The Nigerian economy is currently ranked by the International Monetary Fund (IMF) as the largest economy in Africa.

Dominant Industries

The petroleum industry remains the dominant industry in Nigeria. Oil accounts for approximately 10% of Nigeria's GDP, 70% of the country's revenue, and more than 83% of the country's export earnings. Other key sectors in the Nigerian economy include:

• Agriculture.
• Manufacturing.
• Service-related industries, such as financial services and telecommunications.

Population and Language

According to the World Bank, Nigeria's current population is estimated to be 202 million people. Nigeria's official language is English.

Business Culture

Nigeria has a business culture that exudes the resilience of its people. Business hours are usually between 8am to 5pm, Mondays to Fridays. Nigeria also observes various public holidays comprising the significant religious holidays of the dominant religions in the country and other government earmarked holidays.2. What are the key recent developments affecting doing business in your jurisdiction?

Key Business and Economic Events

The 2019 novel coronavirus disease (COVID-19) pandemic has continued to place a strain on the Nigerian economy and has disrupted financial planning for many businesses. A prolonged disruption is likely to lead to renegotiation of deal terms, defaults, termination of contracts, layoffs, inflation, currency devaluation, a further downgrading of the country's sovereign credit rating, all culminating in a decline in foreign direct investments generally and, consequently, in private equity activity in Nigeria. To mitigate these challenges, the federal government has:

• Passed the 2021 national budget which is expected to accelerate the pace of Nigeria's economic recovery, promote economic diversification, enhance competitiveness, and ensure social inclusion.
• Technically devalued the Naira (NGN) from NGN380.2 to NGN410.24.
• Made other economic interventions.

New Legislation

Company law and administration. The Companies and Allied Matters Act, 2020 (CAMA 2020) was signed into law on 7 August 2020. The CAMA 2020 contains several innovative provisions relating to Nigerian company law. Some of the highlights of the CAMA 2020 include the following:

• Use of electronic instruments for the transfer of shares.
• Limited partnerships and limited liability partnerships as alternative corporate structures.
• Single member and single director companies.
• Reduction of filing fees for the registration of charges.
• Expanded exceptions in relation to financial assistance. These additional exceptions, especially those applicable to private companies, will have a positive impact on companies seeking to raise capital.
• Introduction of company voluntary arrangements and administration into Nigerian company law to create a framework for company rescue and an efficient exit for non-viable businesses.
• More incentives for small and medium-sized enterprises, such as exemption from audits and from the requirements to appoint a company secretary and hold annual general meetings.
• The use of company seals by Nigerian companies is no longer mandatory.
• Removal of the concept of "authorised share capital," which is replaced by that of minimum issued share capital. The minimum issued share capital is NGN100,000 for private companies and NGN2 million for public companies.
• Electronic innovations that reflect the realities of conducting business in a digital era. For example:
  • a private company can hold its general meetings electronically, if the meetings are conducted in accordance with the company's articles;
  • share transfers can be executed via electronic share transfer forms; and
  • company records can now be maintained in electronic format.
• The test for insolvency (that is, inability to pay debts as they fall due) has been increased from NGN2,000 to NGN200,000, to reflect present day realities.

Taxation. On 31 December 2020, President Muhammed Buhari signed the Finance Act, 2020 into law. This Act amends several tax and fiscal-related legislation, including the CAMA 2020, Capital Gains Act, and Companies Income Tax Act. The Finance Act introduces certain provisions that may have influenced the structuring of deals in the past 12 months. Key amendments include the following:

• Donations made by corporate entities to funds established by the government in the event of a health crisis or pandemic are now regarded as allowable deductions for tax purposes.
• Minimum tax rate for companies in respect of returns for the period between 1 January 2020 and 31 December 2021 has been reduced from 0.5% to 0.25% of gross turnover less franked investment income.
• The obligation of non-resident companies liable to pay tax to file tax returns with the Federal Inland Revenue Service (FIRS) does not apply to non-resident companies whose final tax liability in Nigeria is withholding tax.
• Dividends in a public company listed on the Nigerian Stock Exchange that remain unclaimed for a period of six years or more must now be transferred to a new fund called the Unclaimed Funds Trust. However, these dividends can still be claimed by the relevant shareholder at any time.
• Amounts in a dormant bank account that have remained unutilised for a period of six years or more must also be transferred to the Unclaimed Funds Trust.

Banking. On 12 November 2020, the President signed into law the Banks and Other Financial Institutions Act, 2020 (BOFIA 2020). BOFIA 2020 repeals the Bank and Other Financial Institutions Act, 2004, and now regulates the businesses of banks and other financial institutions in Nigeria. Key amendments introduced by the BOFIA 2020 include the following:

• Establishment of a banking sector resolution fund. The resolution fund will be floated by the Central Bank of Nigeria (CBN), the Nigeria Deposit Insurance Corporation (NDIC) and other financial institutions, and will be applied towards supporting resolution measures for distressed banks.
• Banks, specialised banks and other financial institutions will not incur any liability to their customers if they do not open for business during a strike, an epidemic, or a pandemic.
• The shareholding of a bank in any medium scale industry, agricultural enterprise, private equity/venture capital company or any other business approved by the CBN must not exceed:
  • 10% of the bank's shareholders' funds unimpaired by losses; and
  • 20% of the paid-up share capital of the company, or such other percentage as the CBN may prescribe.
• The definition of "other financial institution" was expanded to include:
  • international money transfer services;
  • payment service providers, regardless of whether their businesses are solely conducted electronically; and
  • any other business designated by the CBN, regardless of whether theses businesses are solely conducted electronically
• The CBN now has the sole authority to review mergers involving banks and other financial institutions. The Federal Competition and Consumer Protection Commission no longer has oversight over these matters.

The CBN issued the following guidelines and directives in 2020:

• New License Categorisation for the Nigerian Payment System dated 9 December 2020. Under the new classification, payment systems licences are categorised as follows:
  • switching and processing;
  • mobile money operators;
  • payment solution services (payment system companies in this category can hold a licence to function as a payment solution service provider, payment terminal service provider, or super agent); and
  • regulatory sandbox.
• Guidelines on Operations of Electronic Payment Channels in Nigeria issued in June 2020, for the operation of ATMs, point of sale (POS)/mobile-POS card acceptance services, and web acceptance services.
• Expansion to the Scope of Regional Banks in Nigeria dated 26 June 2020, which requires all banks with regional authorisation to operate from one additional geopolitical zone as may be directed by the CBN, to promote the spread and balance of regional banks in Nigeria.

Legal System

3. What is the general legal system in your jurisdiction?
Nigeria's legal system is based on English common law. Nigeria operates a federal system of government.

Foreign Investment

4. Are there any restrictions on foreign investment, ownership or control?

Government Authorisations

Under the Nigerian Investment Promotion Commission (NIPC) Act and the Immigration Act, companies with foreign shareholding must be registered with the NIPC and obtain a Business Permit from the Federal Ministry of Interior before commencing operations in Nigeria.

Restrictions on Foreign Shareholders

A Nigerian company can have foreign shareholders, except in certain sectors on the negative list. The negative list prohibits investment by both Nigerian and foreign investors in the production of arms and ammunition, and the production of and dealing in narcotic drugs and psychotropic substances. Restrictions also apply to specific industries.

Restrictions on Acquisition of Shares

Specific Industries

Under the NIPC Act, foreign ownership is permitted in all industries. However, there are restrictions on the acquisition of shares by foreign nationals in the following specific industries:

• Oil and gas. To be competitive in the award of contracts, at least 51% of the shares of the company must be owned by Nigerians.
• Shipping. The Coastal and Inland Shipping (Cabotage) Act restricts the use of foreign-owned or manned vessels for coastal trade in Nigeria.
• Broadcasting. A company applying for a broadcasting licence must demonstrate that it is not representing any foreign interests and that it is substantially owned and operated by Nigerians.
• Advertising. Only a national agency (that is, an agency in which Nigerians own not less than 74.9% of the equity) can advertise to the Nigerian market.
• Private security. A foreign investor cannot acquire an equity interest in or sit on the board of a Nigerian private security guard company.
• Engineering. A company engaged in engineering services must be registered with the Council for the Regulation of Engineering in Nigeria (COREN). One requirement for registration is that the company must have Nigerian directors registered with the COREN holding at least 55% of the company's shares.
• Aviation. To qualify for the grant of an aviation licence or permit, the Nigerian Civil Aviation Authority must be satisfied that an applicant is a Nigerian company or citizen.
• Pharmacy. The Pharmacist Council of Nigeria Act, 2004 provides for the registration of non-Nigerian citizens only if:
  • the applicant's home country grants reciprocal registration to Nigerians; and
  • the applicant has been resident in Nigeria for at least 12 months before the application.

5. Are there any restrictions or prohibitions on doing business with certain countries, jurisdictions, entities, organisations or individuals?
There are currently no restrictions on doing business with certain countries or jurisdictions.6. Are there any exchange control or currency regulations or any registration requirements under anti-money laundering laws?Under Nigeria's foreign exchange regulations, foreign investors who intend to access the official foreign exchange market for the purpose of remitting their dividends, interest or capital must obtain a Certificate of Capital Importation (CCI) as evidence that their investment was brought into Nigeria. CCIs are issued by authorised dealers (that is, banks licensed by the CBN to deal in foreign exchange) within 24 to 48 hours after the foreign investment has been brought into Nigeria and converted into Naira.An entity's beneficial ownership need not be recorded or reported.7. What grants or incentives are available to investors?There are several incentives available to investors. These include the following:

• The Pioneer Status scheme grants companies operating in certain industries a non-renewable income tax holiday for a period of three years, which can be extended for one or two additional years.
• Interest earned by a foreign company on its deposits in domiciliary accounts in Nigeria is exempt from tax.
• Buyers of local plant and equipment are entitled to an investment allowance of 10%.
• Capital gains tax (CGT) is not levied on gains from the sale of shares, stock, and treasury bills.
• Companies engaging in the use of Nigeria's natural gas resources are entitled to:
  • a tax-free holiday for an initial period of three years (renewable for an additional two years); or
  • an additional investment allowance of 35%.
• Machinery and equipment purchased for the use of gas in downstream operations are exempt from VAT.
• Interest on securities issued by the Federal Government of Nigeria, and on state, corporate and supranational bonds, are exempt from income tax until 1 January 2022.
• In certain circumstances, interest on loans granted to Nigerian companies by foreign companies are entitled to tax exemptions.

Business Vehicles

8. What are the most common forms of business vehicle used in your jurisdiction?

Main Business Vehicles

The CAMA 2020 recognises the following business vehicles:

• Limited liability company (public or private).
• Company with unlimited liability.
• Company limited by guarantee.
• Limited liability partnership.
• Limited partnership.
• Incorporated trustee.
• Registered business name.

Foreign Companies

The most common structure used by foreign companies seeking to do business locally is the private limited liability company. Advantages include the following:

• It is straightforward to incorporate (the process can be completed in two weeks).
• Profits can be paid out to shareholders.
• The shareholders have limited liability.
• It is not as regulated as the other available structures.

9. What are the main formation, registration and reporting requirements for the most common corporate business vehicle used by foreign companies in your jurisdiction?

Registration and Formation

The registration formalities are as follows:

• The proposed name must be registered with the Corporate Affairs Commission (CAC), Nigeria's companies' registry, for 60 days.
• The company's memorandum and articles of association (articles) must be prepared, or the model articles provided by the CAC Regulation, 2021 adopted, and submitted to the CAC alongside the necessary CAC incorporation forms after being stamped electronically by the Stamp Duties Office.

Incorporation usually takes between five to seven working days of the application being submitted to the CAC. However, due to the impact of the COVID-19 pandemic on the operations of the CAC, the timeline for registration is now between two to three weeks.The cost of incorporation with the CAC depends on the authorised share capital of the company. When the authorised share capital of the company is NGN10 million (the minimum amount required for foreign participation), the cost is about NGN166,000.

Reporting Requirements

Private limited liability companies must file audited financial statements with the CAC within 42 days of an annual general meeting. The cost of filing is about NGN3,000.

Share Capital

The minimum share capital requirements are NGN100,000 for private companies and NGN2 million for public companies. Companies with foreign shareholders must have a minimum share capital of NGN10 million. There is no prescribed maximum share capital.

Non-Cash Consideration

Shares can be issued for non-cash consideration if the company's articles permit this.

Rights Attaching to Shares

Restrictions on rights attaching to shares. Under the CAMA 2020, a private company's articles of association can restrict the transfer of its shares. Any procedures set out in the articles of association in relation to share transfers must be complied with before the shares can be validly transferred to, or acquired by, a buyer.All Nigerian companies must first offer any new shares they wish to issue to their existing shareholders in proportion to their respective holdings, before those shares are allotted to a third party (section 142, CAMA 2020).Automatic rights attaching to shares. Automatic rights include the right to:

• Receive notices of proposed meetings of the company.
• Attend general meetings of the company, speak and vote at the meeting.
• Receive dividends when declared by the company.
• A copy of the memorandum and company's articles.
• Participate in the distribution of the company's assets on the winding-up of the company.

10. What is the standard management structure and key liability issues for the most common form of corporate business vehicle used by foreign companies in your jurisdiction?

Management Structure

Private limited companies must have at least one shareholder and two directors (small companies can have one director). The Securities and Exchange Commission requires public companies to have at least five directors (at least one of whom must be an independent director).

Management Restrictions

A Nigerian company can have foreign directors. A company that wishes to employ foreign national must obtain expatriate quota approvals.

Directors' and Officers' Liability

Depending on the breach, civil and/or criminal penalties can be imposed on a director for a breach of duty. The liability of directors is limited, except where the articles expressly state otherwise (CAMA). In certain circumstances, officers and directors are personally liable for the acts of the company, such as when:

• A company, with intent to defraud, fails to apply the money or other property for the purpose for which it was received.
• The number of members or directors of a company falls below the legal minimum.

In addition, directors and officers of banks and financial institutions can incur civil and criminal liability in certain situations.

Parent Company Liability

In relation to Nigerian limited liability companies, the liability of a parent company is limited to the amount that is unpaid on its shares (if any). When there has been fraud, the law can lift the corporate veil and hold shareholders responsible for the acts of the company.

source: https://uk.practicallaw.thomsonreuters.com/