There are a number of company structures which are recognized by the Companies and Allied Matters Act Cap C20, Laws of the Federation of Nigeria 2004 (CAMA) - which is the principal legislation that regulates the affairs of Nigerian companies). These include a private company limited by shares; a private company limited by guarantee; and a public company limited by shares. A foreign investor that wishes to set up in Nigeria would have to incorporate a company using one of these structures.
Notwithstanding that a foreign investor may regard its proposed Nigerian operations as a branch or subsidiary, the Nigerian operations would have to be undertaken by a separate legal entity, registered under the CAMA. This is because section 54 of the CAMA provides that in order to do business in Nigeria, a foreign investor must incorporate a separate entity in Nigeria, and until a foreign company is so incorporated it “shall not have a place of business or an address for service of documents or processes in Nigeria for any purposes other than the receipt of notices and other documents as matters preliminary to incorporation under the CAMA.
Notwithstanding this general rule, Section 56 of CAMA empowers the Federal Executive Council (which is constituted by the President, Vice President and all ministers, and represents the executive arm of the Nigerian government) to grant exemptions from the mandatory incorporation requirement with respect to foreign companies which are:
• engaged by or with the approval of the Federal Government to execute specific projects
• undertaking approved loan projects on behalf of donor countries or international organisations
• foreign government-owned companies engaged wholly in export promotion activities, or
• engineering consultants or technical experts working on specialist projects under contract with any government of the federation or one of its departments or under approved contracts with any other persons.
However, even if a foreign investor could qualify for an exemption from incorporation on any of the above stated grounds, it might not always be advisable to seek such exemption since:

• Firstly, such exemptions are very rarely granted and, if granted, are only granted in respect of one project and for a fixed period of time (usually three years). The exemptions are hardly ever renewed.

• Secondly, the Federal Executive Council may revoke the exemption at any time if the Council is of the opinion that the company has contravened any provision of the law or has failed to fulfil any condition contained in the exemption order. This means that if a foreign investor sought and obtained an exemption, it might well be vulnerable to the exercise of executive discretion at some future date.
For the above reasons, we usually advise our foreign investor clients who are seeking to explore other business opportunities in Nigeria, or who are engaging in activities that will be carried out over an extended period in Nigeria, to incorporate a local company unless there are specific reasons why this would not be appropriate.
Of the various company structures available, there are clear advantages under local law to a foreign investor [doing business in Nigeria through a private company limited by shares. These include:
• this type of entity has perpetual succession and may incur liabilities of its own
• as a private company, the shareholders – including a foreign investor - are able to appoint, directly or indirectly, the directors and other persons who will manage the company
• any liability that a foreign investor may incur as a shareholder is limited to the amount unpaid in respect of any shares held by a foreign investor [NV] in the capital of the company, and
• should a foreign investor wish to divest itself of its interest, it will find that it is relatively easy to transfer shares in a private company.
Incorporating a limited liability company
The procedure and requirements for incorporating a private and a public limited liability company are essentially the same. These requirements include the following:

• The company must have a minimum of 2 shareholders (who may be individuals or corporate entities). With limited exceptions, companies in Nigeria may be 100% foreign owned. For example, in order for an oil and gas company to enjoy competitive advantage in the award of contracts in the oil and gas industry, at least 51% of the shares of that company must be owned by Nigerians. The initial subscribers must, between them, subscribe for at least 25% of the authorised share capital of the company;
• The company must have a minimum of 2 directors (who may also be the shareholders of the company, and may each be foreign nationals)
• The company must have a registered office
• The proposed company name must be approved by the Corporate Affairs Commission (“CAC”) – Nigeria’s Companies’ Registry
• An indication of the nature of the business to be carried on by the company must be contained in the Memorandum and Articles of Association of the company, and
• A private limited liability company has a minimum authorised share capital of =N=10,000.00; a public limited liability company has a minimum authorised share capital of =N=500,000.00. This distinction is, however, irrelevant in the case of companies with foreign equity participation because such companies are required to have a minimum share capital of =N=10,000,000.00 (ten million Naira) regardless of whether the company is private or public.
The statutory fees payable to incorporate a company in Nigeria would be dependent on the authorised share capital of the company. For instance, where the authorised share capital of the company is =N=10 million the statutory fees payable would be =N=168,500.00 (approx. $1,085.41 at the CBN’s current exchange rate of =N=155.24 to =N=1.00).


Foreign investment approvals
Where a company has foreign shareholders, the company will require certain foreign investment approvals. These are:
Business Registration: All companies with foreign participation in their capital structure are required to register with the Nigerian Investments Promotion Commission after they are incorporated, and obtain a Certificate of Registration of Company with Foreign Participation. This is a fairly straightforward process and registration can be achieved within 3 days. An official fee of =N=15,000.00 is payable to the NIPC for the issuance of this certificate.
Business Permit: Companies with foreign shareholders are also required to obtain a certificate called a “business permit” from the Federal Ministry of the Interior (“FMI”) before they are permitted to carry on business in Nigeria. In order to obtain the business permit, the company will need to, amongst other things, provide evidence that it has invested in the Nigerian company either through cash and/or equipment. This evidence will usually be in the form of a Certificate of Capital Importation which is discussed below.
Certificate of Capital Importation: Nigeria’s foreign exchange regulations require that foreign investors must, if they wish to have access to the official foreign exchange markets for the purpose of remitting their dividends, interest or capital, obtain what is called a Certificate of Capital Importation (“CCI”) as evidence that their investment has been brought into Nigeria.

CCIs are issued by Authorised Dealers (i.e. banks licensed by the Central Bank of Nigeria to deal in foreign exchange) through which the funds are remitted into Nigeria and state, on their face, the purpose for which the moneys were brought in and the amount of the investment.
Once obtained, a CCI permits the foreign investor to access the official foreign exchange market to purchase foreign exchange to remit its dividends, or to repatriate its capital in the event of the partial or complete sale of its investment. A CCI can be obtained within 24 – 48 hours after the investor has brought its foreign investment capital into Nigeria through an Authorised Dealer.
Employment of foreign employees in Nigeria


Expatriate Quota Approvals: Where a company intends to employ expatriates, it must apply for expatriate quota positions for the relevant number of expatriate personnel it intends to employ. This approval is granted by the Federal Ministry of the Interior and it is the authorisation that sets out the maximum number of expatriates that a Nigerian company may employ. There is no restriction on the number of quota positions that may be applied for; however, the number of quota positions that will be granted is at the discretion of the Minister of the Interior. The applicant company is, amongst other things, required to have an authorised share capital of at least =N=10,000,000.00 (ten million Naira).
Expatriate quotas are usually granted for a period of 2 years and may be renewed up to 5 times or for a period not exceeding 10 years in exceptional circumstances. The Federal Government of Nigeria has a policy of encouraging the employment and training of Nigerians and, therefore, the renewal of a quota position is normally dependent on showing that at least 2 (two) Nigerian employees have been appointed to understudy the expatriate.
Residents Permits and Visas: After the grant of the expatriate quota positions, the expatriates will each be required to apply for residence permits, in order for them to reside and work in Nigeria. Expatriates can be accompanied by their families and dependant applications will be submitted on their behalf.



Tax Registrations
All local companies are required to be registered with the relevant tax authorities for tax purposes. After incorporation, the company makes an application to the relevant tax office requesting the issuance of a Tax Identification Number (TIN), a Tax Clearance Certificate (TCC) and VAT registration.
The taxes payable by local companies include:
• Companies Income Tax levied at the rate of 30% on the profits of all Nigerian companies (excluding certain tax-exempt companies and companies engaged in the exploration for or production of petroleum)
• Education Tax at the rate of 2% of corporate profits as assessed under the Companies Income Tax Act (“CITA”)
• Stamp Duties imposed at different rates on most legal documents
• Value Added Tax at a flat rate of 5% on the supply of a wide range of goods and services
• Capital Gains Tax (CGT) levied at the rate of 10% on any gains from the disposal of assets. This tax is not payable where the money is used to acquire replacement assets within a twelve month period before or after the disposal ( note that in Nigeria, there is no CGT on the disposal of shares)
• Withholding Tax ranging from 5% (for construction and agency arrangements) to 10% (for dividend, interest and rent).
A company that employs staff is also required to:
• make a monthly deduction of 2.5% of each employee’s basic salary payable to the National Housing Fund
• make monthly contributions to a mandatory pension scheme (contributions are made by the employer and the employee), if it has 5 or more employees
• register with the Nigeria Social Insurance Trust Fund and contribute a minimum of 1% of its total monthly payroll into the employees’ compensation fund, and
• make a contribution of 1% of payroll costs to the Industrial Training Fund if it has 25 or more employees.
Tax Incentives
There are several investment incentives available to investors in Nigeria which are aimed at reducing their tax liabilities.
• The Pioneer Status scheme established by the Industrial Development (Income Tax Relief) Act grants companies, operating in certain industries, that have a minimum expenditure of =N=50,000.00 (in the case of companies controlled by Nigeria indigenes) or =N=150,000.00 (in the case of any other company) a non-renewable tax holiday exempting the company from the obligation to pay corporate income and education tax, and the obligation to withhold tax on dividends for 5 years.
• Manufacturers and purchasers of local plant and machinery are entitled to an Investment Credit of 25% (for plant) and 15% (for machinery) – convertible to an Investment Allowance (“IA”).
• A company that is replacing plant and machinery is permitted to take a Capital Allowance of 95% of the qualifying expenditure in the first year with 5% retention as the book value until disposal. In addition, the CITA permits the company to claim an IA of 15% of the qualifying expenditure made in respect of the replaced assets.
• An industry engaged in research and development is allowed to deduct up to 120% of costs incurred and up to 140% of the cost if local materials are used.
• Capital Gains Tax is not charged in respect of gains from the sale of shares and stocks.
• The interest payable in respect of a loan granted to a Nigerian company by a foreign company may be exempt from tax, depending on the tenor of the loan and the moratorium granted. Applicable tax exemptions for loans are as follows:
Repayment Period including moratorium Grace Period Tax Exemption
More than 7 years Not less than 2 years 100%
5-7 years Not less than 18 months 70%
2-4 years Not less than 12 months 40%
Less than 2 years Nil Nil



Additional incentives are also granted in respect of investments in certain sectors such as the oil and gas, power, and agricultural sectors.
For example, where a company operating in the oil and gas sector utilises Nigeria’s natural gas resources, the incentives that are available include a tax holiday for an initial period of 3 years, which is renewable for an additional 2 years..
In the power sector, all areas of investment are considered to be pioneer and would, therefore, qualify for the grant of pioneer status.
In relation to agriculture, any company carrying out agricultural activities is entitled to an exemption from the provisions of section 28A of CITA which imposes a minimum tax on all companies regardless of whether or not they make a profit.
Other key matters to consider


In Nigeria, there are certain sectors which require special licenses to carry on business in those sectors. These include the telecommunications, banking, capital markets, insurance and the oil and gas sectors.
Agreements that provide for the transfer of foreign technology to Nigerian companies are required to be registered with the National Office for Technology Acquisition and Promotion (“NOTAP”) within 60 days of the execution of the agreement.

Conclusion
It is possible that the applicable laws relevant to the incorporation of companies may be revised or changed. We would, therefore, recommend that detailed legal advice should be sought and obtained in order to ensure that the information set out herein is up-to-date and/or applicable to your circumstances.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document