The Penthouse Floor, Itiku House

28-30 Macarthy Street, Lagos, Nigeria

PMB 51145, Falomo, Ikoyi
NIGERIA
Phone: +234 1 739 0397/ +234 1 736 9797
Fax: +1 646 536 8978
URL: www.blackfriars-law.com

Doing Business in Nigeria: A Guide to Foreign Investors

Nigeria is a developing capitalist economy. Free enterprise is the norm but there are
some important sectors like Electricity and Water that are partially owned and
controlled by the government. Most of Nigeria’s economic activities occur in the major
metropolitan areas such as, Aba, Abuja, Lagos, Kano, Onitsha, and Port Harcourt. Oil
and Gas is the major export and revenue earner for the country.

In 1989, the Nigerian government permitted 100% foreign ownership in any new
venture except those involved in the production of arms and ammunition. In addition,
the Nigerian Free Trade Zone Act established the Nigerian Export Processing Zone
Authority (NEPZA). In Free Trade Zones (FTZ’S), all products and services are
designated for export with specific exceptions. Enterprises in the Free Trade Zones are
exempted from custom duties, local taxes and foreign exchange restrictions, and qualify
for incentives such as –tax holidays, rent free land, no strikes or lockouts, no quotas in
the EU or US markets. There are currently seven Free Trade Zones in Nigeria. For
further details and guidance, please see the attached brochure in pdf.

Establishing a Business with Foreign Shareholding in Nigeria

Under Nigerian law, foreigners can own a new company 100%. The first stage to foreign
participation or ownership of a company in Nigeria is to establish the partners/shareholders
and their respective percentage shareholdings in the proposed company. Thereafter, the
promoters of the company would establish the name of the proposed company, initial
authorised share capital and main objects of the proposed company. Except in
instances where the proposed company will be 100% owned by non-resident
shareholders, the promoters should prepare Joint-Venture Agreement between
prospective shareholders. The Joint-Venture may specify; inter-alia, mode of
subscription by parties, manner of Board Composition, mutually protective quorum for
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Tel: +234 1 739 0397; Fax: +1 646 536 8978; Url: www.blackfriars-law.com
meetings, specific actions which would necessitate share-holders approval by special or
other resolutions.

Foreign Shareholders of a proposed company in Nigeria may grant a power of attorney

to its Solicitors in Nigeria, enabling them to act as its Agents in executing incorporation
and other statutory documents pending the registration with Nigerian Investment
Promotion Commission (NIPC).

The first step towards incorporation of the new company is to conduct a search as to the
availability of the proposed company name and, if available, reserve the name with the
Corporate Affairs Commission. The Nigerian solicitor would then effect payment of
stamp duties, CAC filing fees and process and concludes registration of the company as
a legal entity.

When the Certificate of Incorporation is issued, the new business should be registered
with the Federal Inland Revenue Service (FIRS) for Value Added Tax (VAT) Certificate.
In addition, the new company should prepare and submit simultaneous applications to
the NIPC (on the prescribed NIPC Application Form) for the following: -

- Registration and Expatriate Quota;

- Pioneer Status and other incentives (where applicable)

The application to the NIPC should be accompanied with the following documents: -

o Original and duplicate Copy of the duly completed NIPC Form 1;

o Original Copy of the treasury receipt for the purchase of NIPC Form;
o A Copy of the Certificate of Incorporation of the applicant company;
o A Copy of the Tax Clearance Certificate of the applicant company;
o Produce CAC’s Forms CAC2.3 and 2.3 duly certified;
o A Copy of the Memorandum and Articles of Association;
o A Copy of treasury receipt as evidence of payment of stamp duties on the
authorised share capital of the company as at date of application;
o A Copy of the Joint-Venture Agreement -UNLESS 100% foreign
ownership is envisaged;
o A Copy of Feasibility Report and Project Implementation Programme of a
company for its proposed business. It is advisable that quotations, letters
of intent and other such documentation relating to industrial plant and
machinery to be acquired by the company, be forwarded either as annexes
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 or separately. In order to discourage the dissipation of administrative
energy on speculative applications, the NIPC favours the applicant who
has demonstrated positive intention to commence business as and when
approvals are granted. Hence, the requests for evidence of acquisition of
business premises and evidence of acquisition of the plant and machinery
to be utilised in the company's business;
o A Copy of Deed(s) of Sub-Lease/Agreement evidencing firm commitment
to acquire requisite business premises for the company's operation. By
implication, the ultimate NIPC approvals do incorporate approvals of the
industrial site locations indicated in the application;
o A Copy of training programme or personnel policy of the company,
incorporating management succession schedule for qualified Nigerians;
o Particulars of names, addresses, nationalities and occupations of the
proposed directors of the company;
o Job title designations of expatriate quota positions required, and the
academic and working experience required for the occupants of such
positions. It is pertinent to note that expatriate quota on a “Permanent
Until Reviewed” (PUR) status is only accorded to a Managing Director,
where the non-resident shareholders own a majority of the company's
shares, and the authorised capital of the company is N10 million and
above;
o Copies of information brochure on foreign shareholder (if available) as
testimony of international expertise and credibility of the foreign partner
in the proposed line of business.

Capital Importation

Once the NIPC approvals are obtained, the non-resident shareholder must take effective
steps to import its foreign equity holding in the company. To ensure prompt
importation of the foreign equity components, the NIPC may register company but
defer approvals for Expatriate Quota and Pioneer Status and other applicable
investment incentives, until evidence of capital importation is produced. After
obtaining Certificate of Capital Importation from the bank, the NIPC is to be notified of
this fact with the supporting documentation, in order for it to resume processing of
pending approvals that might have been deferred on such ground. As soon as
expatriate quota position are granted and the respective individuals to fill the quota
positions are recruited, the company must embark on steps to obtain work permit and

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residency status for the expatriate employees and their accompanying spouses and
children (if any).

Current Legal Regulation on the Appointment of Foreign Directors

The promoters of business ventures in Nigeria are free to appoint directors of their
choice, either foreign or Nigerian, and the directors may be resident or non-resident.
The application to the NIPC must reflect the names of the proposed Nigerian and
foreign directors (with an indication of resident and non-resident directors). The
Registration Certificate consequently issued following such application usually reflects
the respective names of the proprietors of the company, as well as the directors
representing each proprietor or co-proprietor. Payments of foreign directors' fees are
remittable in the same manner as dividends accruing to the foreign company. However,
since such fees are taxed at source (5% as withholding tax), each foreign director's fees
are remittable subject to satisfactory evidence that the taxable amounts on such fees
have been paid.

Tax dvantages to a “Pioneer Company”

By virtue of the Industrial Development (Income Tax Relief) Act, Cap. 179 Laws of
Nigeria, 1990, certain industries are declared to be “pioneer industries.” Thus, any
company whose products fall within the categorised industries could be conferred with
Pioneer Status.

This designation is not necessarily a reflection that a company was pioneer per se in the
industry, as several companies within the same pioneer industry classification could
qualify for Pioneer Status. Where the activities of a company include the production of
pioneer and non-pioneer products, the tax relief available on conferment of Pioneer
Status would be restricted to income derived from pioneer products only. Under the
current industrial policy, conferment of Pioneer Status accords a company relief from
income tax liability for a period of up to 5 years (tax-holiday status).

The Criteria for Granting Pioneer Status: -

(i) the amount of qualifying capital investment in a company (N10 million and above)
must be verifiable by physical inspection and supported by a report of the Industrial
Inspectorate Division of the Federal Ministry of Industry before a Pioneer Certificate is
granted;

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Tel: +234 1 739 0397; Fax: +1 646 536 8978; Url: www.blackfriars-law.com
(ii) the socio-economic advantages of a company's activities to the Nigerian economy as
set out in its Feasibility Study is also an important consideration.

Without prejudice to these conditions, NIPC is empowered to confer Pioneer Status and
other investment incentives, in any other deserving circumstance as the Council of
NIPC may approve in accordance with the provision of the Nigerian Investment
Promotion Commission Act and the Foreign Exchange (Monitoring and Miscellaneous
Provisions) Act in 1995.

For further details, please contact us at: info@blackfriars-law.com

BLACKFRIARS LLP

The Penthouse Floor, Itiku House, 28-30 Macarthy Street, Lagos.

Tel: +234 1 739 0397; Fax: +1 646 536 8978; Url: www.blackfriars-law.com