As Africa's largest economy and most populous nation, Nigeria continues to attract global interest as a strategic destination for investment. From its dynamic consumer market to its vast natural and human resources, Nigeria presents promising opportunities for foreign businesses seeking expansion in Africa. However, navigating the legal and regulatory landscape is essential for any foreign investor aiming to establish a legitimate and sustainable presence in the country.
In recognition of the critical role foreign investment plays in driving economic growth and development, Nigeria has made concerted efforts to open its economy to foreign participation, improve the ease of doing business, and provide incentives that make investment more attractive. Nonetheless, the process of registering a foreign-owned business in Nigeria is guided by a framework of statutory laws and regulatory requirements that must be carefully followed.
This article provides a comprehensive guide to registering a foreign-owned business in Nigeria, detailing the legal structure, registration procedures, permits and licenses required, available incentives, and key considerations for foreign investors. As a foreigner, whether you are exploring a new market or looking to expand your global footprint, understanding the regulatory terrain is the first step toward success in Nigeria's vibrant business environment.
Capacity of a foreigner to do business in Nigeria
Foreign investors have significant opportunities to establish and operate businesses in Nigeria. Under the Nigerian Investment Promotion Commission (NIPC) Act, foreigners are granted the ability to engage in business activities across various sectors of the economy.1 However, this provision is subject to provision of section 18 of the Act which outlines the scope of allowable investments which a foreigner can engage in.
While foreign investors enjoy the right to operate businesses, the NIPC Act imposes certain restrictions on the types of businesses in which they can participate. This is primarily through a "negative list" that outlines specific sectors that are completely prohibited to both foreigners and Nigerians. These restrictions ensure that certain strategic or sensitive industries remain under control of the government.
The negative list as defined under Section 31 of the NIPC Act includes, but is not limited to, the following sectors:
- Production of arms, ammunition, and explosives: This includes the manufacture of military-grade weapons or explosives, which are deemed critical to national security.
- Production and dealing in narcotic drugs and psychotropic substances: The production, trade, or distribution of illegal substances or drugs that are harmful to public health and safety is strictly prohibited.
- Production of military and para-military clothing and accoutrements: Foreigners are prohibited from engaging in the production of uniforms, equipment, and other goods for the military, police, customs, immigration, and prison services.
- Any other sectors determined by the Federal Executive Council: The Federal Executive Council (FEC) holds the authority to amend and expand the list of prohibited sectors, thereby limiting foreign participation in additional industries deemed crucial to national interests.
The above is further reiterated by the Companies and Allied Matters Act 2020 (CAMA) as follows:
"Subject to the provisions of any enactment regulating the rights and capacity of aliens to undertake or participate in trade or business, an alien or a foreign company may join in forming a company.''2
It is crucial to note that these restrictions do not bar foreigners from engaging in general commercial and industrial activities in Nigeria. Rather, they are aimed at protecting Nigeria's sovereignty and maintaining control over sectors that have a direct impact on national security, public health, and societal welfare.
Thus, while foreigners have the capacity to invest and carry on business operations in Nigeria, it is important for potential investors to carefully assess these restrictions and ensure compliance with the provisions outlined in the NIPC Act. This will help to mitigate legal risks and ensure a smooth and lawful establishment of their business operations in Nigeria.
Classification of foreign participation in Nigeria
Foreign participation in Nigeria's economy is primarily categorized into two major options, each of which allows for different levels of engagement and investment opportunities. These classifications are pivotal in determining the structure and operational scope for foreigners looking to establish a business in Nigeria. The two primary processes through which a foreigner can engage in business and register a business in Nigeria are:
- Foreign Direct Investment (FDI)
- Foreign Portfolio Investment (FPI)
Each of these investment types offers distinct features, regulatory frameworks, and methods of business integration, which will be discussed extensively below.
Foreign Direct Investment
Foreign Direct Investment (FDI) refers to a situation whereby a non-Nigerian establish a company independently or jointly with a Nigerian in Nigeria. This involves the direct injection of capital into the Nigerian economy through the establishment of a new company, acquisition of an existing one, or expanding operations via joint ventures.
Procedure for Foreign Direct Investment in Nigeria
- Apply and Obtain business visa ''Subject to Regularization' (STR) at the Nigerian embassy.
- Where necessary, prepare a joint venture agreement and any other necessary pre-incorporation agreements such as promoters' service contract, acquisition of business agreement, directors' service contract, property acquisition agreement and Non-Disclosure Agreement.
- Form and register a company with the Corporate Affairs
Commission.3 A qualified legal practitioner can carry out
this process by undertaking the following procedural steps:
- Receiving and reviewing necessary instructions from the client;
- Preparing all required incorporation documents and ensuring proper stamping;
- Filing the documents with the appropriate regulatory authority and securing the certificate of incorporation.
- Apply to the Nigerian Investment Promotion Commission for registration.4
- Apply the Securities and Exchange and Commission for registration of the security or investment.5
- Import capital through an authorized dealer and obtain a certificate of importation.6
Regulatory Approvals Required for Foreign Direct Investment (FDI) in Nigeria
- Business Permit: Foreign-owned companies are required to obtain approval from the Federal Ministry of Interior before establishing operations in Nigeria. This approval is granted in the form of a business permit.
- Residence Permit: A residence permit authorizes a foreign national engaged in business activities in Nigeria to reside legally and freely within the country.
- Expatriate Quota: This is an authorization granted to companies to employ expatriates for positions requiring specialized skills that are scarce or unavailable locally. The quota is initially granted for a period of three (3) years and may be renewed every two (2) years, up to a maximum of seven (7) years. However, for companies operating in the oil and gas sector, the initial approval is for two (2) years and may be renewed once, with a total validity period not exceeding four (4) years.7
Foreign Portfolio Investment (FPI)
In Foreign Portfolio Investment (FPI), foreign investors contribute to the economy by purchasing shares or stocks in companies established within Nigeria.8 This process involves the importation of capital in the form of foreign currency, which is subsequently converted into the local currency (Naira) through an authorized dealer, such as a licensed commercial bank. The investment allows foreign investors to participate in Nigeria's financial markets, offering opportunities for portfolio diversification while adhering to the country's regulatory framework. This form of investment typically provides returns through capital appreciation and dividends, without involving direct management or control over the invested companies.
Procedure for Foreign Portfolio Investment in Nigeria
- Application for shares by the foreigners.
- A resolution will be passed by the Board of Directors allotting the shares subject to the relevant approvals being obtained.
- Register the securities with SEC.9
- Import capital and obtain certificate of importation. 10
How Capital is Imported into Nigeria
Capital importation by foreign individuals and companies is regulated by the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act. According to this Act, any person investing in an enterprise or security in Nigeria, using foreign currency or capital, must carry out the transaction through an Authorized Dealer. The investment can be made via telegraphic transfer, cheques, or other negotiable instruments, and the foreign currency must be converted into Naira in the official market, in compliance with the provisions of the Act.11
The Authorized Dealer through which the foreign currency or capital for the investment is imported shall, within 24 hours of the importation, issue a Certificate of Capital Importation to the investor and shall, within 48 hours thereafter, make returns to the Central Bank giving such information as the Central Bank may, from time to time, require.12
An authorized dealer through which capital is imported freely into the country, can either be a commercial bank or a debt-equity scheme by the federal government
Capital Importation by an Authorized Dealer
A foreign investor intending to acquire shares or import capital for the purpose of conducting business in Nigeria is permitted to bring in foreign capital through an authorized dealer, typically a licensed commercial bank. This process ensures that the capital importation is properly documented and recognized by the Nigerian authorities.
The funds brought into the country is converted into Nigerian Naira using the prevailing exchange rate at the official foreign exchange market, thereby facilitating smooth integration into the local economy.
Capital brought into Nigeria can take the form of cash or non-cash considerations. In addition to monetary transfers, investors may also import capital through tangible assets such as machinery, equipment, raw materials, or other goods intended for business operations.13 These forms of capital must also be properly valued and documented to qualify for official recognition and potential repatriation benefits.
Capital Importation by Debt-Equity Scheme of The Federal Government
In 1988, the Federal Government of Nigeria established the Debt Conversion Programme (DCP) and set up a Debt Conversion Committee (DCC) to implement the Programme and one of the objectives of the programme is to create an attractive avenue for the importation of foreign capital.14
Where the purpose of conversion is for investment, the minimum paid-up capital of the beneficiary company shall not be less than N5,000,000.00.15 In order to minimize administrative work, discourage frivolous applications and facilitate the supervision of, or surveillance over the projects in which the naira proceeds of debt conversion are invested, the minimum amount of debt to be considered under the Scheme is $250,000 in the first instance and $25,000 in subsequent redemptions16
Incentives And Assurances Available to Foreigners Intending to Do Business in Nigeria.
- Prohibition of Expropriation and Nationalization
Under the Nigerian Investment Promotion Commission (NIPC) Act, the government is prohibited from arbitrarily acquiring or nationalizing the assets of foreign investors.17 If such action becomes necessary in the public interest, it must be carried out lawfully, with due process, and accompanied by prompt, adequate, and effective compensation.
This is designed to promote investor confidence by ensuring that foreign investments are protected from unjust interference.
- Pioneer Status: The Pioneer Status Incentive was established by the Industrial Development (Income Tax Relief) Act, No 22 of 1971 and is a tax holiday which grants qualifying industries and products relief from payment of corporate income tax for an initial period of three years, extendable for one or two additional years.
- Duty Drawback Facilities: The scheme provides for fixed drawback and individual drawback facilities. The fixed Drawback facility is for those Exporters/Producers whose export products are listed in the Fixed drawback schedule to be issued from time to time by the Committee.18
- Tax reliefs: Foreign investors in Nigeria enjoy several tax reliefs aimed at encouraging investment. Key incentives include: i. Tax relief under the Companies Income Act. ii. Double Taxation Treaties iii. Free Trade Zones.
Conclusion
In conclusion, while Nigeria presents a wealth of investment opportunities for foreign investors, it is essential to understand the formalities involved in registering a foreign-owned business. The process includes obtaining necessary permits, registering with the Corporate Affairs Commission and the Nigerian Investment Promotion Commission and complying with capital importation requirements, among others. Foreign investors must also be mindful of specific restrictions and regulatory approvals, such as the Business Permit, Expatriate Quota, and residence permits, which are essential for smooth operation. By following the structured registration procedures and understanding the legal framework with the support of experienced business lawyers, foreign investors can establish a legitimate and sustainable presence in Nigeria. With the added benefits of incentives and legal protections, Nigeria remains an attractive destination for foreign investment, provided investors comply with the regulatory requirements.
Footnotes
1 Section 17 of the Nigerian Investment Promotion Act, 2004.
2 Section 20 (4) of the Companies and Allied Matters Act, 2020.
3 Section 78 of the Companies and Allied Matters Act, 2020.
4 Section 20 of the Nigerian Investment Promotion Act, 2004.
5 Section 8 of the Investment and Securities Act, 2025.
6 Section 15 of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act.
7 http://ecitibiz.interior.gov.ng/Content/HandbookOnExpatriateQuota/HANDBOOK.pdf accessed April 8, 2025.
8 Section 21 of the Nigerian Investment Promotion Commission Act.
9 Section 8 of the Investment and Securities Act, 2025.
10 Section 15 of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act.
11 Section 15 (1) of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act.
12 Section 15 (2) of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act.
13 https://blog.sidebrief.com/capital-importation-in-nigeria/ accessed April 8, 2025.
14 https://kwaracails.edu.ng/library/law/nigerian_laws/GUIDELINES_ON_THE_NIGERIAN_DEBT_CONVERSION_PROGRAMME.pdf accessed April 8, 2025.
15 Guideline 9.2 of the Guidelines on the Nigerian Debt Conversion Programme, 2004. See, https://kwaracails.edu.ng/library/law/nigerian_laws/GUIDELINES_ON_THE_NIGERIAN_DEBT_CONVERSION_PROGRAMME.pdf accessed April 8, 2025.
16 Guideline 13 of the Guidelines on the Nigerian Debt Conversion Programme, 2004. See, https://kwaracails.edu.ng/library/law/nigerian_laws/GUIDELINES_ON_THE_NIGERIAN_DEBT_CONVERSION_PROGRAMME.pdf accessed April 8, 2025.
17 Section 17 of the Nigerian Investment Promotion Commission Act.
18 https://nairametrics.com/wp-content/uploads/2011/07/INVESTMENT-INCENTIVES-IN-NIGERIA.pdf accessed April 8, 2025.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
