One great way of expanding one's business is to establish it in other countries like Nigeria, but why foreign direct investments in Nigeria? Nigeria is the most populous African nation, Nigeria continues to attract an increasing number of Foreign Direct investments annually. According to the UNCTAD 2021 World Investment Report, Nigeria's inflow of Foreign Direct investments (FDI) increased by 3.5% from 2019-2020 despite the global economic crisis triggered by the COVID-19 pandemic. The FDI flows rebounded strongly in 2021.
In the world bank's 2020 edition of doing Business Report, Nigeria ranked 131st worldwide, for ease of doing business due to its partial privatisation, advantageous taxation system, significant natural resources and low cost of labour. As the market expands, the government continually issues policies aimed at governing foreign investment to create a conducive business environment.
LAWS GOVERNING FOREIGN DIRECT INVESTMENTS IN NIGERIA
There are different laws governing foreign investment. Nigeria regulates foreign investment through its investment law, foreign exchange law, company law, technology transfer law, sector-specific regulations, as well as international agreements (alongside the general legal framework that applies to all businesses). The primary laws which control and regulate foreign investments on grounds of national security and public order in Nigeria include the Nigerian Investment Promotion Commission Act of 1995, as amended (the "NIPC Act") and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1995 as amended (the "FEMMP Act"). Other laws that impact FDI in the country are the Federal Competition and Consumer Protection Act, the Companies and Allied Matters Act, 2020 ("CAMA"), the National Office for Technology Acquisition and Promotion Act (the "NOTAP Act") and the Investment and Securities Act.
IMPORTANT CONSIDERATIONS FOR FOREIGN INVESTORS
As a result of all the multiple regulations and regulators set out above, a potential foreign investor will require a level of guidance in relation to determining the laws, registration, licensing and permits, and legal protection amongst others, to establish their business, operate and protect it adequately.
Generally, any individual or company registered outside Nigeria and having the intention of carrying on business in Nigeria must be registered at the Corporate Affairs Commission (CAC), except the company is exempt by law. The company is permitted to have 100% foreign shareholders except it operates in specific sectors such as oil and gas, aviation, domestic coastal carriage, etc. which require local ownership and control. There are also no restrictions in respect of the limits of foreign shareholding, in Nigerian registered/domiciled enterprises. A foreign entity must also have at least one (1) shareholder and Director, hence one can solely own a company, however Business Permit and expatriate quota (also known as Combined Expatriate Residence Permit and Alien card) from the Ministry of Interior for foreign owners and expatriates is required when a newly incorporated company is entirely owned by foreigners using a Nigerian contact address. The shareholder's names, contact and residential addresses, phone numbers, email address, occupation, electronic signature(s) and government-issued means of identification must be presented to CAC. Other requirements for registration may vary from one sector to another.
The NIPC is empowered by the Federal Government to promote foreign investments in Nigeria. Every business with foreign participation is mandated to register with the commission and obtain a certificate of registration. To obtain NIPC certificate evidence of registration at the CAC is required. It is worthy of note that Section 31 of the NIPC Act strictly prohibits domestic and foreign investment in a few business activities on the "negative list" which are; the production of arms, ammunition, production of and dealing in narcotic drugs and psychotropic substances, production of military and para-military wears and accoutrement, including those of the Police and the Customs, Immigration and Prison Services and such other items as the Federal Executive Council may from time to time determine.
It is crucial that after incorporation, a registered company registers with the Federal Inland Revenue Service (FIRS) and obtains a Tax Identification Number (TIN). The TIN is often required to secure other licenses and operate a bank account. It is also necessary to register with the State Inland Revenue Service located in the state in Nigeria where it wishes to carry on business for the purpose of personal income tax ("PIT") or Pay As You Earn ("PAYE") remittances and filings. Also, Companies, especially foreign-owned companies that already have an existing trademark in their home countries are encouraged to register such trademarks like the company's logo, in Nigeria to secure their usage by the company. A search must be conducted at the trademark registry to determine if the trademark is already in existence before registration will be approved or rejected. It is important to note that approval for trademark registration will not be granted where the trademark is already registered by another company unless permission or assignment of that trademark has been granted by that company.
PERMITS AND LICENCES
In order to operate legally, a company must secure applicable permits and licences to carry out its operations. Every foreign company in Nigeria is required to apply for and secure sector-specific permits and licences before commencing business activities. For instance, for technology transfer, the NOTAP Act provides that all technology transfer agreements between Nigerian companies and foreign partners are required to be registered with the NOTAP also, a company that wishes to provide logistics services must be licensed by the Nigerian Postal Service (NIPOST). It should be noted that a license to operate may not always confer permission to advertise. A foreign company must ensure it obtains the requisite advertising permit before advertising to its consumer.
It is general knowledge that a company is set up to make profit, hence the financials of the company should be established appropriately, right from the initial share capital it needs to set up its business in Nigeria to operate its bank account. Commercial banks in Nigeria are appointed by the Central Bank of Nigeria as authorized dealers for the purpose of importing foreign exchange and guaranteeing repatriation of foreign capital which may have been imported through a Commercial Bank. For repatriation of foreign capital, it is crucial that the Certificate of Capital Importation (CCI) is obtained from the Central Bank of Nigeria (CBN) as it proves that cash, equipment or a combination of both from foreign investors has been received by an entity incorporated in Nigeria
Additionally, the requirements for operating a bank account vary from one bank to another. Evidence of company registration, identities of a company's directors, TIN of the company, and proof of registered address, are however standard requirements.
All the above requirements are very important in setting up a foreign company in Nigeria. However, Due to the complexity of some of the processes a potential foreign investor may require some guidance in relation to establishing a business and navigating the Nigerian business environment. It is important that a foreigner who is interested in doing business or setting up a company in Nigeria engages the services of a corporate commercial lawyer or law firm who will ensure that the business is not erring on the side of law in which it seeks to operate. This would ensure proper protection of the company from the beginning.
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.