FOREIGN INVESTMENT REQUIREMENTS AND PROTECTIONS 1. PRINCIPAL LAWS ON FOREIGN INVESTMENTS The principal laws regulating foreign investments are, the Nigeria Investment and Promotion Commission Decree No.16 of 1995 and the Foreign Exchange (Monitoring and Miscellaneous provisions) decree No.17 of 1995. 2. DE-REGULATION OF EQUITY STRUCTURE IN NIGERIA ENTERPRISESM Effectively, the Nigerian Enterprises promotion (Repeal) Decree No.7 of 1995 has abolished any restrictions, in respect of the limits of foreign shareholding, in Nigeria registered/domiciled enterprises. The only enterprises which are still exempted from free and unrestrained foreign participation are those involved in: Production of arms, ammunition, etc.; Production of and dealing in narcotic drugs and psycothropic substances; THE NIGERIA INVESTMENT AND PROMOTION COMMISSION DECREE N0.16, 1995 ("NIPC Decree") This decree established the Nigerian Investment Promotion Commission ("NIPC") as the successor to Industrial Development Coordination Committee (IDCC) 3.1 Functions and Powers The Nigerian Investment Promotion Commission (NIPC) is an Agency of the Federal Government with perpetual succession and a common seal which is specially established, among other things, : (a) co-ordinate, monitor, encourage and provide necessary assistance and guidance for the establishment and operation enterprises in Nigeria; (b) initiate and support measures which shall enhance the investment climate in Nigeria for both Nigerian and non- Nigerian investors; (c) promote investments in and outside Nigeria through effective promotional means; (d) collect, collate analyse and disseminate information about investment opportunities and sources of investment capital and advise on request the availability, chance or suitability of partners in joint-venture projects; (e) register and keep records of all enterprises to which the NIPC Decree legislation applies; (f) identify specific projects and invite interested investors for participation in those projects; (g) initiate, organise and participate in promotional activities such as exhibitions, conferences and seminars for the stimulation of investments; (h) maintain liaison between investor and Ministries, government departments and agencies, institutional lenders and other authorities concerned with investments; (i) provide and disseminate up-to-date information on incentives available to investors; (j) assist incoming and existing investors by providing support services; (k) evaluate the impact of the Commission in investment in Nigeria and recommend appropriate remedies and additional incentives; (I) advise the federal Government on policy matters, including fiscal measures designed to promote the industrialisation of Nigeria or the general development of the economy; and (m) perform, such other functions as are supplementary or incidental to the attainment of the objectives of NIPC Decree. 3.2 Provision Relating to Notable amongst the provisions relating to investments are the following: ...a non-Nigerian may invest and participate in the operation of any enterprises in Nigeria; An enterprise in which foreign participation is permitted, shall after its incorporation or registration, be registered with the NIPC; A foreign enterprise may buy the shares of any Nigerian enterprises in any convertible foreign currency. A foreign investor in an approved enterprise is guaranteed unconditional transferability of funds through an authorised dealer, in freely convertible currency of: (a) dividends or profit (net of taxes) attributable to the investment; (b) payments in respect of loan servicing where a foreign loan has been obtained; and (c) the remittance of proceeds (net of all taxes) and other obligations in the event of sale or liquidation of the enterprises or any interest attributable to the investment. 3.3 Priority Areas of Investment The NIPC issues guidelines and procedures which specify priority areas of investment and prescribed incentives and benefits which are in conformity with Government policy. 3.4 Bncentives For Special Investment For the purpose of promoting identified strategic or major investment, the NIPC may in consultation with appropriate Government agencies, negotiate specific incentive packages for the promotion of investment. 4. INVESTMENT PROTECTION ASSURANCE 4.1. The NIPC Decree provides that: (a) No enterprises shall be nationalised or expropriated by any Government of the Federation; and (b) No person who owns, whether wholly or in part, the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other persons. 4.2. There will be no acquisition of an enterprise by the Federal Government unless the acquisition is in the national interest or for a public purpose under a law which makes provision for: (a) payment of fair and adequate compensation; and (b) a right of access to the courts for the determination of the investor's interest of right and the amount of compensation to which he is entitled. 4.3. Compensation shall be paid without undue delay, and authorisation given for its repatriation in convertible currency where applicable. 4.4. Apart from the investment guarantee assurances of the NIPC Decree, countries are welcome to execute and enter into bilateral Investment Promotion and Protection Agreements ("IPPA") with the Nigerian government. CHECKLIST OF STEPS FOR ESTABLISHING NEW COMPANIES IN NIGERIA WITH FOREIGN SHAREHOLDING 5.1 STAGE A 1. Establish partners/shareholders and their respective percentage shareholdings in the proposed company. 2. Establish name, initial authorised share capital and main objects of proposed company. 3. [EXCEPT in instances where the proposed company will be 100 owned by non-resident shareholders] - Prepare Joint- Venture Agreement between prospective shareholders. The Joint-Venture may specify; inter-alia, mode of subscription by parties, manner of Board Composition, mutually protective quorum for meetings, specific actions which would necessitate shareholders approval by special resolution, etc. 4. Prepare Memorandum and Articles of Association, incorporating the spirit and intents of the Joint-Venture Agreement. 5. Foreign Shareholder may grant a Power of Attorney to its Solicitors in Nigeria, enabling them to act as its Agents in executing incorporation and other statutory documents pending the grant of Business Permit (i.e. formal legal status for foreign branch/subsidiary operations) to the Foreign shareholder. 6. Conduct a search as to the availability of the proposed company name and, if available, reserve the name with the CAC. 7. Effect payment of stamp duties, CAC filing fees and process and conclude registration of the company as a legal entity. STAGE B 1. Obtain "Tax Clearance Certificate" for the newly registered company. 2. Prepare Deeds of Sub-Lease/Assignment, as may be appropriate, to reflect firm commitment on the part of the newly registered company, to acquire business premises for its proposed operations. STAGE C 1. Prepare and submit simultaneous applications to the NIPC (on the prescribed NIPC Application Form) for the following approval- Business Permit and Expatriate Quota; Pioneer Status and other incentives (where applicable) 2. The application to the NIPC should be accompanied with the following documents:- Copies of the duly completed NIPC Form; Copies of the treasury receipt for the purchase of NIPC Form; Copies of the Certificate of Incorporation of the applicant company; Copies of the Tax Clearance Certificate of the applicant company; Copies of the Memorandum and Articles of Association; Copies of treasury receipt evidencing payments of stamp duties on the authorised share capital of the Company as at date of application; Copies of the Joint-Venture Agreement - UNLESS 100 foreign ownership is envisaged; Copies of feasibility Report and Project Implementation Programme of a company for its proposed business. It is advisable that quotations, letters of intent etc., relating to industrial plant and machinery to be acquired by the company, be forwarded either as annexes or separately. In order to discourage the dissipation of administrative energy on speculative applications, the NIPC favours the applicant who has demonstrated positive intention to commence business as and when approvals are granted. Hence, the requests for of acquisition of business premises, evidence of having sourced the plant and machinery to be utilised in the company's business, etc. Copies of Deed(s) of Sub-Lease/Agreement evidencing firm commitment to acquire requisite business premises for the company's operation. By implication, the ultimate NIPC approvals do incorporate approvals of the Industrial site locations indicated in the application. Copies of training Programme or Personnel Policy of the company, incorporating Management succession schedule for qualified Nigerians. Particulars of names, addresses, nationalities and occupations of the proposed Directors of the Company. Job title designations of expatriate quota positions required, and the academic and working experience required for the occupants of such positions. It is pertinent to note that expatriate quota on a "Permanent Until Reviewed" (PUR) status is only accorded to a Managing Director, where the non- resident Shareholders own a majority of the company's shares, and the authorised capital of the Company is N5 million and above. Copies of information brochure on foreign shareholder (If available) as testimony of international expertise and credibility of the foreign partner in the proposed line of business. STAGE D 1. Having obtained the requisite NIPC approvals and Business Permit Certificate, the non-resident shareholder must act with despatch to import its foreign equity holding in the company. To ensure prompt importation of the foreign equity components, the NiPC may grant Business Permit but defer approvals for Expatriate Quota and Pioneer Status and other applicable investment investment incentives, until evidence of capital importation is produced. 2. After obtaining Certificate of Capital Importation from the bank, the NIPC is to be notified of this fact with the supporting documentation, in order for it to resume processing of pending approvals that might have been deferred on such ground. 3. As soon as expatriate Quota position are granted and the respective individuals to fill the quota positions are recruited, the company must embark on steps to obtain work permit and residency status for the expatriate employees and their accompanying spouses and children (if any). 5.2. The Difference Between BUSINESS PERMIT and EXPATRIATE QUOTA Business permit, as the name connotes, is the permanent authorization for the local operation of businesses with foreign investments either as branch/subsidiary of a foreign company or otherwise. Expatriate Quota is the official permit to a company, conveying permission for the Company to employ individual expatriates to specifically approved job designations, and also specifying the permissible duration of such employment. The Expatriate Quota form the basis of work permits for expatriate individuals employed (whose qualifications must fulfill the criteria established for the particular quota position). Expatriate Quota positions are usually granted for 2-3 years subject to renewal, EXCEPT in cases where companies qualify for and are granted not more than one(1) "PUR" Quota (i.e. Permanent Until Reviewed) position. 5.3. The Current Regulation on The Appointment of Foreign Directors The promoters of business ventures in Nigeria are free to appoint directors of their choice, either foreign or Nigerian, and the directors may be resident or non-resident. The application to the NIPC must reflect the names of the proposed Nigerian and foreign directors (with an indication of resident and non-resident directors). The Business Permit Certificate consequently issued following such application usually reflects the respective names of the proprietors of the Company, as well as the directors representing each proprietor or coproprietor. Payments of foreign director's fees, are remittable in the same manner as dividends accruing to the foreign company. However, since such fees are taxed at source (i.e. 5 as a withholding tax) each foreign director's fees are remittable subject to satisfactory evidence that the taxable amounts on such fees have been paid. 5.4. Pioneer Status (i.e. Tax Holiday) Advantages to a Company The Industrial Development (Income Tax relief) Act, Cap. 179 Laws of Nigeria, 1990, declares a number of industries as pioneer industries. Thus, any company whose products fall within the categorised industries could be conferred with Pioneer Status. This designation is not necessarily a reflection that a company was pioneer per se in the industry, as several companies within the same pioneer industry classification could qualify for Pioneer Status. Where the activities of a company includes the production of pioneer and non-pioneer products, the tax relief available on conferment of Pioneer Status would be restricted to income derived from pioneer products only. Under the current industrial policy, conferment of Pioneer Status accords a company relief from income tax liability for a period of up to 5 years (i.e. tax-holiday status). Finally, it should be noted that even if a company's activities and/or products are classified within pioneer industries, the grant of Pioneer Status is not automatic. The criteria for granting Pioneer Status are related and/or based on the following considerations;- (i) the amount of underlying capital investment in a company (N5 million and above), must be verifiable by physical inspection and supported by a report of the Industrial Inspectorate Division of the Federal Ministry of Industries before a Pioneer Certificate is granted. (ii) the socio-economic advantages of a company's activities to the Nigerian economy as set out in its Feasibility Study is also an important consideration. Without prejudice to these conditions, NIPC is empowered to confer Pioneer Status and other investment incentives, in any other deserving circumstance as the Council of NIPC may approve.