LEGAL REQUIREMENTS FOR FOREIGN PARTICIPATION IN BUSINESSES IN NIGERIA (PART. 2)

Government Incentives for Foreign Investment in Nigeria:

In part 1 of this discourse, I highlighted the basic types of investment options, opened to foreigners who intend to invest in the blossoming Nigerian economy. As promised, I shall expose you to the various initiatives, put in place by the Nigerian Government, to make foreign investment worthwhile. Though the list is not exhaustive, we shall focus on Tax Incentives, Repatriation of profits and Guarantees against Expropriation, etc.

Tax Incentives in Nigeria: Pioneer Status: Pursuant to the powers conferred on the President of Nigeria, by virtue of the Nigerian Investment Promotion Act and section 1 of the Industrial Development (Income Tax Relief) Act, 2004, there exists a tax relief known as Pioneer Status. As the name implies, Industries venturing into new or relatively new areas of the economy, can apply through their lawyers for a pioneer status. Examples of companies qualified for this status are: Companies involved in local raw material development, export-oriented activities, in-plant trainings, energy sector etc. Upon conferment of this status, such an Investor enjoys tax holidays for a period of Five (5) years.

Tax Relief on the Mining Sector: Investors in this sector could enjoy a tax holiday of three years, as provided for under section 28 of the Nigerian Minerals and Mining Act. In the same vein, section 25 of the Act exempts players in the mining sector, from payment of custom/import duties for plants and machineries, imported in furtherance of their mining operations.

Tax Holiday for Marketing and Distribution of Gas: An investor in this sector could be qualified, for tax holiday for a period of three years for gas utilization. This incentive finds support in section 39 of the Companies Income Tax Act (CITA).

Exemption on Taxes for Activities in the Export Free Zones: Section 1 of the Nigerian Export Processing Zones Act, had vested the President of Nigeria, with powers to designate some places as Export Processing Zones (EPZ). Upon such designation, business entities who are engaged in business activities in such zones are exempted, from taxes and conferred with other incentives. Examples of such EPZ are: Oil and Gas Free Zone, Onne in River State, South-South of Nigeria.

Tax Reliefs For Local Raw Materials Utilization: Industries which deploy local raw materials in their manufacturing process, enjoy up to 30% tax holiday, where they meet the minimum local raw material utilization as follows: Petrochemical-70%, Agro-Allied-70%, Engineering 65%, Chemical-60% etc.

Investment Tax Allowance: Under this policy, investors could enjoy tax allowance, for qualifying capital expenditure, incurred within 5(five) years from the date of approval of the project.

Tax Reliefs Pursuant to the Double Tax Agreement: Nigeria has signed a Double Tax Agreements with some countries, such as the United Kingdom, Canada, China, etc. By the dictates of this agreement, foreign entities are exempted from taxes, in respect of products, in which they have paid taxes in their home countries.

It is apposite to state, that the reliefs highlighted above are not exhaustive, as there are other industry-specific tax incentives, which are given from time to time, especially in sectors such as the Petroleum and Gas Sectors, agricultural and agro allied etc.

In addition to the tax reliefs highlighted above, there are other investment incentives, which every foreign investor should take cognizance of, geared towards making their investment journey, worthwhile and seamless. Some of such incentives are as follows:

Repatriation of Funds: Section 25 of the Nigerian Investment Promotion Act, guarantees the unconditional repatriation of funds, back to the investor’s country, through an authorized dealer in freely convertible currencies. Profits or dividends (net of taxes) traceable to the investments, funds for servicing loans obtained abroad, proceed from liquidation of assets, etc. can be unconditionally transferred without hitch.

Guarantee against Expropriation: Expropriation akin to nationalization is a process, whereby a Government compulsorily acquires the assets of a foreign or local Company by force. By virtue of section 25 of the Nigerian Investment Act, No enterprise of anybody including foreigners, can be nationalized by the Government of Nigeria; except where it breaches national Security.

There exists a preponderance of other incentives, which foreign investors enjoy, when they invest in Nigeria. These incentives are put in place, to encourage and attract investment in various sectors of the Nigerian economy. It is a win-win situation, where foreigners invest in the Nigerian economy. You may however need the services of a lawyer, to help pull through this process, for proper guidance and application.

In the next edition, I shall be discussing the legal processes, for establishing and sustaining companies in Nigeria. Happy reading!