NIGERIA
3.2 Briefly explain the investment restrictions for any special/restricted sectors. We have outlined restrictions and considerations for special sectors above. In relation to the petroleum sector, eligibility to be given first or exclusive consideration for bids in relation to contracts and licence awards depends on the extent of Nigerian participation or utilisation of Nigerian goods and services. The cabotage regime restricts ownership and participation in the maritime sector.
3.3 Which authority oversees competition clearance, when is notification mandatory, and briefly explain the merger clearance process. This varies from sector to sector. The NCC oversees competition issues relating to telecommunications sector participants. The SEC generally oversees competition clearance in relation to mergers, acquisitions and business combinations subject to very limited exemptions. Competition compliance reviews and clearance usually involve filing a formal detailed application and submitting specified documents and information to the relevant regulator, depending on the relevant sector in which the target or company does business. The regulator will then usually issue an approval in principle subject to fees being paid and to prescribed conditions being met pre- or post-transaction.
4. Tax and grants
4.1 Are there tax structures and/or favourable intermediary tax jurisdictions that are particularly useful for FDI into the country? Nigeria has entered into, and ratified double taxation treaties (DDTs) with Belgium, Canada, China, the Czech Republic, France, Netherlands, Pakistan, Philippines, Romania, Slovakia, South Africa, and the United Kingdom. The effect of these DTTs is that the rate of withholding tax on dividends, interest and royalties that are payable to recipients resident in such countries is reduced from 10% to 7.5%. The tax, when withheld and remitted to the tax authorities, represents the final tax due on that income in Nigeria.
Interest payments on foreign loans granted to Nigerian companies (in foreign currency whether in Nigeria or outside Nigeria) that meet the moratorium and tenor requirements prescribed in the Companies Income Tax Act are exempt from tax. The tax exemptions applicable to foreign loans are as follows:
Repayment period including moratorium Above seven years Five to seven years Two to four years Below two years
Grace period
Not less than two years Not less than 18 months Not less than 12 months Nil
Tax exemption
100% 70% 40% Nil
If the terms of a foreign loan transaction satisfy the above stated requirements, then a Nigerian borrower will not have, or would have a reduced obligation, to withhold tax on the interest payments made in relation to the loan.
Interest payments on Federal Government of Nigeria bonds and short-term securities are exempt from tax, and interest payments on state and local government, corporate and supra-national bonds are also exempt from tax for corporate investors up to January 1 2022 (or such other tenure if the period is extended), but there is no limitation for individual investors in the above instruments.
A company granted a pioneer status certificate is exempt from companies’ income tax and tertiary education tax for a period of five years. Dividends distributed by such a company will also not, during this period, be liable to withholding tax.
4.2 What are the applicable corporate tax rates? The corporate tax rate for Nigerian companies is effectively 32% of assessable profits comprising 30% companies’ income tax and 2% tertiary education tax. Where, in any year of assessment, the total assessable profit from all of a company’s sources of income results in a loss, or where the company’s ascertained total profits result in no tax payable, or in a tax payable which is less than the minimum tax, the company will be liable to pay a minimum tax, which shall be calculated as follows:
• if the turnover of the company is N500,000 or below and the company has been in business for at least four calendar years, the minimum tax will be: (i) 0.5% of gross profit; (ii) 0.5% of net assets; (iii) 0.25% of paid-up capital; or (iv) 0.25% of turnover of the company for the year, whichever is higher; or
• if the turnover of the company is higher than N500,000, the minimum tax will be whatever is payable as per the preceding paragraph, plus additional tax on the amount by which the turnover exceeds N500,000, computed at the rate of 0.125% of the turnover of the company for the year.
There are, however, three categories of companies that are not liable to pay a minimum tax. These are companies engaged in agricultural business, companies that commenced business less than four years prior to the year of assessment, and companies whose shareholding comprises of at least 25% foreign capital.
4.3 Does the government have any FDI tax incentive schemes in place? Please see our response in paragraph 4.1 above.
4.4 Other than through the tax system, does the government provide any other financial support to FDI investors? While there are no FDI-specific financial support initiatives by government, there are various investment incentives that are available, for instance, to companies that manufacture goods or that are engaged in activities for export purposes. There are various tax and investment incentives that are available to companies that manufacture goods or that are engaged in activities for export purposes and to other companies, but which are not specific or limited to FDI.
5 Operating locally
5.1 What is the most common governing law of contracts and local business language? The most common governing law of contract is Nigerian law, and the local business language is English. Nigerian courts will however, generally uphold any other applicable law preferred by the parties subject to certain exceptions.
5.2 Explain any local content or local participation requirements relevant to foreign investors. Please see the discussions above in relation to the NIPC, the Nigerian Oil and Gas Content Development Act and cabotage issues. Under the NIPC Act, foreign investors may own 100% of the equity of a limited liability company, and others not on the prohibited list as outlined above.
5.3 How difficult is it for foreign investors to secure expatriate visas for shareholder representatives and workers? Business visas generally prohibit employment in Nigeria, but it is not difficult to procure resident and and work permits for foreign employees and management or directors who will reside in Nigeria, for whom expatriate quota positions have been approved by the FMI, which has absolute discretion. The discretion to grant expatriate quota approvals is dependent to a large extent on the ability of the applicant to adduce satisfactory evidence that there are no suitably qualified Nigerians who can provide the required skills and services.
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IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014
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