WHAT A FOREIGNER NEEDS TO KNOW ABOUT SETTING UP A COMPANY IN NIGERIA

 

In order to do business in Nigeria, a foreign investor needs to know the regulatory requirements, costs, timelines for achieving any registration or obtaining a license and the relevant agency responsible for any approval or permit as well as the applicable taxes, levies or other mandatory obligations.

Our Corporate Law Practice Team at Koriat & Co. has put the following information together based on the type of enquiries we have received from potential and existing clients on how to do business in Nigeria.

For ease of understanding, we have provided the information in a question and answer format, as follows:

What are the requirements for registration of a company in Nigeria?

The following are the requirements for registration of a company in Nigeria:

1. Name of the Company: Two (2) proposed names for the company must be submitted to the Corporate Affairs Commission (“CAC”) for name search, screening and reservation. One of the names, if approved by the CAC, will be reserved for sixty (60) days to enable the promoters to complete the registration;
2. Nature of Business: A description of the nature and sector of the company’s business is also required for incorporation of a company.
3. Email, Phone Number and Registered Address in Nigeria for the Company: promoter(s) seeking to register a company with CAC must have an email address, phone number and proposed address in Nigeria for the company. Please note that the registered address is also relevant to taxation.
4. Shareholders: The list of shareholders must be provided during registration of a company. Please note that one (1) individual can solely own a company in Nigeria. The old requirement that a company must have a minimum of two (2) shareholders has now been abolished. The shareholder’s names, contact and residential addresses, phone number, email address, occupation, electronic signature(s) and government-issued means of identification must be presented to CAC.
5. Share Capital Requirement: The amount of the company’s issued share capital must be stated clearly at incorporation. Please note that under the CAMA 2020, the minimum issued share capital of a private company is N100,000 whilst the minimum issued share capital of a public company is N2,000,000. Please note also that one can exceed the share capital of 100,000,000 or 2,000,000 but the amount of share capital determines the costs of CAC incorporation and the applicable stamp duty chargeable by the Federal Inland Revenue Service (FIRS).
6. Shareholding Structure: The shares distribution amongst the founding shareholders must be clearly set out to know who gets what number of shares.
7. Directors:  The list of directors must be provided. Please note that one (1) individual can solely run a company in Nigeria. The old requirement that a company must have a minimum of two (2) directors has now been abolished. The directors’ names, contact and residential addresses, phone number, email address, occupation, electronic signature(s) and government-issued means of identification must be presented to CAC.
8. Certificate of Proficiency: Where the proposed companies are set up to operate in some special sectors, the CAC may demand that the directors submit qualifying certificates showing their proficiency in that sector.

Must the shareholders pay for all the share capital at the time of registration?

Yes. The Companies and Allied Matters Act (“CAMA”), 2020 provides that the share capital of all newly incorporated companies must be fully subscribed and paid up at the time of incorporation.

Are there other special requirements for a company having a foreigner as shareholder?

A company having foreigner(s) as shareholder(s) must be registered with not less than N10,000,000 notwithstanding the foregoing.

Foreigners participating in setting up a company as shareholder or director may be required to present a copy of Permanent Until Review (PUR) Visa or Resident Permit (this is only required for foreigners who are using Nigerian contact address).

Are there any sector-related requirements for incorporation of a company in Nigeria?

Yes, there are some regulated sectors in which a company seeking to operate must register with an amount of issued share capital that is higher than the amounts stated above. Please click for more information on categories of companies that require special share capital.

Also, depending on the sector, the promoters of the proposed company may be required to present any of the following:

1. Professional certificate or certificate of proficiency (this is only required for specific sectors such engineering, accounting, financial consultancy, etc.)
2. Approval in Principle (“AIP”) of the Central Bank of Nigeria (“CBN”) (this is only required for companies seeking to operate in the financial sector of the Nigerian economy); and
3. Any other requirement based on the law regulating the sector of the proposed company’s operation.

How long does it take to complete the registration of a company?

Registration of a company can be completed within not more than 24 hours, after approval and reservation of name.

Is there any restriction on the type of business foreigners can do in Nigeria? Or are foreigners prohibited from doing any kind of business in Nigeria?

A non-Nigerian can do any kind of business in Nigeria, except those on the Negative List as stipulated by section 17 of the Nigerian Investment Promotion Commission Act which are arms and ammunitions, narcotic drugs and psychotropic substances, para-military and military wears and accoutre.

Are there other post-incorporation registrations or filings that a company needs to do?

Yes.

Apart regsitering a company with the Corporate Affairs Commission, there are a number of post-incorporation registrations that every company must do before commencing business in Nigeria. They are as follows:

• Mandatory registration of the company with tax authorities such as the Federal Inland Revenue Service (FIRS), the Inland Revenue Service (ILR) of the state where the business is located, the Local Government Council in charge of the company’s business address area;
• Mandatory registration of the company with the Special Control Unit against Money Laundering (SCUML) as required by law for Designated Financial Institutions (DFIs);
• Processing of the Certificate of Capital Importation (“CCI”) for the companies owned by foreign investors seeking to inflow their working capital into Nigeria. The CCI guarantees investors’ right to repatriate their capital and profit less applicable taxes;
• Registration with Nigerian Investment Promotion Commission (“NIPC”) and processing business and resident permits from the Ministry of Interior for foreign owners and expatriates seeking to work/reside in Nigeria;
• Securing a physical address for the business. This is required and will be inspected for bank account opening purpose, tax and other regulatory purposes,
• Registration with a pension fund administrator (PFA) to open a temporary retirement savings account (RSA) for an employee where the company has 15 or more employees and the employee(s) has failed to present proof of registration with a PFA 6 months after the employee’s assumption of duty.

What are the requirements, costs and timelines for registering with NIPC and a PFA?

In order to apply for registration of a company with NIPC, the applicants are required to present the following:

Requirements for Business Registration with Nigerian Investment Promotion Commission

In order to register a company with the Nigerian Investment Promotion Commission, the following requirements must be met:

1. A duly completed NIPC Form 1,
2. A copy of the memorandum & articles of association of the company;
3. A copy of the certificate of incorporation of the company;
4. CAC Form 1.1 (for newly incorporated companies) or CAC Forms CO2 & CO7 (for old companies);
5. A copy of a power of attorney (where applicable);
6. Approved Remita receipt of application fee (i.e. N15,000, about $35);
7. NIPC payment receipt; and
8. Any other relevant document (if any).

Timeline: A certificate of business registration is usually issued by the NIPC within 24 hours of submission of the application.

Requirements for Company’s Registration with a Pension Fund Administrator (PFA)

By the provision of the Pension Reform Act 2014, it is the obligation of every employee to register with a pension fund administrator (PFA) in Nigeria for the purposes of opening a retirement savings account (RSA) and submit the RSA details to their employers for monthly remittance of pension contributions.

It is expected that every employer will apply for and obtain an employer code from the National Pension Commission for the unique identification of the employers to facilitate the RSA registration of their employees. The following documents are required for private company’s request for employer’s code from the Commission:

1. letter requesting for employer code;
2. Certificate of incorporation/registration from the registering authority; and
3. Evidence of Taxpayer’s Identification Number (TIN).

Please note that a PFA shall only register an employee whose employer has registered with the Commission and obtained an employer’s code. PFAs usually request the employer’s code on their behalf through a single or bulk request to the Commission for employers’ codes.

However, where an employee fails to register with a PFA within six (6) months of assumption of duty, the employer is required by paragraph 4.4. of the Revised RSA Registration Guidelines 2019 (“Guidelines”) to initiate a registration with a PFA to open a temporary RSA for such employee under an Employer-Initiated RSA registration procedure for the remittance of his/her pension, as stipulated by Section 11(5) of the Pension Reform Act 2014.

In order to register a company with a PFA, the following must be presented:

1. A letter of indemnity/mandate from the employer certifying that the employee has not submitted evidence of opening an RSA and requesting the PFA to open a temporary RSA. The letter shall state the following
2. The name of the employee;
3. The date of assumption of duty;
4. The employee ID number (where applicable);
5. Letter of employment or appointment; and
6. Other additional documentation as may be required or specified by the National Pension Commission (“NPC”).

Timeline: Generally, by paragraph 1.6.13 of the Guidelines, the PFA is required to issue a registered employee with a letter of registration within five (5) working days of opening of the RSAs. Such letters shall contain, in the minimum, the following:

1. The name of the RSA holder (the employee in whose favour the RSA has been opened);
2. RSA holder’s address;
3. PFA Name;
4. Personal Identification Number (PIN);
5. Date of registration;
6. RSA Holder’s mobile number; and
7. Employer’s name (where applicable).

In the event of a registration initiated by an employer, the PFA must issue the registered employees through their employer evidence of registration within five (5) working days of receipt of their temporary PINs from the National Pension Commission. Such letters shall contain the Name of the Employees, PFA Name, Temporary PIN, Employer Name and Employer Address.

What are the permits necessary for foreigners seeking to do business or work in Nigeria and what are the relevant requirements and costs for obtaining them?

Foreigners seeking to work or do business in Nigeria must obtain the following:

Combined Expatriate Residence Permit and Aliens Card (CERPAC) which is required for foreigners seeking to work in Nigeria and cost is based on the number of expatriates. There are CERPAC GREEN CARD (allows a non-Nigerian to reside in Nigeria and carry out an approved activity as specified in the permit, or to accompany a resident or citizen of Nigeria as a dependant) and CERPAC BROWN CARD (for aliens seeking to stay in Nigeria beyond 56 days or crew members leaving their ship and staying ashore in excess of 28 days).

Please note that possession of valid CERPAC GREN CARD does not exempt its holder from having a valid entry or re-entry visa. So, if a holder of resident permit in Nigeria is proceeding on leaving or traveling out of Nigeria, he or she is required to apply for re-entry permit or visa prior to their departure from Nigeria.

As of the date of this write up, the official cost for each expatriate is $2,000 exclusive of other miscellaneous costs.

Business Permit is required when a newly incorporated company is entirely owned by foreigners using Nigerian contact address.

Every application for a business permit to engage in commercial enterprise in Nigeria must be accompanied by the followings:

1. Application to the Minister of Interior using a duly completed Immigration Form T/1;
2. Certificate of Incorporation;
3. Memorandum and Articles of Association;
4. Feasibility Report (Business Plan), registered with and certified by the Corporate Affairs Commission;
5. Certified True Copies of CAC Form 2.3, 2.5, 02 & 07 (or any CAC detailing the Particulars of share capital of not less than N10million, Shareholders, Directors, etc.);
6. Joint Venture Agreement for partnership venture between Nigerian(s) or Nigerian company and foreigners (original to be presented for sighting);
7. Company’s current tax clearance certificate (original to be presented for sighting);
8. Lease agreement or Certificate of Occupancy for business address of the company in Nigeria (original to be presented for sighting).

The cost for obtaining a business permit is about $700 excluding expenses.

Expatriate Quota is required for a company seeking to employ foreigners as directors or management or technical staff. The quota is usually applied for and granted with business permit. The quota to be granted is subject to number of expatriates and their respective positions in the company and is required before an application for CERPAC can be made. An expatriate quota can be temporary (for short term employment usually a fixed term project) or permanent until reviewed (PUR) for a longer period of employment.

Please note that the Nigerian Immigration Service places emphasis on employment of Nigerians to understudy the foreign experts for the purpose of training them, to enable the understudies acquire relevant skills for the eventual take-over of the expatriate quota positions.

The requirements for granting expatriate quota are the same as those for business permit plus the following:

1. Evidence of imported machinery, such as, Form M, Proforma invoice, Shipping documents and Clean Certificate of Inspection issued by Government appointed Pre-shipment Inspection Agents.
2. License / Permit / Certificate from relevant Government Agencies / department / ministries for the operation or execution of project, if company is engaged in oil services, health care services, fishing, mining, constructions (Work Registration Board), etc. (original to be presented for sighting)
3. Evidence of work at hand, its duration and value attached to the contract(s) if the company is engaged in building, civil engineering, construction, etc. (original to be presented for sighting)
4. Proposed annual salaries to be paid to the expatriates to be recruited indicating designation, names, jobs description and qualifications (CV and copies of credentials of expatriate to be attached).

Renewal of Expatriate Quota: Please note that the renewal of expatriate quotas will not be automatic but considered on merit based on submission of the required documents, as specified below:

1. Completed Immigration Form /T2
2. Corporate Tax Clearance Certificate (original to be presented for sighting)
3. Current Tax Clearance certificate of the expatriate (original to be presented for sighting)
4. Expatriate Quota Returns for the three months preceding the date of approval.
5. Detailed Training programme for Nigerians
6. List of Nigerians understudying expatriate on prescribed formats showing date employed, qualification, etc.
7. List of Nigerian Senior/Management Staffs showing names, designations, qualifications, salaries per annum
8. Certificate Current Audited Accounts; a
9. Annual income tax Clearance certificate of the Expatriate staff (original to be presented for sighting).

Is registration with SCUML an essential option? What are the requirements for SCUML registration? 

The registration with SCUML is mandatory and the requirements for registration are as follows:

1. A copy of the certificate of incorporation of the applicant company.
2. A copy of the Articles and Memorandum of Association.
3. Evidence of tax registration;
4. Audited Financial Report or Statement of Affairs;
5. Company or organization profile.

What are the requirements and time frame for  Certificate of Capital Importation (“CCI”)?

A CCI is a document issued by a commercial bank to an investor as proof of inflow into Nigeria of foreign currency or goods such as plants, equipment, machinery or raw materials for investment purposes. A CCI is usually issued within 24 hours of the capital inflow to guarantee the investor’s right to repatriate his or her funds less applicable taxes.

The capital to be inflowed into Nigeria by a prospective company may be either equity or loan. The checklist of documents required for CCI equity and loan are as follows:

For Equity/Cash Importation:

• Board resolution authorizing the inflow of capital;
• Certificate of incorporation; and
• Company’s letter of intent stating the issuance of CCI for the exact amount that was inflowed.

For Loan/Cash Importation:

• Board resolution authorizing the inflow of capital;
• Certificate of incorporation;
• Company’s letter of intent stating the issuance of CCI for the exact amount that was inflowed;
• Loan Agreement;
• Offer Letter; and
• Acceptance Letter.

With regard to the timeline, the CCI is usually issued on the same date of the inflow of the capital. However, the investor is required to provide the above requirements before the inflow of the capital to enable the relevant bank to apply for investor code from the Central Bank of Nigeria before the inflow.

Does Federal Inland Revenue Service (“FIRS”) assign a Tax Identification Number (TIN) automatically at incorporation? 

Or will a company apply for TIN in a separate process? 

Yes, the FIRS will automatically assign a TIN upon payment of stamp duty during the incorporation process. The TIN will be clearly reflected on the company’s certificate of incorporation to be issued by the Corporate Affairs Commission.

However, a newly registered company will still be required to proceed to the nearest FIRS MSTO (i.e. Micro and Small Tax Office) for Value Added Tax (“VAT”) and Company Income Tax (“CIT”) registrations.

Also, the company is required to register with the relevant State Inland Revenue Service for the purpose of personal income tax (“PIT”) or Pay As You Earn (“PAYE”) remittances and filings.

The above registrations are required of a newly incorporated company before commencing business notwithstanding the automatic assignment of TIN by FIRS/CAC during incorporation of the company.

Are there any special requirements for opening a bank account by foreign owners?

The requirements for opening a bank account for foreign account owners are as follows:

1. Certificate of Incorporation and other Corporate Affairs Commission (CAC) Documents;
2. Board resolution appointing a bank and approving the account opening;
3. Operational licence for the business, where applicable.
4. Permanent Until Review (“PUR”) visa or Combined Expatriate Resident Permit Alien Card (“CERPAC”), where applicable, or Receipt of payment;
5. International passport of directors or any other government-issued means of identification;
6. Two Referees with similar bank accounts;
7. Passport photograph of directors/signatories;
8. Bank Verification Number (“BVN”) of directors/signatories; and
9. Utility bills of the registered or business address of the company.

Can foreigners/owners of a company assign a Nigerian (a non-director) to open the company’s account in Nigeria? What documentation is required?

Yes.

A Nigerian (whether or not a director) can be assigned to open a company’s bank in Nigeria. This arrangement will dispense with the mandatory requirement for foreigners who are directors to provide their BVNs.

In practice, the company must present a signed board resolution authorizing the opening of a bank account with a named bank and assigning a named Nigerian or foreigner resident in Nigeria to be signatory to the company’s account.

How do foreign bank account owners able to monitor or protect the company from fraud?

The emails and phone numbers of the foreign directors are usually included in the Bank Account Opening Forms to enable them to receive notifications of any activity or transaction on or from the account.

Also, it is advisable that the company should activate an online banking account for the company and let the foreign directors have sole control over the Login details and access tokens for the online banking account.

Can we assign a foreigner as company secretary? Or does the secretary have to be a local natural person?

A foreigner cannot be a company secretary in a Nigerian company. Only qualified Nigerians can be appointed as company secretaries in Nigerian company.

Please note that a company secretary can be an individual who must be a lawyer or chartered accountant or chartered secretary and administrator (or a firm of any of the foregoing professionals) licensed to practice in Nigeria.

What are the taxes or levies imposed on businesses operating in Nigeria?

It is important for foreign investors to be aware of the regular statutory deductions, taxes or levies applicable to companies registered in Nigeria and they are as follows-

1. The National Information Technology Development Levy (NITDA Levy) is required and payable by companies with annual turnover of N100million or above (i.e. about $500,000 or above). The NITDA Levy is payable to the FIRS at 1% of profit before tax (PBT). The levy is imposed on companies registered for the following:
   • Banking and other financial activities, including capital and money market operators, mortgage institutions, and micro-finance banks;
   • Insurance activities, including brokerage;
   • Pension fund administration, pension management, and related services;
   • GSM service providers and telecommunication companies; and
   • Cyber and internet services providers.
2. Contributory Pension: every company with a minimum of fifteen (15) employees must contribute 10% of its employees’ total emolument as pension. Also, the eligible companies must deduct 8% from the employees’ emolument and remit both (i.e. a total of 18% deductions) to a Pension Fund Administrator (PFA) of an employee’s choice on monthly basis. There are a number PFAs in Nigeria, one of which an employee is required to approach and open a Retirement Savings Account (RSA) with and communicate the RSA numbers to the employer. Where an employee fails to register with a PFA within six (6) months of assumption of duty in a company, an employer is required to approach a PFA to open a temporary RSA for such employee.
3. Education Tax (or tertiary education tax) is chargeable and payable annually to FIRS at 2% of assessable profit. Non-resident companies are exempted from Education Tax.
4. Industrial Trust Fund (ITF) Contribution is chargeable and payable at 1% of the annual payroll of every employer having either five (5) or more employees or with less than five (5) employees but with an annual turnover of N50,000,000 and above. The contribution is payable to the ITF.
5. National Social Insurance Trust Fund (NSITF) Contribution is a contribution by an employer, not a deduction from employee’s salary. The contribution is 1% of employee’s monthly payroll (i.e. remuneration excluding pension contributions, bonuses, overtime payments and one-off payments such as 13^th month income) payable to NSITF for the first two (2) years of operation. Thereafter, NSITF Board will carry out a risk assessment of the company’s operations in order to classify and estimate the necessary contributions based on each company’s workers’ potential exposures.
6. Company Income Tax (“CIT”) is tax paid on assessable income of a company, usually 30% (for large companies earning gross turnover greater than N100 million), 20% (for medium companies earning gross turnover greater than N25million but less than N100million) and 0% (for small companies earning gross turnover of N25million or less), assessed on a preceding year basis.
7. Personal Income Tax (Pay As You Earn): this ranges from 7% (on taxable annual income of N300,000) to 24% (on taxable annual income of N3,200,000) payable to the Inland Revenue Service of the State where the employees are resident.
8. Withholding Tax (WHT): This is deducted from payments made to corporate and individuals in respect of specifically taxable transactions. The taxable transactions and their respective rates (for corporate and individual) are stated below. Please note that there is no distinction between local and foreign corporate or individuals when deducting WHT.

Taxable Payments	WHT for Companies	WHT for Individuals
Dividends, Interests or rents	10%	10%
Directors’ fees	N/A	10%
Hire of Equipment	10%	10%
Royalties	10%	5%
Commission, consultancy, technical, service fees or Management Fees	10%	5%
Construction (roads, buildings, and bridges)	2.5%	5%
Contracts other than sales in the ordinary course of business	5%	5%

9. Value Added Tax (VAT) is now 7.5% taxable on costs of goods and services pursuant to the Finance Act of 2019 which came into force on 1^st February 2020. Exempted items include exports (exported oil is taxable), goods and services for humanitarian donor-funded projects, plants and machinery for use in Export Processing Zones (EPZ), basic food items (based on a list specified in the Finance Act), medical products and services, pharmaceutical products, books and educational materials and exported services.

10. Custom Duties are about 5% to 35% tariff levied on imported goods based on the prevailing Harmonized Commodity and Coding System (HS Code). It is important to note this tax in case a new company intends to import any product for the purpose of setting up or operating its business in Nigeria.

Please note that the Finance Act 2020 reduces the import duty on Tractors from 35% to 5% while the import duty on trucks and other vehicles for the transport of goods and persons was reduced from 35% to 10% and 5% respectively. Also, all airlines registered in Nigeria and providing commercial air transport services are entitled under Nigerian law to duty-free importation of their aircrafts, engines, spare arts and components whether purchased or leased.

11. Nigerian Housing Fund (NHF) Contributions are (deductions from or) made by employees earning a minimum of N3,000 ($ per annum. Every employer is obligated by law to deduct 2.5% of basic salary from eligible employees and remit same to the Federal Mortgage Bank of Nigeria (FMBN) within one (1) month of deduction. Every employee is required to open an account with the FMBN into which the employer must remit the deductions made.

12. Television and Radio License Fee is chargeable by the Local Government Council in charge of the business area of the company, usually assessed at annual rate between N50,000 and N250,000 for rural and urban areas respectively.

13. Local Content Levy: The Nigerian Content Development Act imposes a levy of 1% on every contract awarded in the upstream oil and gas sector of the economy. Any violation of the Act is liable for a fine of 5% of the contract value and may result in outright cancellation of the contract.

14. Stamp duty is levied on a chargeable transaction, either at fixed rates or ad valorem (i.e. based on the value of the consideration or the type of document containing). For example, stamp duty of 0.75% is chargeable on the authorised share capital at incorporation of a company or on registration of new shares. All deposit banks and financial institutions are required to charge stamp duties of NGN50 on every eligible transaction above NGN 10,000. There are exemptions for transactions between accounts held by the same bank customer, salary accounts and electronic transfer. Now, the Finance Act 2020 introdued “Electronic Money Transfer” levy of N50, which is chargeable on electronic receipts or electronic transfer of N10,000 or more.