Repatriation of capital and profits is an important area of consideration for foreign investors willing to invest in the Nigerian economy. Foreign investors need assurance that their capital and the profits gained can be transferred out of the country at any time without any hassle. In our previous article, we considered the relevance of a Certificate of Capital Importation (CCI) to foreign investors in Nigeria. In this article, we will consider the ways foreign investors can structure their capital inflow into Nigerian businesses to be eligible for repatriation and the options open to foreign investors for repatriation of funds.
Ways of structuring capital Inflow
An important factor to consider when a foreign investor intends
to repatriate its funds is the structure of the capital inflow, as
it may determine the investor's repatriation options in the
future. A foreign investor can structure its capital inflow into a
Nigerian company as equity investment(through the purchase of
shares), or debt investment(through a loan to the Nigerian
Please note that the capital invested in the Nigerian company may take the form of funds, goods or services. Examples of goods are equipment, plants, machinery, raw materials, which will be used by the Nigerian company for its operations. Such goods will, however, have to undergo valuation to determine the monetary value of the goods.
Options open to foreign investors for repatriation of capital
1. Repatriation through a Certificate of Capital Importation: A
CCI is a certificate issued by the Central Bank of Nigeria (CBN)
through an authorized dealer (a commercial bank) to a foreign
investor confirming the inflow of foreign currency or goods into
Nigeria for investment purposes.
Capital inflowed either as debt or equity as stated above and the related profits can be outflowed (repatriated) out of Nigeria using a CCI, as shown in the diagram below.
Please note that foreign investors who do not have a CCI would be required to source for foreign currency for repatriation, from autonomous sources as they would not be granted access to the official Nigerian Foreign Exchange Market. This process is more expensive and may be fraught with practical difficulties including the risk of breaching anti-money laundering laws.
2. Repatriation of Payments for Technology Transfer Services: Asides from repatriation through CCIs, another way foreign investors can repatriate their funds from Nigeria is by structuring the agreements for technology transfer services rendered to the Nigerian company as Technology Transfer Agreements (TTA).
TTAs are agreements that provide for the transfer of foreign technology to Nigerian parties. They include:(i)Trademark License Agreement; (ii)Technical Know-How Agreement; (iii)Management Services Agreement; (iv)Technical Services Agreement; (v)Technical Services Agreement; (vi) Consultancy Services Agreement; (vi)Software License Agreement; (vii)Franchise Agreement; (viii) Research and Development Agreement; (ix) Hotel management Agreement e.t.c.
Where foreign investors enter into a TTA with the Nigerian company, they will be required to seek the approval of the National Office for Technology Acquisition and Promotion (NOTAP) by registering the TTA with NOTAP in accordance with the National Office for Technology Acquisition and Promotion Act (NOTAP Act). The fees payable for the provision of the technology transfer services must also be approved by NOTAP.
Registration of a TTA in accordance with the NOTAP Act will enable the foreign investor to repatriate in foreign currency, any payment due to it under the TTA. Please note that NOTAP will not approve the registration of a TTA, where it is observed that the technological interest and integrity of Nigeria is not given adequate consideration in the negotiation, drafting and implementation of the TTA, or where it does not fulfil the requirements provided in the NOTAP Act. Other requirements for the registration of a TTA include:(i) provision for capacity building of Nigerians with respect to the technology in the TTA; (ii) payment of applicable taxes by the foreign company; (iii) inclusion of methods for the domestication of the technology, local raw material development, skills acquisition etc in the TTA; and (iv) evidence of registration or pending registration of the intellectual property in Nigeria (where applicable) etc.
To find out more on CCIs; registration of TTAs with NOTAP; and managing the risks foreign investments, please click on the links below.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.