INVESTMENT CODE In the past decade the Government of Nigeria has vigorously pursued economic policies aimed at liberalising and promoting competition and investments in the Nigerian economy. To reaffirm its commitment to market-led economy, the Government has enacted and continued to update relevant Legal Instruments that hitherto contained provisions inhibiting competition and investment in Nigeria. Furthermore appropriate incentives are continuously being put in place to encourage and promote private investments. The establishment of NIGERIAN INVESTMENT PROMOTION COMMISSION (NIPC) under DECREE NO. 16 of 16th January, 1995 gives full legal backing for Direct Foreign Investment in Nigeria. Under the Decree, NIPC is given full powers to encourage, promote and co-ordinate all investments in the Nigerian Economy. The Decree repealed the industrial Development Coordination Committee Decree No.36 of 1989 as well as the Nigerian Enterprises Promotion Decree of 1989. In January, 1998, the Government announced that a total of 12 laws and legal instruments which were found to contain provisions inhibiting competition in related sectors of the economy will be repealed and/or amended immediately. As a result, this new Investment Code is designed to give a detailed guide for both domestic and foreign investors wishing to establish business in Nigeria. FUNCTIONS OF NIPC By the provisions of section 4 of the Decree, the Nigerian Investment Promotion Commission (NIPC) is to encouage, promote and co- ordinate investment in the Nigerian Economy. Pursuant to this, the Commission's functions include the following:- Registration of Enterprises NIPC shall on application, within 14 days register all joint- ventures or wholly foreign-owned enterprises and will keep records of all such enterprises. Provision of Support Services to Existing and Potential Investors Collation, analysis and dissemination of information about investment opportunities and sources of investment capital and advise on request, the availability, choice or suitability of partners in joint-venture projects. Maintaining liaison between investors and ministries, Government departments and Agencies, institutional lenders and other authorities, concerned with investments. Identification of specific projects and inviting interested investors for participation in those projects. Incentives and Tariff Administration Provision and dissemination of up-to-date information on incentives available to investors. For the purpose of promoting identified strategic or major investment, NIPC shall, in consultation with appropriate government agencies, negotiate specific incentives package for investors. NIPC may issue guidelines and procedures which specify priority areas of investment and prescribe applicable incentives and benefits consistent with Government policy. NIPC shall, as expedient, advise the Federal Government on policy matters including fiscal measures in order to encourage deserving industries or particular sectors of the economy. Investment Promotion and Monitoring Activities NIPC will initate, organize and participate in promotional activities, such as exhibitions, conferences and seminars for the stimulation of investments. Through its monitoring outfit, NIPC will identify problems and difficulties being encountered by investors and proffer viable solutions and render necessary assistance to them. ESTABLISHMENT AND PABTICBPATION IN A NIGERIAN COMPANY General By the provision of section 17 of the Decree, both Nigerian and Non-Nigerian companies and individuals may invest and participate in the operation of any enterprises in Nigeria. Prohibited Sectors of Investments Notwithstanding the provision of section 17 of the Decree which effectively liberalises the investment environment, there are however, a few enterprises on the "negative list" which neither foreign nor Nigerian Investors can go into without authorisation by the Government. They include:- i. Production of arms and ammunitions etc. ii. Production of and dealing in narcotic drugs and pscychotropic substances. iii. Production of military and para-minitary wears and accoutrement, including those of Police and the Customs, Immigration and Prison Services. Incorporation A person who intends to establish an enterprises to which this Decree applies shall do so in accordance with the provision of the Companies and Allied Matters Decree, 1990. Under this Decree, to start business in Nigeria, a company can be formed and incorporated as a: i. Sole Proprietrship. ii. Partnership. iii. Private or public limited liability company. In the case of private limited liability company, members may not exceed 50 persons and it is adequate for small and medium size businesses. On the other hand , a public limited liability company incorporation is required for companies that wish to be listed and quoted on the stock exchange. Procedure The founders of a company have to apply for incorporation at the Corporate Affairs Commission (CAC) at the following address. Corporate affairs Commission Area II Garki District Abuja The CAC also has offices in major towns in Nigeria. Documentation The founders of company, have to submit to CAC the following documentation in respect of incorporation. i. Company's Memorandum and Articles of Association. ii. Notice of the address of the company's registered office and head office. iii. A statement describing the particulars and consent of the company's first directors. iv. A statement of the authorised share capital signed by one of the directors. At the time of the incorporation 40 of the share capital should be paid up. Fees The incorporation fees charged by CAC are as follows: Filling Fees - N5,100 per every N1 million share capital or fraction thereof. Stamp Duty at 0.75% of share capital. After incorporation, the CAC delivers a Certificate of Incorporation within two weeks from the application and informs the applicant in writing. Commencement of Business Wholly owned Nigerian companies can commence immediately after incorporation. Companies partly or wholly owned by foreigners can commence business only after incorporation and obtaining Business Registration Certificate from the NIPC. NICP Business Registration NIPC shall within 14 working days from the date of receipt of completed registration forms, register the enterprises if satisfied, otherwise advise the applicant accordingly. Documents Required for Registration. i. Completed NIPC Registration Forms. ii. Certificate of Incorporation. iii. Memorandum and Articles of Association. iv. Certified True Copy of Forms C02 (Return on allotment of shares to Directors) C07 (Particulars of Directors or any change therein) v. Copy of Feasibility Report vi. Copy of proposed Agreement in the case of Joint-Ventures Enterprises between Nigerians and Foreign Investors. Other Registrations -VAT A company is required to obtain a VAT number at the Federal Board of Inland Revenue Department of the Ministry of Finance at the following address or any of its offices at all states capital in Nigeria. Federal Board of Inland Revenue Revenue House Plot 522, Sokode Crescent Wuse Zone 5 Abuja. The VAT number is delivered immediately FREE OF CHARGE. -Social Insurance A company is required to register with the Nigerian Social Insurance Trust Fund (NSITF)unless it establishes that it adheres to or operates an approved private pension scheme producing at least the same advantages, in favour of its employees. Registration can be made at following address or any of its offices at all states capital in Nigeria. Nigerian Social Insurance Trust Fund Plot 794 Muhammadu Buhari Way P.M.B.446 Garki, Abuja. The registration is delivered immediately FREE OF CHARGE. Single Window Service Upon request by a company and for a minimal fee, a single window service of the NIPC will take charge of all administrative process, inclusive of the incorporation and obtain the required registrations within a month. Acquisition and Saie of Shares By the provision of section 21 of NIPC Decree a foreign enterprises may buy the shares of ANY Nigerian enterprises in any convertible foreign currency. The purchase or sale of shares of any quoted Nigeria Public Company shall be completed through any of the Stock Exchanges in Nigeria. While in the case of unquoted companies, purchase and sale of shares can be made by Private Placement or Direct Foreign Investment. Capital Importation (Foreign Equity Investments) Foreign Equity Investment can be processed through Authorised Dealers (Commercial and Merchant Banks). The Authorised Dealers, through which the foreign currency or capital for investment in enterprises in Nigeria is imported, shall within 24 hours of the importation, issue a Certificate of Importation to the Investor and shall within 48 hours thereafter, inform the Central Bank of Nigeria (CBN).The CBN will confirm the importation of capital within 14 days. Capital importaion for investment include machines, spare parts, raw materials and other business assets. INVESTMENT GUARANTEES Transferability of Funds Section 24 of NIPC Decree provides that a foreign investor in an enterprise shall be guaranteed unconditional transferability of funds through an Authorized 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 c. Remittance of proceeds (net of all taxes) and other obligations in the event of a sale or liquidation of the enterprise or any interest attributable to the investment. Gurantees Against Expropriation By the provision of section 25 of the Decree, no enterprise shall be nationalised or expropriated by any Government of the Federation; and 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 person. The above provision are however subject to the following: i. There shall be no acquisition of an enterprise by the Federal Government unless the acquisition is in the national interest or for public and under a law which makes provision for: Payments of fair and adequate compensation; and Right of access to the courts for the determination of the investor's interest or right and the amount of compensation to which he is entitled. ii. Any compensation payable shall be paid without undue delay and authorisation for its repatriation in convertible currency shall, where applicable be issued. In addition, the Nigerian Government is prepared to enter into Investment Protection Agreement^ foreign enterprises wishing to invest in Nigeria. Access to land Any company, incorporated in Nigeria is allowed to have access to land rights for the purpose of its activity in any state in the country. It is however a requirement that industrial companies comply with the regulations on use of land for industrial purposes and with environmental regulations. Land lease shall be for a term of 99 years unless the company stipulates a shorter duration. The NIPC Decree provides that where a dispute arises between an investor and any government of the federation in respect of an enterprise, all efforts shall be made through mutual discussion to reach an amicable settlement. Any dispute between an investor and any Government of the Federation in respect of an enterprise which is not amicably settled through mutual discussions may be submitted and at the option of the aggrieved party to arbitration as follows:- i. In the case of a Nigerian investor, in accordance with the rules of procedure for arbitration as specified in the Arbitration and Conciliation Decree, 1988; or ii. In the case of a foreign investor, within the framework of any bilateral or multilateral agreement on investment protection to which the investor depending on his nationality may be a beneficiary of; or iii. In accordance with any other national or international machinery for the settlement of investment disputes agreed on by the parties. Where in respect of any dispute, there is disagreement between the investor and the Federal Government as to the method of dispute settlement to be adopted, the International Centre for Settlement of Investment Dispute Rules shall apply. IMMIGRATION FACILITIES Work Visa for Foreign Executives Foreign business executives may ask for a permanent Work Visa in the Nigerian Embassy or High Commission competent for the country of their residence. There is no limit to the number of visas granted for the same enterprise. As usual, fees are charged for the issuance of such visas. TAX REGIME AND INCENTIVES APPLICABLE TO COMPANIES Categories of Taxes There are four categories of Federal Taxes in Nigeria: Corporate Income Tax Capital Gains Tax Value Added Tax (VAT) Withholding Tax whereas, Personal Income Tax is collected by the State Governments. In addition, state and local governments may impose certain taxes related to the registration of motor vehicles, sewerage etc. There is however an approved list of taxes and levies to be collected by every tier of government in order to curb multiple taxation. Current Tax Regime i. Corporate Tax The rate of the Corporate Tax is currently 30 ii. Capital Gains tax The current Capital Gains Tax rate is 10 iii. Value Added Tax (VAT) The current VAT rate is 5 iv. Withholding Tax Dividend, royalties and interests on foreign loans are subject to a tax of 5 before repatriation. Tax i. Provision for Losses Provision for Company losses may be carried forward without limit in time and importance. ii. Accelerated Capital Allowances Accelerated Capital Allowances are permitted: for immovable, over a period of 10 years for equipment, over a period of 5 years. iii. Infrastructure Investments Expenses for infrastructure investment such as boreholes , power generators, and company courier services are fully deductible from the company taxable income. iv. Exemption from Real Estate Tax Agricultural and manufacturing companies are exempted from Real Estate Taxes on estates affected to their activities. v. Repatriation of Income Both personal and company income may be repatriated in any currency without permission and without limitation after payment of income taxes. vi. Exemption from Import Duties and VAT Imported machines and investment goods, raw materials and semi-finished products used for manufacturing in Nigeria are exempted from Import Duties and VAT. vii. Tax Relief on Export Oriented Enterprises New enterprises operating in any Export Processing Zone in Nigeria, which do not sell more than 25 of their production on the domestic market and 100 Export Oriented Enterprises, established outside an Export Free Zone, enjoy a full corporate tax exemption for a duration of 12 years. viii. Pioneer Status Companies operating in designated pioneer industries or manufacturing pioneer products are eligible for an income tax holiday of 5 years, brought to 7 years for industries located in economically disadvantaged areas. ix. Capital Gains Tax Gains from Disposal of shares and stock are exempted from tax. x. Investment in Gas Industry All gas development projects including those engaged in power generation, liquid plants, fertilizer plants, gas transmission and distribution pipelines are to be taxed under the provision of Companies Income Tax Act and not Petroleum Profit Tax Act. All fiscal incentives under gas utilization downstream operation in 1997 are to be extended to industrial projects that use gas. The initial tax holiday period is extended from 3 to 5 years. Gas is transferred at 0 Petroleum Profit Tax and 0 Royalty. The investment capital allowance is increased from 5 to 15. Interest on loan for gas project is to be deductible provided that prior approval is obtained from the Federal Ministry of Finance before taking the loan. All dividends distributed during the tax holiday shall be tax free. xi. Investment in Research and Development Investment in Research and Development on improvement of processes and products is deductible from the income in the years that the money for such investment has been spent. Such investments given a right for a tax-deduction of 120. xii. Other Incentives Companies operating in the following areas: Local Raw Materials Local Value Added Process Labour Intensive Processes Export Oriented Activities In-plant Training are eligible for tax holiday of 5 years. xiii. Tax Treaties In line with trade liberalisation policy to attract foreign investments into the country, Nigeria has so far signed Double Taxation Agreement (DTA) with Philippines and Poland. The Government has commenced negotiation with Turkey, Russia, India, and Korea as well as other countries that have indicated interest in entering tax treaties with Nigeria. xiv. Excise Duties Excise duty on local industries has been abolished. FOREIGN EXCHANGE DEREGULATION POLICY Foreign Exchange is freely obtainable on the Autonomous Foreign Exchange Market (AFEM) subject to minimum documentation requirement. Transactions in the Market shall be conducted in any convertible foreign currency through the Authorised Dealers (commercial and merchant banks). llegible transactions conducted in the market include: Imports Exports proceeds traveling and medical expenses Remittances of profit, dividend, external borrowing and repayment of external loans by the private sector, educational expenses, contract services as well as leasing, charter, and/or outright purchase of aircraft and marine vessels. Rules for Currency Transaction Right to hold an Account: Any person, resident or non- resident may hold an account in Nigeria. Such account may be denominated in Naira or in foreign currency. Cash Import: Cash can be imported without limitation. However, a person who imports currency in excess of USD 10,000 by cash and deposits such money into the domiciliary account with an authorised dealer, shall only make cash withdrawals from that account. Transactions Prohibited in Cash: No person in Nigeria shall make or accept cash payment whether denominated in foreign currency or not for the purchase and acquisition of: Landed properties; Securities including, stocks, shares, debentures and all forms of negotiable instruments; Motor vehicles. Payment for Hotel Bill in Foreign Currency: Only hotels registered as Authorised Buyers shall receive from foreign visitors payment of hotel bills in foreign currency. However, payment of bills in foreign currency shall be optional and at the discretion of the foreign visitors making the payment. Personal Home Remittance: Foreign nationals are allowed to remit 100 of their salaries, net of tax, as Personal Home Remittance. Payment for Royalty, Technical, Management Service Fees: Contracts/Agreements in respect of foreign technology transfer, technical and management services are by law required to be registered by National Office of Technology Acquisition and Promotion (NOTAP), particularly where fees payable are remittable in foreign currency. The applicable rates of fees that may be approved by NOTAP are as follows: i. Royalty: Permissible royalty in respect of technological know-how, patents and other industrial property rights shall range from 1.0 of net sales' value. ii. Technical Services: The remittable limits of fees for licence or technical service agreements shall range between 1 .o% and maximum of 5.0 of net sales value. iii. Management Services: Permissible Management Service Fee - shall range from 2.0 to 5.0 of the company's Net Profit before Tax. Management service fee in respect of projects where no profit is anticipated during the early years shall range from 1.0 to 2.0 of net sales during the first 3 to 5 years only. iv. Consultancy Fees: Remittable Consultancy fees shall be up to a maximum of 20.0 of project cost and limited to projects of very high technology content for which indigenous expertise is not available. Service agreements for such high technology joint-ventures shall continue to include a schedule for the training of Nigerian personnel for an eventual take-over. Foreign Gurantees Foreign guarantees/currency deposits as collateral for Naira denominated loans is prohibited in Nigeria. Import and Export Transactions A person may import or export goods or services from Nigeria if: (a) The goods or services are not prohibited by law in Nigeria. (b) Payment for the goods or services is made by means of letter of credit or any other internationally acceptable mode of payments; and (c) The amount of the payment made or to be made is such as to represent a fair return for the goods and services. Foreign exchange can be sourced atAFEM through the Authorised Dealers for the purpose of importation of goods and services. IMPORTS PROCEDURE In Nigeria a Comprehensive Import Supervision Scheme (CISS) is being operated whereby all Importers are required to process FORM "M" through the Authorised Dealers. The information on the Form "M" is used both for statistical purposes and Pre-Shipment Inspection requirement for the assessment of import duty and quality standard of goods being imported. Port Reforms With the introduction of an Automated System of Customs Data (ASYCUDA) and X-ray examining machines at the ports, Pre- Shipment Inspection Scheme is being phased out and replaced with Destination Inspection. All imports into the country are normally cleared at the ports within 48 hours of arrival. EXPORT PROMOTION AND INCENTIVES A variety of measures and incentives are in place to encourage export oriented industries. i. Import Duty Drawback / Suspension/ Manufacture-In-Bond Schemes Importers can claim repayment of Import Duty paid for materials used in producing export goods. ii. Export Licence Waiver Export Licence is not required for the export of manufactured and processed products. Also exports have been exempted from excise tax. iii. Export DeveSopment Fund The Export Development Fund shall be used to provide financial assistance to private exporting companies to cover part of their initial expenses in respect of exports promotion activities. iv. Export Expansion Grant Fund Scheme The Export Expansion Fund shall be used to provide cash inducement for exporters who have exported a minimum of N50,000.00 worth of semi-manufactured or manufactured products. v. Export Credit Guarantee and Insurance Scheme Export Credit Guarantee and Insurance Scheme is extended to insure genuine exporters against political and other risks including default in payment. vi. Export Adjustment Fund Scheme Export Adjustment Fund Scheme is to serve as a supplementary Export Subsidy to compensate exporters for: a. High Cost of production arising from infrastructural deficiencies. b. Purchasing commodities at prices higher than prevailing world market price but fixed by government; and c. Other costs beyond the control of the exporter. vii. Rediscounting of Short Term Bills for Export This facility will enable all exporters to re-discount their short term bills under a scheme provided by Nigerian Export and import Bank (NEXIM). Export Processing Free Zone Scheme The Nigerian Export Processing Zones Authority has been established under DECREE 1992, to manage, control and coordinate all activities within the zones. The Law allows interested persons to set up industries and business within demarcated zones in the country, principally with a view to exporting goods and services manufactured or produced. Appropriate incentives are available to investors in the designated free zones, These are: Tax Holiday Reliefs. Legislative provisions pertaining to taxes, levies, duties and foreign exchange would not apply within EPZs. Repatriation of foreign capital investment in EPZs at any time with capital appreciation of the investment. Unrestricted remittance of profits, and dividends earned by foreign investors in EPZs. Rent-free land during construction of factory premises. Up to 100% foreign ownership of enterprises in EPZs. Sale of up to 25* of production permitted in domestic markets. No quotas on products from Nigeria exported to the European Economic Community (EEC) and United States of America. Made in Nigeria goods are entitled to preferential tariffs in the EEC because Nigeria is a member/party of the Lome Convention. SUBCONTRACTING 1. Any company can enter into a subcontracting agreement with a subcontractee. The subcontractor shall enjoy a tax rebate equal to 10 of the annual value of the invoices paid to subcontracted under the subcontracting agreement provided. i. The subcontracting parties have used the model subcontracting agreement delivered by the Nigerian Association for Subcontracting Promotion (NASP), which provides inter-alia for the swift payment of subcontracting charges; ii. There has been an effective transfer of technology by the subcontractor to the subcontractee; iii. The subcontractor can prove at least 5 man/days of training of the subcontractee to the use of the technology; iv. The subcontracting relationship has lasted for at least I year; v. The subcontractee is a Nigerian enterprise with less than 300 employees. 2. Raw materials or semi-finished products imported by a subcontractee in execution of the subcontracting agreement in view of re-exportation by the subcontractor as an end product are exempted from import duties. 3. The Nigerian Association for Subcontracting Promotion (NASP) is a non-governmental organisation financed at arms length by the Federal Ministry of Industry with the aim to promote subcontracting among the Nigeria enterprises. i. The NASP keeps a database of supply and demand of manufacturing services and acts as a broker between suppliers and demanders. ii. It provides interested parties with the model subcontracting agreement and provides adequate information for the proper implementation of such agreement; iii. It acts as a conciliator in all disputes between a subcontractor and a subcontractee; its decision shall bind the parties. iv. The Ministry of Finance pledges itself to submit disputes arising from a subcontracting agreement to the arbitration of the NASP and be bound by its arbitration decisions in such matters. LABOUR LAW RELATIONS Any employer has to comply with the provisions of the Labour Act. Employees shall be registered under the National Social Insurance Trust Fund (NSITF) unless the employer established that his company adheres to or operates an approved private pension scheme producing at least the same advantages, in favour of its employees. Employers shall respect the provisions on minimum wage where they apply and establish good working relations in all cases. Employees are protected against unfair dismissal. Nigeria adheres to and enforces the basic Human Rights Conventions of the International Labour Organisation (ILO), as well as provisions against child labour. ENVIRONMENTAL REGULATIONS Companies established in Nigeria are subject to national regulations on environmental protection. These regulations are made available to any investor. Investors in the manufacturing sector are encouraged to design products matching the ISO 9000 standard or equivalent. Investors planning to establish risk-enterprises (working with toxic products or producing toxic waste) will previously ask for an environmental impact assessment done by an independent certified company and join the conclusions to their appliction for a business authorisation. Such enterprises should prepare an emergency plan with the local authorities.