The Federal Government of Nigeria has adopted rigorous efforts to ensure that areas of concern for Foreign investors such as redtapes, incorporation process, taxtion and visa policies are relaxed to the fullest extent, to open up Nigeria's economy to fair competition and prosperity. Consequently, in line with the NIPC Act 22, the Nigerian Investment Promotion Commission regularly consults with key Government agencies to negotiate specific incentive packages in identified strategic areas of investment interest.
These consultations have led to an increasingly attractive business environment with tax holidays for pioneer companies producing exportable goods, newly established industries in manufacturing or expansion of production in sectors vital to the economy. The Government also grants non-tax incentives to non-pioneer firms in addition to industry-specific incentives which are described on the specific page of each investment industry, and a number of general incentives as outlined below.
Tax based incentives are implemented under different acts and in different forms e.g. holidays/breaks, reliefs, credits, exemptions, allowances etc. Generally, without considering any incentives, the taxes are comparatively low in Nigeria, with standard Companies income tax rate at 20 - 30% depending on the industry, Education cess tax at 2% for both company and income, Withholding tax of 5%. For foreign direct investors, the 10% withholding tax on dividends is the final tax on dividends. Value added tax (VAT) chargeable on goods and services is at 5%. The Capital Gains Tax rate is 10%, and shares in companies are generally exempt from capital gains tax. Stamp duty is chargeable on various documents at various flat and ad valorem rates, depending on the nature of the instrument, up to a maximum of 2% of the value involved. For details on various tax incentives, click here.
Small and medium-scale industries are eligible for loans from the Bank of industry and other development banks. These loans are mostly available to Nigerian business owners but there are no restrictions in situations of foreign partnership, industries favoured in the Zero Interest Loan policy:
The archaic exchange control laws have been repealed by the Government due to cumbersomenness. Foreign investors are now free to bring in investment capital and they are free to repatriate both profits, income and capital proceeds on such capital. Monies brought in or taken out may be so dealt with under either of two schemes:
the Federal Government of Nigeria established the Debt Conversion Programme (DCP) in 1988 to create an attractive avenue for the importation and repatriation of capital, and to encourage the creation and development of export oriented industries thereby diversifying the export base of the Nigerian economy. This program overseen by the Debt Conversion Committee (DCC) allows foreign companies to obtain an enhanced exchange rate when they are injecting new equity into a production project that has been approved by the Central Bank of Nigeria (CBN).
Under this scheme the foreign investor buys Nigeria debt stock with hard currency and then sells the stock to the CBN in return for naira to be invested in Nigeria. The CBN benefits by getting Nigeria’s foreign debt stock reduced, and the foreign investor gets an exchange rate better than other programs.
The Nigerian IFEM evolved from Second-tier Foreign Exchange Market (SFEM) 1986, to the unified official market in 1987, the autonomous Foreign Exchange Market (AFEM) in 1995, and now the Inter-bank Foreign Exchange Market (IFEM) in 1999. However, the purpose has remained a relatively free market in which both the Central Bank of Nigeria (CBN) and the Authorised Dealers participate as traders. For details visit CBN website http://www.cbn.gov.ng
Section 22 NIPC Act empowers the NIPC to negotiate, in consultation with appropriate Government agencies, special incentives for strategic or major investments.
Free transferability of capital and returns
Section 24 NIPC Act provides that a foreign investor in an enterprise, to which the Act applies, shall be guaranteed unconditional transferability of funds through an authorized dealer in a freely convertible currency, of:
Protection against nationalisation and expropriation
Section 25 NIPC Act provides guarantees to investors against nationalisation and expropriation. Where an acquisition is made in national interest or for public purpose, the investor shall be entitled to:
Recourse to international arbitration
Section 26 NIPC Act grants a foreign investor the option of recourse to international arbitration machinery for the settlement of disputes. Where there is disagreement on the method of dispute settlement to be adopted, the International Centre for Settlement of Investment Disputes Rules shall apply.
Free Trade Zones like the Calabar FTZ, Tinapa Free Zone and Tourism Resort, Kano FTZ, Lekki FTZ, Onne Oil and Gas Export Free Zone, Olokola FTZ, etc were designed to attract foreign direct investment, increase foreign exchange earnings, promote technology transfer and develop export-oriented industries in Nigeria. The Administering body, The Nigerian Export Processing Zone Authority (NEPZA) was established by the Nigeria Free Trade Zone Act 1992 to grant all approvals for operators within the FTZ to the exclusion of other government bodies and agencies.
There are currently 33 FTZs with 15 operational and 18 under construction. Foreign investors can set up businesses directly in FTZs without going through the process of incorporating a company in the customs territory. Registered companies may also apply as a separate entity to operate in an FTZ, that would append the company's name with suffix FZE (Free Zone Enterprise) to gain the FTZ benefits.
FTZ incentives:
Sections 17 & 18 NIPC Act liberalise ownership of investment by any national in any enterprise except enterprises with activities listed on the ‘negative list’ which are prohibited for both foreign and Nigerian investors. The ‘negative list’ includes:
Foreign investor is not required to partner with local company, especially in the Free Trade Zones. However, it is highy advisible to have Nigerian representative(s) when dealing with the goivernment.
The largest single trading block in the world is in the making. full implementation of the Africa Continental Free Trade Agreement is projected to drive investment interest in African countries that are the most suitable locations for production and investment. By virtue of her labour force, production capacity and market size, Nigeria is already the powerhouse among a hand-ful of African countries that will eventually become the mmain players on the block of 54 countries all land-linked. Even in this positive standing, the government of Nigeria is not relenting in its efforts to improve Nigeria’s attractiveness as a destination and Nigeria’s competitiveness for production
The Companies and Allied Matters (CAMA) 2020 and Finance Act 2019 and 2020 have improvements aimed at helping small businesses better survive and thrive in the AfCFTA environment, Government engagements with the private sector have been with the organised private sector. The outcome of this alliance is that Industies in Nigeria will be able to enjoy the following benefits of the AfCFTA.
In addition to the Special Business Visas like the multiple entry F4C (Frequently Travelled Executives Visa) with 5-year validity, The Nigeria Visa Policy 2020 introduced investor visas for the first time including Permanent Residence Visas like N3A for Small Scale Enterprise Investors, N3B for Medium Scale Enterprise Investors, N3C for Large Scale Corporation Investors, N3D for Ultra Large Scale Corporation Investors, and N3E for Oil & Gas and Power Sector investors. See details of these visas under the Business / Investor Visa Section.