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Doing Business in Nigeria - Investment Laws in Nigeria
Introduction - Constitution of a Company - Tax System
1.1.
Introduction Constitution Political regime Number of states Federal government 1.2.
Administrative
organisation Distribution of federal and state authority 1.3.
Organisation of
judiciary Courts Courts of appeal Supreme Court Lawyers (barristers and solicitors) Notaries public 2.
NIGERIAN
COMPANIES 2.1.
Different types
of company Formation Registration Administration process Foreign companies 2.2
Bankruptcy General terms of bankruptcy law 2.3
Foreign
businesses and foreign branch offices Differences between foreign subsidiaries and branch
offices 2.4.
Oil companies Laws on mining of resources Proper authority Nigerian owned oil companies Foreign owned oil companies Off shore and on shore concessions -
Conditions,
duration Audit testing 3.
Residence and
professional activities of foreigners Nigerianization Entry and work visas Residence permit Authorization to work TAXATION,
FISCAL CONCERNS, CUSTOMS LAW 1)
IMPORTS -
Importing under exemption and without duties, -
Customs duty rates on imports, -
Payment method, -
Transit laws, -
Transit of goods, -
Customs administration. 2)
EXPORTS -
Duties collected on exportation, -
Duty rates, -
Export of capital, foreign exchange control, and convertibility of Naira
into other currencies, export of currency. 3)
DIRECT TAXES -
Taxes on profits, -
Taxes on consumption, -
Income tax, -
Capital tax, -
Method of payment and control. 4)
NON-DIRECT
TAXES -
Miscellaneous taxes (taxes on consumption or products) -
Method of payment and control INTRODUCTION ABOUT
THE NIGERIAN MARKET 1)
Reasons for taking
an interest in the Nigerian market are not hard to find; however French
businesses remain unconvinced. Is Nigeria’s role as the top market in Africa
offset by the decrease in revenues coming from oil exploitation, the difficult
relationship of security related problems and the existence of questionable
practices and customs? Nigeria has over 128 million inhabitants, far more
than Egypt (80 million inhabitants; and more than the francophone countries
favoured by French business, for example Senegal has 11 million inhabitants and
the Ivory Coast has a population of 17 million). The size of the Nigerian market is its greatest
strength. Equally the Nigerian population’s purchasing power must be taken
into account, as it is one of the highest in Africa. In short, Nigeria constitutes a prime base for
expanding into West Africa. It is home to 150,000 expatriates, working for 1,200
businesses, of which only 140 are French. 2)
Being involved both
in Anglo-Saxon and African markets, the Nigerian market is largely open
to external investment due to oil revenues, even if these revenues have
experienced a significant reduction following the crash in crude prices from
US$40 in 1995 to US$11 in 1998. Yet GDP growth increases an average of 5.2% per
year, which in today’s world market constitutes a success, especially as many
neighbouring African nations have a GDP in decline or are facing a recession. 3)
The need to export
along with the necessity to integrate in emerging markets in Africa justifies
entry into Nigeria. To this end suitable information on the Nigerian tax
and legal system is necessary. Being heir to a British legal culture and
participating in Anglo-Saxon markets it can all seem baffling. It does
however have its own character following over 40 years of independence. The aim of this text is to make a comprehensible and accessible table of the system wherever documentation is not immediately available. ORIGINS
OF LAW AND JUDICIAL ORGANISATION 150.
Nigeria is a
federal state. A traditional and classical, but rather simplified, view is that
it is composed of three principal ethnic groups. The country can be compared to
a rectangle in which a “y” stretches from the northwest to the south along
the river Niger, and from southeast to south along the smaller river Benoué,
the Niger’s principal tributary. The Peuls-Hausas occupy the branches of the “y”,
whilst the foot of the letter is shared between the Yorubas in the north and the
Igbos in the south. The administration originally tried to take this
division into consideration before opting for an increase in the number of
federal states to avoid ethnic blocks being formed. Hence there were: -
Three
regions at the time of independence in 1960, -
Four
in 1963, -
Twelve
states in 1967, -
Nineteen
states in 1976, -
Twenty
one states in 1991, -
Thirty
states in 1997, -
Thirty
six states by 2006. This structure is subdivided into 589 local
governments. Hence Nigeria is a federal state. In 1991 the capital
was transferred from Lagos; a port city in the south to Abuja in the “middle-belt”.
Although Nigeria is made up of federal states it is politically a very
centralised nation. THE
CONSTITUTION A new constitution was drawn up in 1999. It constitutes a federal government, state government
and local government. The President, Head of the Executive, is elected by
universal suffrage. The president in office currently (since 29 May 1999) is
General OBASANJO, elected democratically by universal suffrage. The constitution provides for legislative power to be
shared between the House of Representatives and the Senate. The executive governor of each federal state (there
are thirty six) is normally elected, legislative power is entrusted with one
sole assembly called the Assembly. Local governments (of which there are 589) are made up
of a local government chairman helped by a legislative council, all of which are
elected. BASIS
OF NIGERIAN LAW 251.
The current
Nigerian legal system is the mixing of English legal traditions and
acknowledgement of the free enterprise system in a nod to Anglo-Saxon
tendencies, there are however certain restrictions and obligations for foreign
investors. 252.
RESTRICTIONS ON FOREIGNERS Various restrictions are
imposed on the business activities of foreign companies in order to protect the
Nigerian economy and to give nationals of the country the chance to participate
in economic activities. To this end establishing a
business in Nigeria involves: -
Obtaining a
business permit with authorisation to employ expatriates, -
Exchange control
authorisation to allow repatriation of capital will be imported, -
Investment
authorisation.
The regulations applicable are
found in specific acts and not in legal codes as is the case in France. The
following acts are particularly important: -
Immigration Act
(1963), imposes a
maximum quota of expatriates, sparking off a nigerianisation of businesses and
requiring a work permit for foreigners. -
Exchange
Control Act (1962), sets out the
rules for investing non-resident capital in Nigerian businesses; and defines
methods of transfer of foreign interests to non-residents and residents. It also sets out regulations
governing the movement of capital and the repatriation of profits. -
Nigerian
Enterprises Promotion Act (1989), restricts a
certain number of business activities to Nigerians. These 40 business activities
have been reduced to just 4 now. -
Securities and
Exchange Commission Act (1988), requires
administrative authorisation from the Securities and Exchange Commission for
issuing, assigning or transferring bonds from foreign businesses. -
Companies and
Allied Matters Act (1990), states that
a foreign business cannot operate without first having been registered. 151.
ORGANISATION OF THE JUDICIARY The Nigerian legal system is
hierarchical and is made up of the Supreme Court of Nigeria, the Court of Appeal,
the Federal High Court, the State High Court, Magistrates Courts, Customary
Courts and Sharia Courts (in the north of the country and only affects the 16
states governed by Islamic Sharia law). 152.
TERRITORIAL JURISDICTION Nigerian courts have
jurisdiction to preside over any case involving corporate bodies or individuals
on Nigerian soil or if a contract is governed by Nigerian law 153.
RIGHT OF ACTIONS The seizin of Nigerian
jurisdictions entails the involvement of a barrister-solicitor. Differing from
the legal system in Great Britain that inspired the Nigerian system, the two
professions have been amalgamated into just one. 154.
COST OF PROCEEDINGS AND FEES 155.
DEADLINES AND EXPENSES 156.
CONSERVATORY MEASURES, INJUNCTIONS 157.
ARBITRATION According to the Anglo-Saxon practice
arbitration has the favour of Nigerian contractors. On 10 June 1958 Nigeria
signed the New York convention regarding the recognition and carrying out of
foreign arbitragist sentences allowing mutual acknowledgement and execution of
arbitragist sentences in the signatory countries subject to reciprocity. COMPANY LAW 201.
GENERAL PRINCIPLES
INTRODUCTION
The forms of carrying out business are the following: -
Individual, -
Partnership, -
Cooperative
society, -
Statutory
Corporations (State company), -
Quasi Corporations
(non registered companies similar to Economic Interest Groups), -
Incorporation of
Trustees (the Corporate Affairs Commission can register, in certain cases,
trustees as a commercial company, which comes close to authorising an
association to undertake commercial activities), -
Registered
companies which can be of three types: o
Company limited by
shares, o
Company limited by
guarantee, o
Unlimited company, These can be compared to S.A., S.A.R.L
and S.N.C respectively. CONSTITUTION OF A COMPANY I
– GENERAL Article 18 of the legislation on commercial companies
(the Companies and Allied Matters Act) states that two or more individuals can
create a registered company, either being a public company or not. Article 20 states that any company, association or participation
company comprising of more than 20 individuals formed in order to make a
profit or income must be registered. This requirement does not apply to cooperatives and
companies comprised of public accountants or lawyers. II
– CAPACITY OF PARTNERS The company cannot make any of the following partners: -
Anyone under the
age of 18 unless two other individuals with full legal capacity subscribe to the
memorandum of association, -
An adult under
disability -
A non reinstated
bankrupt individual -
An individual, who
falling under Article 254 can not carry out the duties of director of the
company -
A company in
liquidation Foreigners can participate in the formation of a
company on condition that they comply with two pieces of legislation regarding
their situation, namely, Article 8 of the Immigration Act (1963) and the
Nigerian Enterprises Promotion Act (1989). III
– TYPES OF COMPANY Nigerian law allows for two types of registered
company: -
Public companies -
Private companies These companies can be: -
Either a company
limited by shares in which the liability of partners is limited in the
memorandum to their total contribution, -
Or a company
limited by guarantee in which the liability of its partners is limited in the
memorandum to the amount that they each respectively are bound to be responsible
for in the event of winding up by decision of court, -
Or finally an
unlimited liability company equivalent to a general partnership where the
liability of partners is limitless. PRIVATE COMPANIES Article 22 of the legislation on commercial companies
states that the company must declare in its memorandum its character of private
company. The maximum number of partners cannot exceed fifty.
However employees or those who have been employed by the company in good faith
are not counted in this total. The company cannot receive public funding through
share offers or receive funds for a fixed period, payables
at sight, regardless of whether these funds come with interest or not. In the event that these requirements are not met the
company will lose the advantages bestowed on private companies by the Act and it
will be considered as a public company. However, any interested party can
legally request the measure not be implemented if the charge brought can be
justified as accidental or through an oversight or through any other cause. PUBLIC COMPANIES The Act limits itself to stating that a public company
results from a memorandum and the fact it is not a private company. COMPANIES LIMITED BY SHARES As in France, this is the most common type of
commercial company. The liability of the partner is limited to amount of stock
he owns. In this type of company the partner's financial
liability cannot exceed his financial contribution. The only exception comes
from the extension of liability of directors especially when the company
operates with a number of partners below the legal minimum.
COMPANIES LIMITED BY GUARANTEE The companies mentioned in Article 26 are those which
have the aim of "promotion of commerce or art, science, religion, sports,
culture, education, research, charity or all other similar objectives", and
in which the earnings or property are only affected by the promotion of these
goals without directly or indirectly benefiting members of the company. These companies can be registered as a limited
guarantee company instead of being registered as a company limited by shares. It is to be noted that the memorandum of this type of
company requires the involvement of the Attorney General of Nigeria. This type of company cannot distribute profits to its
partners under penalty of leading to personal liability, jointly and
interdependently of its directors and partners who acted in all knowledge of
responsibility for all debts and liabilities. Moreover, a penalty fine of Naira
10 will be awarded for each day of the infraction. Pecuniary liability of members of a limited by
guarantee company in case of bankruptcy leading to their obligation to transfer
the liabilities of the company would not be less than 10,000 Naira. UNLIMITED COMPANIES In this type of company each partner is integrally and
indefinitely responsible for liabilities, therefore this kind of company is
rarely used except for obligations in view of the Company Act, especially for
insurance companies (Insurance Act 1976). SMALL COMPANIES This refers to a company in which the turnover and
assets do not exceed a threshold fixed by legislation. The fact that no
foreigners can be made partners as well as the fact that foreign capital
companies cannot fall into this bracket and that directors must hold at least
51% of capital stock makes this type of company useless for foreign investment.
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