020, the Nigerian Investment Promotion Commission Act No.16 of 1995; the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act No.17 of 1995, Immigration Act, CBN Act 2007, Security and Exchange Commission Act, e.t.c

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 or investors with the intent of carrying out business in Nigeria should know and observe

KEYWORDS: Foreign Investments, and Legislations 

1.0 INTRODUCTION 

1.1 WHAT'S FOREIGN PARTICIPATION?

According to section 868, the interpretation section of the Companies and Allied Matters Act 2020 defines a "Foreigner or a Foreign Company as a company incorporated elsewhere than in Nigeria". This means that an alien or a foreigner is a person or association, whether corporate or incorporate, other than a Nigerian citizen or association. Thus, 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. 

The position of the law in respect of foreign participation in business in Nigeria is settled to the extent that a foreign company or an alien may join or partner in the formation of business in Nigeria. This position has been supported by the statutory provision of Section 20 (4) of CAMA, 2020 which provides that: 

 “Subject to the provisions of any enactment regulating the rights and capacity of aliens to participate or undertake in a trade or business, an alien or a foreign company may join in the formation of a company”.

Additionally, a foreigner may also solely engage in business in Nigeria. In this regard, the provision of section 17 of the Nigerian Investment Promotion Commission (NIPC) Act No.16 of 1995 provides that:

“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”

1.2 EXCEPTIONS TO FOREIGN PARTICIPATION IN BUSINESS IN NIGERIA: NEGATIVE LIST 

Based on the foregoing, it is clear that a foreigner is allowed to participate in business in Nigeria but subject to some exceptions and enactments. The exceptions are stated in Section 18 of the Nigerian Investment Promotion Commission Act No.16 of 1995 which mandates that the provision of the NIPC Act shall not apply to "Negative List" as defined in Section 31 of the NIPC ACT. The said Section 31 of the NIPC Act No. 16 of 1995 defines "NEGATIVE LIST" as those list of those sectors of Investments prohibited to both foreign and Nigerian Investors, that is:

• The production of arms, ammunition e.t.c
• Production of and dealing in Narcotic drugs and psychotropic substances
• Production of military and paramilitary wears and accoutrements including those of the police and the customs, immigration and prisons service.
• Participation in coastal and inland shipping. 
• Such other items as the Federal Execution Council may from time to time, determine.

1.3 LEGISLATIONS THAT REGULATE NIGERIAN FOREIGN PARTICIPATION SPACE

• Companies and Allied Matters Act, 2020
• Foreign Exchange (Monitoring & Miscellaneous Provision Act No. 17 of 1995)
• Central Bank of Nigeria Act, 2007
• Nigerian Investment Promotion Commission Act No 16 of 1995
• Immigration Act
• Banks And Other Financial Institution Act, 1991
• Security and Exchange Commission Act
• 1999 Constitution of the Federal Republic of Nigeria (as amended) e.t.c

2.0 TYPES OF FOREIGN INVESTMENT 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.
2. 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.

3.0 LEGAL REQUIREMENTS FOR ESTABLISHMENT OF FOREIGN COMPANIES/INVESTMENT IN NIGERIA 

1. LEGAL INCORPORATION:   By virtue of the provisions of Section 78 of the Companies and Allied Matters Act (CAMA), 2020 provides that every foreign company or foreigner, wishing to set up or carrying on business in Nigeria must incorporate such company with the Corporate Affairs Commission (CAC), before the commencement of business in Nigeria. However, Section 80 of CAMA, 2020 provides for the exemptions wherein a foreign company may not seek a separate registration in Nigeria to include:

• Foreign companies invited to Nigeria by or with the approval of the Federal Government to execute any specified individual project;
• Foreign companies which are in Nigeria for the execution of specific individual loan projects on behalf of a donor country or international organization;
• Foreign government-owned companies engaged solely in export promotion activities;
• 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.
• Tax Identification Number (TIN) and Value Added Tax Registration (VAT) Registration

It should be noted that an application for exception must be sought and obtained by such a foreign company to legally operate in Nigeria 

2. REGISTRATION WITH THE NIGERIAN INVESTMENT PROMOTION COMMISSION (NIPC):

 The Nigerian Investment Promotion Commission (NIPC) is an Agency of the Federal Government with perpetual succession and a common seal, which is specially established, among other things, to:   

• Be the agency of the Federal Government to co-ordinate and monitor all investment promotion activities to which this Act applies;
• Initiate and support measures which shall enhance the investment climate in Nigeria for both Nigerian and non Nigerian investors;
• promote investments in and outside Nigeria through effective promotional means;
• Collect, collate, analyse and disseminate information about investment opportunities and sources of investment capital, and advise on request, the availability, choice or suitability of partners in joint-venture projects; e.t.c

In furtherance, notable provisions amongst the provisions relating to investments are the following:   

• A non-Nigerian may invest and participate in the operation of any enterprise in Nigeria; see section 17 of the NIPC ACT, No 16 of 1995
• An enterprise, in which foreign participation is permitted, shall after its incorporation or registration, be registered with the NIPC; see section 20(1) of the NIPC ACT, No 16 of 1995
• A foreign enterprise may buy the shares of any Nigerian enterprise in any convertible foreign currency. see section 21(1) of the NIPC ACT, No 16 of 1995
• A foreign investor in an approved enterprise is guaranteed unconditional transferability of funds through an authorised dealer, in freely convertible currency, be it:  

1. dividends or profit (net of taxes) attributable to the investment;
2. payments in respect of loan servicing where a foreign loan has been obtained; and
3. the remittance of proceeds (net of all taxes), and other obligations in the event of a sale or liquidation of the enterprises or any interest attributable to the investment. see section 24 of the NIPC ACT, No 16 of 1995
4. Total repatriation of capital where the investor choose to relocate elsewhere.

3. NIGERIAN IMMIGRATION LAWS :  Any foreign investor interested in investing or engaging in enterprise 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 or  an alien who owns a company in Nigeria must obtain a Business Permit in order to conduct business enterprise in Nigeria.

4. OBTAINING SECTOR-SPECIFIC LICENSES & PERMITS: A foreign investor or 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 example, 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).

5. REGISTRATION WITH SEC: "SEC" is an acronym for Security and Exchange Commission. By the provision of Rules 406 of SEC, all foreign companies participating in Nigeria, are expected to register with SEC.

4.0 INCENTIVES AVAILABLE TO FOREIGN INVESTORS

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). 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).
3. Companies Income Tax: The Companies Income Tax Act has been amended in order to encourage potential and existing investors and entrepreneurs. The current rate is dependent on the company’s annual turn-over.
4. Double Taxation Agreements: The Nigerian Government has entered into double taxation agreements with a number of countries. The major reason for this agreement is to give relief from double taxation in relation to taxes imposed on profit taxable in Nigeria and any taxes of similar character imposed by the law of the other country concerned- this is by way of a “tax credit.
5. Duty Drawback Scheme: The Duty Drawback Scheme is a scheme that 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.

5.0 CONCLUSION 

The Nigerian Government has also continued to review it laws and policies to suit and encourage foreign participation of business in Nigeria. This include ameliorating taxes and repatriation regulations to accommodate foreign investment in Nigeria. Although, there are still some challenges such as bureaucratic constraints yet to be solved to adopt and ease the process of doing business in Nigeria which helps to fully attract investors into the country.

REFERENCES

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