Nigeria is a developing country that has adopted the acceptance of foreign investors into her country for economic growth and development. This process is known as “foreign participation”.

Foreign participation is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy.

Foreign participation could be by way of the foreign company coming into Nigeria to establish its business as a subsidiary of a foreign firm. It could also come by means of formation of a company in which a firm in the investing company has equity holding or the creation of fixed assets in the other country by the nationals of the investing country.

Foreign Participation is initiated in Nigeria either through one of these two ways;

1. Foreign Direct Investment: These are direct investments by foreign investors who invest by incorporating a Nigerian entity (either solely or with Nigerians) or acquiring or investing in an already existing one; or
2. Foreign Portfolio Investment: Which involves participating indirectly in business by purchasing shares in existing companies, usually through the Nigerian capital markets. It is the passive holding    of securities, none of which entails active management or control by the investor.

The Companies’ and Allied Matters Act (CAMA) of 1990 (as amended) is the legal framework for the control and regulation of the activities of companies in Nigeria. The Act established the Corporate Affairs Commission  (CAC) as an autonomous agency charged with the responsibility for the registration and regulation of companies, business names and incorporated trustees in Nigeria.

According to Section 54 of the Companies and Allied Matters Act (CAMA) Act of 1990, all foreign companies are required to incorporate a separate entity   in Nigeria before it can be allowed to commence business.

Documents required by CAC for Business Incorporation

1. Form CAC 1.1. Application for Registration
2. Memorandum and Articles of Association
3. Proficiency certificate (where applicable)
4. Recognized form of identification (passport bio-data page, drivers’ licence or National Identity Card) for Director(s)/Shareholder(s) and Company Secretary
5. Foreign Certificate of Incorporation and Board resolution for subscription to Nigerian company
6. Residence permit of resident foreigners
7. Stamp duty evidence of payment
8. Evidence of payment to CAC (the fees to be paid for incorporation is dependent on the volume of shares to be registered).

Exemption from Incorporation

Foreign companies intending to do business in Nigeria may apply for exemption from the standard registration requirements if they are:

1. invited by  the Federal Government    to execute any specified  individual projects;
2. executing specific individual loan projects on behalf of a donor country or international organisation;
3. foreign government-owned companies engaged solely in export promotion activities; and
4. engineering consultants or technical experts engaged in specialist projects with any tier of government or their agencies with any other body or person, where such contract has been approved by the Federal Government.

Such applications for exemption shall be forwarded to the office of the Secretary to the Government of the Federation (SGF).

What is the status of an exempted foreign company?

One of the  agencies that governs the participation of foreign nationals in business investments in Nigeria is the Nigerian Investment Promotion Commission (N.I.P.C). The Nigerian Investment Promotion Commission is established by the Nigerian Investment Promotion Commission (NIPC) Act of 1995 established to encourage, promote, and coordinate all investments in Nigeria. This act also regulates the participation of foreign businesses in the country.

The NIPC Act provides for foreign nationals to own up to 100% equity and undertake any type of business in Nigeria except those related to the production of arms, ammunition, narcotics and related substances and any items indicated on the negative list as defined by Section 31 of the Act. Section 20 of the NIPC Act requires all enterprises in which foreign participation is permitted to apply to the Commission for business registration.

Functions of the Commission

1. to co-ordinate and monitor all investment promotion activities to which the NIPC  Act applies;
2. To Initiate and support measures which shall enhance the investment climate in Nigeria for both Nigerian and non- Nigerian investors;
3. Promote investments in and outside Nigeria through effective promotional means;
4. Collect, collate, analyze and disseminate information about investment opportunities and sources of investment capital, and advise on request, the availability, choice or suitability of partners in joint-venture projects;
5. Register and keep records of enterprises to which the NIPC  Act applies;
6. Identify specific projects and invite interested investors for participation in those projects;
7. Initiate, organize and participate in promotional activities such as exhibitions, conferences and seminars for the stimulation of investments;
8. Maintain liaison between investors and Ministries, Government Departments and Agencies, institutional lenders and other authorities concerned with investments;
9. Provide and disseminate up-to-date information on incentives available to investors;
10. Assist incoming and existing investors by providing support services;
11. Evaluate the impact of the Commission in investments in Nigeria and make appropriate recommendations;
12. Advise the Federal Government on policy matters including fiscal measures designed to promote the industrialization of Nigeria or the general development of the economy; and
13. Perform such other functions as are supplementary or incidental to the attainment of the objectives of the Act.

Documentation for Business Registration with NIPC

To process NIPC Business Registration, the following documents are required:

1. Duly completed NIPC Form I;
2. Memorandum & Articles of Association;
3. Evidence of Incorporation;
4. CAC Form 1.1 (or CAC Forms C02 and C07 for old companies);
5. Power of Attorney/ Letter of Authority (where applicable); and
6. Evidence of Payment of Processing fee (The payment for business registration is made via remita and non-refundable).
7. Processing Fee of N15,000.00 only.

Incentives available to foreign Investors

Section 22 NIPC Act empowers the NIPC to negotiate, in consultation with appropriate Government agencies, special incentives for strategic or major investments.

NIPC is working with other agencies of government to increase awareness of investment opportunities in Nigeria amongst investors, to promote investments in Nigeria to domestic and foreign investors, and to facilitate new and incremental investments. FIRS, as the agency mandated to ensure accurate collection of taxes, administers and implements exemptions and concessions that have been gazetted, including most of the incentives.

1. Companies Income Tax

The Companies Income Tax Act has been amended in order to encourage potential and existing investors and entrepreneurs. The current rate in all sectors, except for petroleum, is 30%.

2. Pioneer Status Incentive

The grant of Pioneer Status to an industry is aimed at enabling the industry concerned to make a reasonable level of profit within its formative years, this profit is to be put back into the business.

Under Industrial Development (Income Tax Relief) Act, CAP. I7 LFN 2004 (hereinafter referred to as ‘IDITRA’), companies engaged in industries/products approved as “pioneer industries/products’ shall be:

(a) granted income tax relief for a period of three years, which can be extended for a period of one year and thereafter another one year, or for one period of two years (Section 10(2)(a)(b) IDITRA);

(b) exempted from paying tax on dividends paid by the pioneer company during the pioneer period to the extent that they are paid out of income exempted from tax (Section 17(3) IDITRA); and

(c) the loss incurred during the tax relief period is also deemed to be incurred on the first day following the expiration of the tax relief period and can be carried forward to offset profits after the tax-exempt period.

3. Capital Importation and Repatriation

Foreigners are permitted, subject to money laundering restrictions, to bring in any recognized foreign currency into Nigeria to fund their investment. Such funds will have to be brought in through an authorized dealer. The bank through which the funds were imported will need to issue a Certificate of Capital Importation (“CCI”) to the investor to evidence the inflow of such funds into Nigeria. Where capital is not imported in form of funds but is imported in form of equipment, machinery or raw materials, a CCI will also be required.

Where there is no CCI, foreign exchange cannot be purchased from the official foreign exchange market for an easy repatriation of the proceeds of the foreigner’s investment from Nigeria.

Where a foreign national is investing in an enterprise in Nigeria, the bank through which the investment is received shall issue a Certificate of Capital Importation (CCI) within 24 hours of receipt of capital subject to the prescribed documentation requirements. Capital importation means the inflow of foreign currency in cash or goods (raw materials, machinery and equipment).

4. Investment in Infrastructure

This is another incentive granted to industries that provide facilities that ordinarily, should have been provided by the government. Such facilities include access roads, pipe borne water and electricity. Twenty per cent (20%) of the cost of providing these infrastructural facilities, where they do not exist, is tax deductible.

5. Interest on bonds and short-term securities, and proceeds of the disposal of Government and corporate securities

Company Income Tax (Exemption of Bonds and Short Term Government Securities) Order 2011 provides tax exemption for interest earned on:

1. short term Federal Government securities such as treasury bills and promissory notes
2. bonds issued by Federal, State and Local Government and their agencies
3. bonds issued by corporate bodies including supra-nationals;

for a period of 10 years, with the exception of bonds issued by the Federal Government, which shall continue to enjoy such exempt from tax.

6. Duty Drawback Scheme

Duty Drawback scheme provides for refunds of duties/sur-charges on raw materials including packing and packaging materials used for the manufacture of products upon the effective exportation of the final products.

The Bond covers 60% of the refund to be made to the exporter and will only be discharged after final processing of the application has been made. At the end of the processing of exporters claims, the Duty Drawback Committee shall grant any balance where applicable or request for refunds for any over payment made upon the presentation of bond from a recognised Bank or financial institution.

In conclusion, the Nigerian government is thriving to attract foreign investors in Nigeria with these incentives and robust permission to establish their businesses in Nigeria, with the use of the appropriate human and natural resources, we can help raise the status of the country in the international sphere at large.

Foreign participation has emerged has the most important source of generating revenue in the business sector in Nigeria as it has enhanced the following: increase in employment, intensifying the productivity, increase in exports and smooth pace of transfer of technology, it facilitates the utilization and exploitation of local raw materials, introduces modern techniques of management and marketing, eases the access to new technologies, foreign inflows can be used for financing current account deficits, increases the stock of human capital via on-the-job training, adoption of liberal and market-oriented economic policies, the stimulation of increased private sector participation and elimination of bureaucratic obstacles which hinders private sector investments and long-term profitable business operations in Nigeria.

Ultimately, providing an investment friendly environment such as enhancing foreign investor legal protection, streamlining procedures for business visas and entry of foreign workers, reforming land policy and administration, speeding up and deepening tax reforms, should be created by the government so as to increase the inflow of foreign participation in Nigeria.