NUTS & BOLTS OF INCORPORATING A BUSINESS IN NIGERIA

1

OLUYEMISI O. DANSU

ARGYLE & CLOVER, 1st Floor (West Wing) City Hall Catholic Mission Street Lagos Island

Tel: 07025239755 Email: [email protected] Website: www.argyleandclover.com

Course Paper Delivered at the Fate Foundation on

Nuts & Bolts of Incorporating A Business in Nigeria

It is important that before promoting or setting up a business, the promoters and business owners

are familiar with the key legal guidelines required for starting and running a business in Nigeria.

Such legal guidelines include not only the ideal structure/model for your business but also

licensing and regulatory requirements for various types of business ventures/ specialized sectors

as well as tax requirements.

A keen understanding of the business/company’s legal responsibilities will aid good corporate

governance and protect the business from the wrath of the law due to non-compliance thereby

avoiding costly penalties.

This paper will look into different types of business models/ structures (as well as their legal

implications), regulatory requirements for establishing different kinds of business, tax obligations

etc. The table below represents the various forms of legal entities by which a business can be

carried out in Nigeria.

2

OLUYEMISI O. DANSU



REGISTERING AN ENTITY IN NIGERIA

Sole Proprietorship

Sole proprietorship is a type of business entity that is owned and run by a person and in which

there is no legal distinction/separation between the owner of the business and the business i.e. the

owner of the business is held personally liable for the actions and liabilities of the business just as

the owner enjoys the assets and profits of the business. . The owner is in direct control of all

aspects of the business and is legally accountable for the finances of such business.

A Sole Proprietor can register a business name under Part B of the Companies and Allied Matters

Act (CAMA). The Procedure for registration is as follows:

Reservation of Name

An availability search will be conducted at the Corporate Affairs Commission (CAC) to

confirm availability of the proposed name(s) for the business. The CAC will then determine

whether or not any of the proposed names are available for use. If the name is available, same

shall be reserved for the next 60 days pending formal application for registration.

Formal application for Registration

This essentially involves the submission of a duly completed Business Name Application Form

to the CAC signed by the Sole Proprietor and payment of requisite filing fees. The form must

disclose the following particulars: -

1. Name of the Business

2. General Nature of Business/Objects

3. Full Address of Principal Place of Business in Nigeria

4. Particulars of the Proprietor i.e. (i) Full Name (ii)Sex (iii) Age (iv)Telephone No (v)

Nationality (vi) Residential Address (vii) Occupation (viii) Email

The completed application form shall be accompanied with (i) Reservation of Name Slip (ii) 2

passport photographs of Proprietor (iii) Photocopy of Valid means of Identification of the

Proprietor i.e. any of the following - Driver’s License; International Passport; Voter’s ID Card; Tax

3

OLUYEMISI O. DANSU



Clearance Card (iv) Proficiency Certificate of professional qualification where the business is of a

professional nature

Partnership

A Partnership is a business owned by two or more people for the purpose of making profit. The

Partnership can be owned by individuals as well as corporate bodies. The partners usually share

business profits in particular proportions agreed during the formation of their partnership. Each

partner is liable to pay his personal income tax based on his share of the profit thus the business

itself does not pay income tax.

The Lagos State Partnership Law describes a Partnership to be the relationship which exists

between people, carrying on business otherwise than as a limited liability company or

incorporated trustees, with the sole objective of making and sharing profits.

The name of the Partnership can be registered as a Business name at the CAC under Part B of

CAMA. The procedure for registration of business name has earlier been discussed in this Paper.

Formation of a Partnership

The formation of a partnership can be oral or by a written agreement. It is preferable for the

agreement to be written so that the terms are clearly defined. A well drafted Partnership

agreement should include the following:

1. The name of the business.

2. The Purpose or type of business

3. Commencement and Duration of the Partnership

4. The Principal Place of business of the Partnership

5. Capital Contribution of each Partner

6. Division of Profits and Losses

7. Responsibilities/Obligations of each Partner

8. Meetings

4

OLUYEMISI O. DANSU



9. Retirement, Dissolution & Termination

10. Death of Partner

11. Admittance of New Partners

12. Business Expenses & Drawings from Partnership Account

Although there is no requirement by law to have a written partnership agreement, it is advisable

to have the agreement in writing, signed and dated by all the partners. This is because the

partnership agreement acts as a guide to govern partners on their conduct, rights, duties and

responsibilities. Also, it will help to prevent misunderstandings and disputes that may occur

between or among partners in future.

Types of Partnership

General Partnership: This is also known as ‘Ordinary Partnership’. It is a partnership in which all

all the partners actively take part in the day to day operations and management of the business

and have unlimited liability i.e. the Partners are jointly and severally liable for all the debts of the

Partnership even if they have to risk their individual properties.

Limited Partnership: Limited partnership is made up of limited and general partners. It is an

association of one or more limited partners, and at least one general partner. Limited partners are

partners who do not actively take part in the day to day operation and management of the

business, but can inspect the books of accounts of the business. They have limited liability which

means that the liability they bear is limited to the amount of capital contribution they have made

into the business. Limited partners are basically investors who share in the profits of the business.

The general partner(s), irrespective of their co-ownership with limited partners, still have

unlimited liability.

5

OLUYEMISI O. DANSU



The Lagos State Partnership Law provides that a Limited Partnership must not consist of more

than twenty (20) people, and must have one (1) or more General partners who shall bear the debts,

liabilities and other obligations of the Partnership.

Registration of Limited Partnerships under the Partnership Law of Lagos State:

Every Limited Partnership carrying on business in Lagos State is obligated to register with the

Registrar of Limited Partnerships in Lagos State. The effect of failure of registration is that each

and every Limited Partner will be deemed in Law to be a General Partner liable for the debts and

other obligations of the Partnership.

Any changes in the registration details of a Limited Partnership must be communicated and

registered with the Registrar of limited Partnerships in Lagos State within seven (7) days of the

consummation of such change.

Any change in the status of a General Partner or in the assignment of the equity of the General

Partner to a Limited Partner must immediately be advertised in the Lagos State Government

Gazette; and until such change is advertised in a Gazette, the change or arrangement or

transaction shall have no effect in Law.

Limited Liability Partnership:

Limited Liability Partnership: A limited liability partnership may be formed in Lagos State under

the Partnership Law of Lagos State. The partners of a limited liability partnership have the liability

to contribute to its assets in the event of its being wound up or dissolved as is provided for under

the Partnership Law.

On the registration of a limited liability partnership its limited liability partners are the persons

who subscribed their names to the registration document and the Partnership may sue and be

sued in its registered name.

6

OLUYEMISI O. DANSU



A Limited partnership may be registered as a Limited Liability Partnership where all the partners

or a majority of partners agrees that the Limited Partnership be registered as a Limited Liability

Partnership and the partners shall execute the registration documents and comply with other

provisions of this Law.

Registration Requirements of Limited Partnership and Limited Liability Partnership at the Lagos

State Partnership Registry:

1. An application letter shall be written and addressed to the Directorate of Commercial Law at

the Lagos State Ministry of Justice (the Directorate doubles as the Partnership Registry).

2. An application Form shall be obtained from the Directorate and duly completed.

3. A copy of the Partnership Agreement shall be submitted.

4. A copy of Certificate of Business Name Registration.

5. A statement made by either a solicitor engaged in the formation of the partnership or anyone

who subscribed his name to the registration document, that the requirements for registration

have been complied with.

6. The Directorate shall be furnished with the following details: the firm name; the general nature

of the business; the principal place of business; the full name of each of the partners; the term, if

any, for which the partnership is entered into and the date of its commencement; a statement

that the partnership is limited and the description of every limited partner as such; the sum

contributed by each limited or limited liability partner and whether paid in cash or how

otherwise.

Further Registration Requirements For a Limited Liability Partnership:

1. The total capital subscribed by the limited liability partners shall not be less than 10% of the

total stated value of the assets of the limited liability partnership.

2. Every Limited Liability Partnership shall provide and maintain a bond which shall be issued

by a registered insurance company acceptable to the registrar against stealing, fraud or

dishonesty, covering each employee of the partnership. The amount of the bond shall be with

7

OLUYEMISI O. DANSU



due consideration to all relevant factors including but not restricted to the value of the

aggregate assets of the Limited Liability Partnership.

3. A limited liability partnership (through its partners) shall also maintain a professional or

business liability insurance policy with a registered insurance firm as a precondition to the

registration of the partnership at the Limited liability partnership registry.

Incorporated Company

Part A of CAMA provides for incorporation of the following types of Companies:

1. Private Limited Liability Company

2. Public Limited Liability Company

3. Company Limited By Guarantee

4. Unlimited Liability Company.

Private Limited Liability Company

A private company is one which it’s stated in its memorandum to be a private company. See

Section 22 of CAMA. It must by its articles restrict the transfer of its shares and its total

membership must not exceed fifty (50), not including persons who are bonafide in the

employment of the company.

Public Limited Liability Company

A public company is defined as any other company other than a private company and which is

stated in its memorandum as a public company. See Section 24 of CAMA. The differences between

a private company and public company are:

1. Membership of a private company is limited to fifty (50) while membership of a public

company is unlimited.

2. Minimum share capital of a private company is N 10,000.00 while a public company is

N500,000.00. See Section 27(2) (a) of CAMA.

3. A private company can commence business upon incorporation whilst a public company will

have to wait until it has been issued with a certificate by the Registrar.

8

OLUYEMISI O. DANSU



4. The name of a private company must include “Ltd” while a public limited company is “Plc”

5. A private company is prohibited from inviting the public for subscription to its shares or

debentures. On the other hand, a public company has no such restrictions as its shares can be

freely traded on. A Public Company can be listed or unlisted. It is usually listed when it is

quoted on the Stock Exchange.

Both a private and public limited liability company have the liabilities of their members limited by

the memorandum to the amount, if any, unpaid on the shares respectively held by them.

Company Limited by Guarantee

This is a company incorporated for the purpose of promoting the arts, science, religion, sports,

culture, education, research, charity etc., and the income and property of the company are to be

applied solely towards the promotion of its objects and no portion is to be paid directly or

indirectly to its members except as permitted by CAMA.

A Company Limited by Guarantee shall not be registered as a company limited by shares and the

liability of its members is limited to such amount as the members respectively undertook to

contribute to the assets of the company in the event of its being would up. Due to the tax

exemption and other benefits granted this type of company, the Consent of the Attorney General

of the Federation is required for the registration.

Unlimited Liability Company

This is a company where there is no limit on the liability of its members. See Section 25 of CAMA.

Name of a Company

The name of a Private Limited Liability Company must end with the word Limited/LTD while

that of a Public Limited Liability Company must end with PLC. The name of a company limited

by Guarantee ends with LTD/GTE while an unlimited liability company ends with

Unlimited/ULTD. See section 29 of CAMA.

9

OLUYEMISI O. DANSU



Certain names are prohibited while others can only be used with the consent of the Commission.

The name chosen must not be one already registered/similar to a registered name or misleading as

to the nature or extent of its activities or is undesirable offensive or otherwise contrary to public

policy; must not contain the words “Chamber of Commerce” unless it is a company limited by

guarantee; violates any existing trade mark or business name registered in Nigeria unless the

consent of the owner of the trade mark or business name has been obtained.

Except with the consent of the Commission, no company shall be registered by a name which

includes the word “Federal”, “National”, “Regional”, “State”, “Government”, or any other word

which suggests or is calculated to suggest that it enjoys the patronage of the Government of the

Federation or the Government of a State in Nigeria, as the case may be, or any Ministry or

Department of Government; contains the word “Municipal” or “Chartered” or suggests, or is

calculated to suggest, connection with any municipality or other local authority; contains the word

“Co-operative” or the words “Building Society”; contains the word “Group” or “Holding”. See

Section 30 of CAMA.

Procedure for registering a Company at the CAC:

An availability search will be conducted at the CAC to confirm availability of the proposed

name(s) for the company. If the name is available, same shall be reserved for the next 60 days.

Registration is done by completing and submitting the set of Incorporation Forms which are:

1. CAC Form 2 stating the shareholders of the company and the authorized share capital of the

company together with evidence that the stamp duty payable in respect of the amount of share

capital has been paid. (There must be at least 2 shareholders)

2. CAC Form 7 stating the particulars of the initial directors of the company, of which there must

be at least two.

3. CAC Form 3 stating the situation of the registered office of the company.

4. CAC Form 2.1 stating the particulars of the appointed Company Secretary

10

OLUYEMISI O. DANSU



5. CAC Form 4 (Declaration of Compliance form sworn to by a Lawyer that all matters

preliminary to the registration of the company have been complied with).

The completed incorporation form shall be submitted with (i) the reservation of name Slip/Form

(ii) 3 copies of the Memorandum (which contains the objects of the company) and Articles of

Association of the Company (which must be subscribed to by at least two persons, together

holding at least 25% of the company’s authorized share capital together (iii) Photocopies of valid

means of Identification of the Directors and Shareholders i.e. Valid Driver’s License, International

Passport, National Identity Card, Voters Registration Card (iv) Proficiency certificate for

professional/specialized line of business.

Consent of the Attorney General of the Federation is required before a Company Limited by

Guarantee can be registered.

Stamp duty and filing fees are payable to the Federal Commissioner for Stamp Duties and the

Registrar - General of Companies respectively. Once the application is approved, a Certificate of

Incorporation will be issued and the company can commence business.

The CAC may query an application and request for further documentation. Also the CAC

reserves the right to refuse to incorporate a company in the following instances:

1. If there is non-compliance with the provisions of CAMA or where the business which the

company is to carry on, or the objects for which it is formed, are illegal;

2. Any of the subscribers to the memorandum is incompetent or disqualified in accordance with

Section 20 of the CAMA;

3. The name conflicts with or is likely to conflict with an existing trademark or business name

registered in Nigeria unless the consent of the owner of the trademark or name has been

obtained.

11

OLUYEMISI O. DANSU



If the CAC refuses to register a company for any of the reasons stated above, any person

aggrieved by the refusal may give notice to the CAC requiring the CAC to apply to the Court for

directions and the CAC must within 21days of receiving the notice so apply. See Section 36(2) of

CAMA.

Certificate of Incorporation:

Once registration is completed, the CAC issues a Certificate of Incorporation. The certificate of

incorporation is prima facie evidence that all the requirements of the Act in respect of registration

and of matters precedent and incidental to it have been complied with and that the company is

authorized to be registered and duly registered under the Act. See section 36(6) of CAMA.

Effect of Incorporation

The general effect of incorporation is that from the date of incorporation, the subscribers of the

memorandum with such other persons as may from time to time become members of the

company, shall be a body corporate by the name contained in the memorandum, capable

forthwith of exercising all the powers and functions of an incorporated company including the

power to hold land, have perpetual succession and a common seal, but with such liability on the

part of the members to contribute to the assets of the company in the event of its being wound up.

See Section 37 of CAMA.

Incorporated Trustees

This is a corporation formed by a class/association of persons bound together by custom, kinship,

nationality or any association for educational, literary, cultural or charitable purpose and not for

profit making. See Section 590 of CAMA.

The corporation appoints trustees (one of which will be the Chairman) and from the date of

registration, the trustees become a body corporate by the name prescribed in the Certificate of

Incorporation and shall have perpetual succession, common seal, legal capacity, and power to

12

OLUYEMISI O. DANSU



hold and dispose land and enter into legally binding contracts. A secretary for the association shall

also be appointed.

The trustees must not be any of the following:

1. An infant

2. A person of unsound mind

3. An undischarged bankrupt or a person who has been convicted of an offence involving fraud

or dishonesty within five years of his proposed appointment. See Section 592(1) of CAMA.

Procedure for registering an Incorporated Trustees:

A search is carried out to confirm the availability of the proposed name. If the name is available,

an application is made to CAC, stating the proposed name, which must contain the words

“Incorporated Trustees of”, with the following documents attached:

1. Two passport photographs of each Trustee;

2. Two printed copies of the constitution of the association;

3. 1 duly signed copy of the minutes of the meeting appointing the trustees and authorizing the

application, showing the people present and the votes scored;

4. The impression or drawing of the proposed common seal of the association.

5. Three newspaper adverts, 2 in a national newspaper and one in a local newspaper.

6. Photocopy of valid means of identification of the Trustees and Secretary of the association.

Foreign Investment in Nigeria

Non-Nigerians and Foreign Companies are at liberty, and indeed encouraged to invest and

participate in the operation of any enterprise or company in Nigeria. To invest in Nigeria, the

promoters or investors must register a company in Nigeria.

A foreign company may apply in accordance with Section 56 of CAMA for exemption from

incorporating a local subsidiary if such a foreign company belongs to one of the following

categories:-

13

OLUYEMISI O. DANSU



1. Foreign companies invited to Nigeria by or with the approval of the Federal Government of

Nigeria to execute any specified individual project;

2. Foreign companies which are in Nigeria for the execution of a specific individual loan project

on behalf of a donor country or international organization;

3. Foreign government-owned companies engaged solely in export promotion activities, and;

4. Engineering consultants and technical experts engaged on any individual specialist project

under contract with any of the Governments in the Federation or any of their agencies or with

any other body or person, where such contract has been approved by the Federal Government.

A foreign company or investor may incorporate a Nigerian branch or subsidiary of the parent

company by giving a Power of Attorney to a qualified solicitor in Nigeria for this purpose. The

incorporation documents in this instance would, disclose that the Solicitor is merely acting as an

"agent" of a "principal" whose name(s) should also appear in the document. The Power of

Attorney shall indicate that the appointed Solicitor shall cease to function upon the conclusion of

all registration formalities.

The minimum share capital of a company with foreign investment is N 10 million and where the

foreigner is resident in Nigeria, he shall submit/file a copy of his residence permit along with other

documents required for incorporation of a company.

Sequel to registration of the Company at the CAC, all companies with foreign investors must

register with Nigerian Investment Promotion Commission (NIPC) and obtain a Business Permit

from the Ministry of Internal Affairs through the NIPC before commencing formal operations.

Section 8(1) (b) of the Immigration Act provides that no person other than a Nigerian citizen shall

on his own account or in partnership with any other person practice a profession or establish or

take over any trade or business whatsoever or register or take over any company with limited

liability for any such purpose without the written consent of the Minister of Internal Affairs. A

Business Permit is the operational licence granted to an expatriate or foreign company to enable

him carry on business activities in Nigeria.

14

OLUYEMISI O. DANSU



Registration with the NIPC and application for Business Permit is processed by completing the

NIPC application form accompanied with the following documents: –

1. Original copy of the treasury receipt for the purchase of NIPC Form.

2. A copy of the Certificate of Incorporation.

3. A copy of the Tax Clearance Certificate of the applicant company.

4. A copy of Certificate of Capital Importation

5. Certified True Copies of CAC Form 02 & 07 i.e. Particulars of Shareholders and Directors.

6. Certified True Copy of the Memorandum and Articles of Association;

7. A copy of treasury receipt as evidence of payment of stamp duties on the authorised share

capital of the company

8. A copy of the Joint-Venture Agreement between the Nigerian Partners and Foreigners

9. A Copy of Feasibility Report and Project Implementation Programme. (Business Plan)

10. A copy of Deed of Sub-Lease/Agreement evidencing firm commitment to acquire requisite

business premises for the company’s operation;

11. Profile of Foreign Investor as testimony of international expertise and credibility of the foreign

partner in the proposed line of business.

If the foreign company intends to employ expatriates, an application shall be made to the Ministry

of Internal Affairs to obtain Expatriate Quota. The Expatriate Quota is the official approval

granted to a company to enable it employ individual expatriates to specifically designated jobs

and the quota must state its duration. Section 8(1) (a) of the Immigration Act provides that “no

person other than a citizen of Nigeria shall accept employment, not being employment with the

Federal or a State Government, without the approval of the Chief Federal Immigration Officer.

There are two types of expatriate quotas which are:

Permanent until Reviewed (PUR) – This is meant for positions that would be occupied on a

permanent basis and is usually granted to the Chairman of the Board of a company or the

Managing Director. As the name implies, it is permanent until there is a supervening

15

OLUYEMISI O. DANSU



circumstance, which will necessitate its review. The essence of granting the PUR is to

ensure that the foreign company is able to protect its investment. Once a PUR is granted, a

certificate is issued stating the position that the PUR covers.

Temporary Quota – This is usually granted to the directors or other employees of the

company. These positions are specifically stated on the permit and the expatriate

employee’s qualification must be in par with the designation.

Please note that the quota is issued to the company and not the expatriate, as such when the

expatriate leaves the company, the position reverts to the company and the company may place

another expatriate on the same position for as long as the quota position remains valid.

To apply for Expatriate Quota Position, in addition to the documents submitted for the application

for Business Permit, the following additional documents and information are needed:

1. Evidence of non-availability of expertise in the country;

2. A copy of training programme or personnel policy of the company, incorporating

management succession schedule for qualified Nigerians;

3. Particulars of names, addresses, nationalities and occupations of the proposed directors of the

company;

4. Job title designations of expatriate quota positions required, and the academic and working

experience required for the occupants of such positions.

Once the expatriate quota is obtained, the Company shall apply to the Nigerian embassy or

consular office for a subject to regularisation for residence work permit (STR) Visa in writing,

confirming that there is a vacancy on the expatriate quota and stating the position in which

prospective employee is to be employed and confirming acceptance of immigration responsibility.

STR visa is normally given for 90 days without reference, during which an application must be

made to the Comptroller-General of Immigration, to regularise the stay of the prospective

16

OLUYEMISI O. DANSU



employee, and the person may assume his employment only when such application is approved

and a RESIDENCE WORK PERMIT granted.

Representative Offices

A foreign registered company can set up a Representative Office in Nigeria however such an

office cannot engage in business. It can only serve as a promotional point and must be registered

with the CAC.

LICENSING & REGULATORY APPROVALS

National Electricity Regulatory Commission (NERC)

NERC governs and regulates the power sector business in Nigeria. Section 62 of the Electric Power

Sector Reform Act 2005 provides that any person intending to engage in the business of electricity

generation, transmission, system operation, distribution or trading shall be required to obtain an

operator's licence from NERC.

National Office of Technology Acquisition and Promotion (NOTAP)

NOTAP is vested with the responsibility to promote investments of foreign technology in and

outside Nigeria; assist incoming and existing investors by providing support services; and

promote investments in and outside Nigeria through effective promotional means.

Every contract or agreement entered into by any person in Nigeria with another person outside

Nigeria (foreigner) involving the transfer of foreign technology to Nigerian partners shall be

registered with NOTAP not later than 60 days from the execution of the agreement

The following companies are exempted by Section 56 (1) of CAMA from registering their contracts

with NOTAP:

1. A foreign company invited to Nigeria by or with the approval of the Federal Government to

execute a specified individual project;

17

OLUYEMISI O. DANSU



2. A foreign company which is in Nigeria for the execution of a specific individual loan project on

behalf of the donor organisation or agency.

3. A foreign government-owned company engaged solely in export promotion activities.

4. Engineering consultants and technical experts engaged on any individual specific project under

contract with any of the governments of the Federation or any of their agencies or with any

person where the Government has approved such contract.

Nigerian Export Promotion Council (NEPC)

NEPC is responsible for issuing licenses to companies engaged in the business of export in

Nigeria. A license is obtained by paying the requisite fees and filling the requisite application form

accompanied with Certificate of registration/incorporation of the Applicant and the Memorandum

and Articles of Association of Applicant Company.

Nigerian Communications Commission (NCC)

NCC is the independent National Regulatory Authority for the telecommunications industry in

Nigeria and issues licenses for different types of tele-communications business.

Nigerian Civil Aviation Authority (NCAA)

This is the regulatory body for aviation in Nigeria and it regulates and issues licenses to

companies that wish to carry on business in the aviation industry. NCAA issues a range of

licenses for various professionals as well as activities in the aviation industry which include:

1. Pilot licenses

2. Airline Transport pilot licence (ATPL)

3. Flight engineer licence.

4. Flight dispatcher licence.

5. Flight instructor licence.

6. Ground instructor licence.

7. Aircraft maintenance engineer licence.

8. Aviation repair specialist licence.

9. Parachute rigger licence.

18

OLUYEMISI O. DANSU



10. Air traffic controller licence.

11. Aeronautical station operator licence.

12. Air traffic safety electronics personnel licence.

13. Cabin crew licence.

14. Flight radio telephony operator’s restricted licence.

Nigerian Agency for Food Drugs Administration and Control (NAFDAC)

NAFDAC is responsible for ensuring that no processed food is manufactured, imported, exported,

advertised, sold or distributed in Nigeria, without its approval. NAFDAC registers products in 2

main categories i.e. Food and Drugs (medical devices and vaccines as well).

For products manufactured in Nigeria, an application for registration shall be made by the

Nigerian manufacturer while for imported products, an application for registration shall be made

by a Nigerian representative of the foreign manufacturer who shall furnish a duly executed Power

of Attorney from the manufacturer (appointing and authorizing him to act in that capacity and

specifying the name(s) of the product(s)). An applicant is required to furnish NAFDAC with

evidence of registration of a trade mark bearing the name of the product. If the registration of the

trademark is not completed, the applicant must furnish a notification of acceptance of the trade

mark application issued by the Registrar of Trade Marks.

NAFDAC also monitors labeling of products. The following minimum requirements must appear

on the label:

1. Name of product- brand name or common name in bold letters;

2. Full location and address of the manufacturer;

3. Batch number, date of manufacture and best before date;

4. Net content of essential ingredients in metric weight units in case of solid, semi-solid and

aerosols and metric volume in case of liquids;

19

OLUYEMISI O. DANSU



5. In case of food, ingredients must be listed by their common names in order of their

predominance by weight unless the food is standardized, in which case the label must include

only those ingredients which the standard makes optional;

6. Food additives and colours must be declared on the label.

Standards Organisation of Nigeria (SON)

SON is responsible for ensuring that locally manufactured products in Nigeria meet the required

degree of satisfaction to consumers through compliance with Government policies on

standardisation and conformity assessment. SON also ensures that goods imported into Nigeria

meet the minimum requirements of Nigeria Industrial Standards (NIS) or any other approved

international standards. The main aim of SON is to promote global competitiveness among

domestic manufacturers and encourage continual improvement on the quality of products.

In achieving its aim, SON does the following:

1. Determine minimum standards requirements relating to products, measurements, materials

and processes; certification of industrial products, amongst others.

2. Operates a certification Scheme whereby manufacturers whose products meet the requirement

of NIS are issued with permits to use the Certification Mark or the Nigerian "Mark of quality"

as issued by SON.

Product registration with SON can be done online however original copies of documents will be

sighted at SON office for authentication.

Pharmacists Council of Nigeria (PCN)

PCN is a Federal Government Agency established and charged with responsibility of regulating

and controlling the education, training and practice of pharmacy in all aspects. The PCN regulates

the activities/business of Pharmaceutical Technicians and Patent and Proprietary Medicine

Vendors in Nigeria. PCN’s functions include:

20

OLUYEMISI O. DANSU



1. Determining the standards of knowledge and skills to be acquired by persons seeking to

become members of the Pharmacy profession and reviewing those standards from time to time

as circumstances may require;

2. Establishing and maintaining the registers of persons entitled to practice as members of the

profession and the publication from time to time, of lists of those persons;

3. Reviewing and preparing from time to time, the Code of Conduct desirable for the practice of

Pharmacy;

4. Inspection, approval and licensing of premises where pharmaceutical activities take place and

these include manufacturing, importation, Mega/State Drug Distribution centers, Distribution,

wholesale and retail premises, hospital, pharmacies and Patent and proprietary Medicines

Vendors’ Premises;

5. Registration and Issuance of annual permits to Pharmacy Technicians; and

6. Organizing Mandatory Continuing Professional Development (MCPD) for Pharmacists.

Manufacturers Association of Nigeria (MAN)

MAN is a national industrial association serving and representing companies in the

manufacturing, construction and service sectors of the national economy. It was established out of

the need to have a focal point of communication and consultation between the manufacturers on

the one hand, and the government and general public on the other.

Its aim is to create an environment where manufacturers can operate efficiently and profitably for

the benefit of all and to promote and protect the collective interests of manufacturers.

Medical Laboratory Science Council of Nigeria

The Council regulates the practice of medical laboratory science through its Board by issuing

directives to laboratory scientists who are registered and enrolled as members of the Council.

Membership is conferred upon applicants upon application provided such applicants have passed

the examination prescribed for the qualifying status in any institution approved for the purpose

by the Board, and completed the practical training prescribed or completes the internship

21

OLUYEMISI O. DANSU



prescribed; or the applicant holds the equivalent qualification granted outside Nigeria and for the

time being accepted by the Board, provided the Applicant can satisfy the Board that he has

sufficient practical experience as a scientist.

Applicants may also be required to satisfy the Board that they have attained the age of 18 and are

of good character.

The Board has the power to approve institution that provide qualification trainings for applicants

and also has the power to withdraw approval or accreditation previously given in respects of any

course, qualification or institution. There is a disciplinary committee of the Council charged with

the responsibility of considering and determining any case referred to it by the investigation

panel.

INTELLECTUAL PROPERTY RIGHTS

The World Intellectual Property Organization (WIPO) defines Intellectual Property as “…creation

of the mind, inventions, literary and artistic works and symbols, names, images and designs in

commerce”.

The 9th Edition of the Black’s Law Dictionary defines it as “A category of intangible rights

protecting commercially valuable products of the human intellect. The category comprises

primarily trademark, copyright and patent rights, but also include trade-secrets rights, publicity

rights, moral rights, and rights against unfair competition.” “A commercially valuable product of

the human intellect, in a concrete or abstract form, such as a copyrightable work, a protectable

trademark, a patentable invention or a trade secret.”

It is the creation of the mind, manifested or interpreted in a form that has a physical existence and

possesses exclusive property rights recognized by the corresponding fields of law. Under

intellectual property law, owners are granted certain exclusive rights to a variety of intangible

assets, such as musical, literary and artistic works, discoveries and inventions, words, phrases,

22

OLUYEMISI O. DANSU



symbols and designs, etc., barring any use of the work by other persons without the owner’s prior

consent.

Intellectual Property Rights overlap other areas of law like contract law and tort law. There are

several laws governing intellectual property protection in Nigeria. These laws include: Nigerian

Copyright Act; Patents and Designs Act and Trade Marks Act.

Nigeria has also ratified several treaties relating to the protection of intellectual property and has

assumed additional responsibilities by virtue of its membership in the World Intellectual Property

Organisation (WIPO) and the World Trade Organization WTO.

Copyright

Copyright protects original creations in the literary and artistic fields which are fixed in medium

from which they can be reproduced, or otherwise communicated. Works eligible for Copyright

under Section 1 of the Copyright Act are:

1. Literary works (novels, stories, poetical works, plays, computer programmes, letters,

encyclopedias, law reports, etc.);

2. Artistic works (paintings, drawings, maps, plans, woodcuts, works of architecture,

sculpture, craftsmanship, etc.);

3. Musical works (musical notations and compositions);

4. Cinematograph Films;

5. Sound recordings;

6. Broadcasts

Titles, ideas, plans, computer programs, concepts, procedures, methods, systems, devices or

things of similar nature (as distinguished from the manner in which they are expressed or

described in writing) are not protected by Copyright. What this means in effect is that although

copyright protects the literal expression of computer programs etc., it does not protect the ideas

underlying the computer program etc., which often have considerable commercial value.

23

OLUYEMISI O. DANSU



The rights which an author or copyright owner enjoys in a work include the right to be

acknowledged in any use made of his work and also to prevent any derogatory use; alteration;

distortion or mutilation of same (referred to as moral rights). More importantly, the author or

owner enjoys the right to earn money from his work by determining the condition under which

the work may be commercially used by a third party (economic rights). Without the consent of the

copyright owner or assignment of the copyright, the reproduction, public performance, recording,

broadcasting, adaptation of the work is prohibited by law and the copyright owner has recourse to

legal remedies against persons infringing on his copyright.

Copyright protection is essentially territorial in nature. By virtue of membership of certain

international copyright treaties and conventions, works of Nigerian citizens enjoy protection in

territories of member countries of such treaties to which Nigeria is a party.

Registration Procedure

Copyright registration is done at the Nigerian Copyright Commission (NCC) by paying the

registration fees and completing an application Form with 2 copies of the work to be protected.

The registration can be done manually or online via the Commission’s e-registration website.

Trademarks

A trademark is a recognizable and distinct sign, design, or unique expression used to identify and

distinguish a brand of products/services from other brands. The trademark owner can be an

individual, business organization, or any legal entity. Section 67 of the Trade Marks Act defines

trademark as follows:

“trade mark” means, except in relation to a certification trade mark, a mark used or proposed to

be used in relation to goods for the purpose of indicating, or so as to indicate, a connection in the

24

OLUYEMISI O. DANSU



course of trade between the goods and some person having the right either as proprietor or as

registered user to use the mark, whether with or without any indication of the identity of that

person, and means, in relation to a certification trade mark, a mark registered or deemed to have

been registered under section 43 of this Act”

Under the Trade Marks Act, a trademark may consist of the following:

1. The name of a company, individual, or firm, represented in a special or particular manner;

2. The signature of the applicant for registration or some predecessor in his business;

3. An invented word or invented words;

4. A word or words having no direct reference to the character or quality of the goods, and not

being, according to its ordinary signification, a geographical name or a surname;

5. Any other distinctive mark:

Under the Act, it is unlawful to the register the following as a trademark or part of a trade mark:

1. Deceptive or scandalous matters

2. Names of chemical substances

3. Identical and resembling trademarks

Procedure for registration of trade marks

A local Attorney/Agent in Nigeria is instructed to file an application for registration at the Trade

Marks, Patents & Designs Registry in Nigeria. A Power of Attorney/Authorization of Agent Form

would be executed authorizing the agent to act for the Applicant. The local Agent remains

responsible for processing registrations of the marks, defending oppositions (if any), renewals etc.

A local Agent/Attorney may be replaced or substituted by executing another Power of

Attorney/Authorization of Agent Form in favor of the succeeding Agent. No formal notices are

necessary and the Agent with the most recent Authorization is deemed to be the one with powers

to act thenceforth.

The documents required to process a trademark application are:

25

OLUYEMISI O. DANSU



1. An application letter to the trademark Registrar stating the full name(s), nationality and

physical address of the Applicant.

2. 1 Trademark Registry Form 2, authorizing a lawyer/agent to register the mark.

3. 1 Trademark Registry Form 3, on which 20 bromides, showing an exact or a clear and distinct

description/representation of the mark will be pasted. If it is to be filed online, soft copies are to

be provided in jpeg format at a minimum of 1200 dpi. A representation is preferred to have the

following dimensions: 120px by 100px (length by breath).

4. A duly notarized power of attorney from the owner of the mark simply signed, with full

particulars of name(s), address(es) and nationality of the applicant(s) and full name(s) and

capacity of the signatory when applicant is a firm/company.

5. The full range of goods covered or proposed to be covered by the trade mark. Nigeria presently

follows the International Classification of Goods.

A separate application is filed for each classification of goods for which the trade mark is to be

registered. A Trademark may be registered either plainly (black and white) or in colour, however,

where a trademark is registered in colour, the protection afforded the Trademark is limited to the

colour(s) registered. On the other hand, a plain black and white registration affords protection to

all colours of presentation of the trade mark.

The procedure for registration is in 3 stages which are:

• Application-Acknowledgement:

When all documents for the registration have been compiled and filing fees paid, an

application is filed at the Trademarks Registry, after which an acknowledgement form is

issued by the Registry reflecting the official number and filing date of the application. A

preliminary search is conducted as to distinctiveness from existing and pending registrations.

The Registrar examines the application for registrability taking into consideration possible

conflicts with prior registered or pending marks and or inherent registrability of the mark. If

the Registrar finds the trademark acceptable for registration, the applicant will be furnished

with a letter/notice of acceptance.

26

OLUYEMISI O. DANSU



• Acceptance-Publication:

After the application is acknowledged and accepted by the Registry, it is then published in the

Trademark Journal. Every trade mark application must be advertised in the Nigerian

Trademark Journal, and is open to opposition for a period of two (2) months from the date of

advertisement.

• Publication-Certification:

There is a 2 months allowance period after publication, within which the application may be

opposed, by any person. Where the mark remains unopposed or no objections are received

within the specified period or no objections are sustained, the Registrar will issue the applicant

with a certificate of registration. When issued, the Registration Certificate will reflect the date

of initial filing as date of registration (i.e. date of filing/ acknowledgement).

Trademark registrations in Nigeria are valid for 7 years and can be renewed for a further term of

14 years. An application for renewal should be made not less than three (3) months from the due

date.

Patents

A Patent protects new inventions and covers how things work, what they do, how they do it, what

they are made of and how they are made. It gives the owner the right to prevent others from

making, using, importing or selling the invention without permission.

Section 1 (1) (a) & (b) of the Patents and Designs Act provides that an invention is patentable if it

is new, results from inventive activity and is capable of industrial application; or if it constitutes

an improvement upon a patented invention and also is new, results from inventive activity and is

capable of industrial application.

27

OLUYEMISI O. DANSU



Section 1 (2) (a), (b) & (c) of the Act provides that an invention is new if (a) it does not form part of

the state of the art, (b) results from inventive activity if it does not obviously follow from the state

of the art, either as to the method, the application, the combination of methods, or the product

which it concerns, or as to the industrial result it produces; and (c) it is capable of industrial

application if it can be manufactured or used in any kind of industry, including agriculture.

Section 1 (4) of the Act further provides that Patents cannot be validly obtained in respect of-

(a) plant or animal varieties, or essentially biological processes for the production of plants or

animals (other than microbiological processes and their products); or

(b) inventions the publication or exploitation of which would be contrary to public order or

morality (it being understood for the purposes of this paragraph that the exploitation of an

invention is not contrary to public order or morality merely because its exploitation is

prohibited by law).

The Trademark & Patent Registry Nigeria on its website also lists the following as non-patentable:

Scientific or mathematical discovery, theory or method, a literary, dramatic, musical or artistic

work, a way of performing a mental act, playing a game or doing business, the presentation of

information, or some computer programs, an animal or plant variety, a method of medical

treatment or diagnosis.

Another important criterion for a Patent to be registrable in line with Section 1 (3) of the Act is that

it must not have been published by oral disclosure, by document or prior use before applying for

registration. The only exception to this under the Act is if it was published in an official or

officially recognised international exhibition within the period of 6 months preceding the filing of

the application.

The procedure for Patent registration:

1. Patent application is made to the Registrar containing the applicant’s full name and address,

and if the latter is outside Nigeria, an address for service in Nigeria.

28

OLUYEMISI O. DANSU



2. The application shall contain a petition or request for a patent signed by the applicant or his

agent.

3. It is the usual practice for Patents to be examined prior to registration to ascertain the

background history, i.e. as it relates to prior registration and original owner of patent.

4. The application must include a description/specification of the invention with drawings, plans

and pictures taken from all angles, all in duplicate.

5. When all documents have been filed and appropriate filing fees paid, the Registrar would

examine the application as to its conformity with the requirements for registration after which

he may reject the application or grant the patent.

6. Where appropriate, a declaration signed by the true inventor requesting that he be mentioned

as such in the patent and giving his name and address is required.

The documents required to process a Patent application are:

1. An application letter to the Patents Registrar

2. A signed power of attorney or authorization for your lawyer/agent to register the patent.

3. A description/specification of the relevant invention with appropriate plans and drawings.

4. If application is not made by the true inventor, a declaration by him giving his name and

address and requesting that he be mentioned in the patent.

A patent shall expire at the end of the twentieth year from the date of the filing of the relevant

patent application. A patent shall lapse if the prescribed annual fees are not duly paid in respect of

it. A Grace period of six months shall be allowed for the payment of the fees and if the fees and

any prescribed surcharge are paid within that period, the patent shall continue as if the fees had

been duly paid.

Industrial Designs

The Patents and Designs Act defines Industrial Designs as any combination of lines or colours or

both, and any three-dimensional form, whether or not associated with colours if it is intended by

29

OLUYEMISI O. DANSU



the creator to be used as a model or pattern to be multiplied by industrial process and is not

intended solely to obtain a technical result. An industrial design is registrable if-

1. It is new;

2. It is not contrary to public order or morality,

An industrial design is not new if, before the date of application for registration, it has been made

available to the public anywhere and at any time by means of description, use or in any other way,

unless it is shown to the satisfaction of the Registrar that the creator of the design could not have

known that it had been made so available. An industrial design shall not be deemed to have been

made available to the public solely by reason of the fact that within the period of six months

preceding the filing of the application for registration the creator exhibited it in an official or

officially recognised exhibition.

The right of registration of an industrial design is vested in the statutory creator i.e. the person

who, whether or not he is the true creator, is the first to file, or validly to claim a foreign priority

for, an application for registration of the design.

Procedure for registration

An application is made to the Registrar and shall contain-

1. A request for registration of the design;

2. The applicant's full name and address and, if that address is outside Nigeria, an address for

service in Nigeria;

3. A specimen of the design or a photographic or graphic representation of the design with any

printing block or other means of reproduction from which the representation was derived;

4. An indication of the kind of product (or, where a classification has been prescribed, the class of

product) for which the design will be used ;

5. Payment of prescribed fee

6. Where appropriate, a declaration signed by the true creator requesting that he be named as

such in the Register and giving his name and address, and

30

OLUYEMISI O. DANSU



7. If the application is made by an agent, a signed power of attorney (so however that,

notwithstanding any rule of law, legalization or certification of the signature of the power of

attorney shall be unnecessary).

A single application may relate to any number of industrial designs not exceeding fifty, if the

products to which the designs relate are of the same kind or, where a classification has been

prescribed, of the same class.

TAX REQUIREMENTS FOR DOING BUSINESS IN NIGERIA

In Nigeria, the regulatory bodies overseeing taxation of Companies and individuals are the

Federal Inland Revenue Service (FIRS) for tax levied by the Federal Government and the State

Inland Revenue Service for each state for tax levied by the State Governments.

Relevant Tax Laws and Regulations:

Companies Income Tax Act (CITA)

All Companies have their profit/income generally taxed under this Act (with the exceptions of

companies engaged in petroleum operations which are subject to taxation under the Petroleum

Profits Tax Act).

Every Company is required immediately after incorporation to apply for a tax payer’s

identification number as well as VAT registration with the Federal Inland Revenue Services (FIRS)

for the purpose of remitting relevant taxes.

In accordance with the provisions of the Act, Companies are liable to pay 30% of their Annual

Profits as Tax to the Federal Government through FIRS. Nigerian companies engaged in

manufacturing or agricultural production, mining of solid minerals or wholly export trade with a

turnover of less than N 1,000,000.00 are liable to pay 20% of their Annual Profits as tax.

31

OLUYEMISI O. DANSU



Company’s dividends and distributions are subject to tax at the rate 10% however dividends paid

in the form of bonus share or scrip shares to individual shareholders are not subject to tax. Where

a company is a shareholder in another company then such dividends are excluded from the

profits of the company for the purposes of computation of the tax.

Personal Income Tax Act (PITA)

The PITA regulates taxation of individuals, registered businesses and Partnerships. Individuals

are liable to pay tax on income earned in each year from a source inside or outside Nigeria,

including gain or profit from any trade, business, profession or vocation, salaries, wages, fees,

allowance or other gain or profit from employment including compensations, bonuses, premiums,

benefits or other perquisites allowed, given or granted by any person to an employee.

Income exempted from taxation includes:

1. Reimbursement to an employee for expenses incurred by him in the performance of his duties,

and from which it is not intended that the employee should make any profit or gain;

2. Medical or dental expenses incurred by an employee;

3. The cost of any passage to or from Nigeria incurred by an employee;

4. Sums paid in respect of the maintenance or education of a child

5. National Pension Scheme

6. Retirement gratuities

7. National Health Insurance Scheme contributions

8. Life Assurance Premium

Pay As You Earn (PAYE) Regulations

Under these regulations, all employers are required to register with the relevant tax authority for

the purposes of deducting income tax from employees’ remuneration and remit same to the

relevant tax authority.

32

OLUYEMISI O. DANSU



Employers are also required to send returns at the end of each tax year in respect of each

employee showing the total emoluments of each employee during the year, the tax relief, if any,

and the total tax deducted from the employee.

Failures to make deductions, remit tax, file returns and provide records for inspection all attract

fines. Regulations 16-18 provide as follows: Employers of labour are deemed to be agents of the

tax authority for the purposes of remitting taxes deducted from salaries due to employees.

Value Added Tax (VAT) Act

In accordance with the provisions of the Act, VAT is charged at the rate of 5 % on certain goods

and services payable to the FIRS. Taxable persons (individuals and businesses) are required to

register with the FIRS within 6 months of commencement of business. Section 8 of the Act

provides thus:

A non-resident company that carries on business in Nigeria must also register for the tax with the

FIRS using the address of the person with whom it has a subsisting contract, as its address for

purposes of correspondence relating to the tax.

Taxable persons are required to keep records and books of all transactions, operations, imports

and other activities for the purpose of ascertaining amount due as tax and are to render monthly

returns to the FIRS. Failure to render monthly returns attracts a penalty of 5% plus interest at the

commercial rate.

Taxable persons are mandated to issue invoices for goods sold or services rendered and failure to

do so attracts a fine. Also a taxable person is required to notify FIRS of any change in its address

and failure to do so make the person subject to a fine.

A taxable person who fails to collect VAT and remit same is liable to pay as penalty 150% of the

amount not collected, plus 5% interest above the Central Bank of Nigeria rediscount rate.

33

OLUYEMISI O. DANSU



Goods exempted from VAT:

1. All medical and pharmaceutical products.

2. Basic food items.

3. Books and educational materials.

4. Baby products.

5. Fertiliser, locally produced agricultural and veterinary medicine, farming machinery and

farming transportation equipment.

6. All exports excluding non-oil exports which enjoy zero rated status.

7. Plant, machinery and goods imported for use in the export processing zone or free trade zone

8. Plant, machinery and equipment purchased for utilisation of gas in down-stream petroleum

operations provided that 100 per cent production of such company is for export otherwise tax

shall accrue proportionately on the profits of the company.

9. Tractors, ploughs and agricultural equipment and implements purchased for agricultural

purposes.

Services exempted from VAT:

1. Medical services.

2. Services rendered by Community Banks, People’s Bank and Mortgage Institutions.

3. Plays and performances conducted by educational institutions as part of learning.

4. All exported services excluding non-oil exports which enjoy zero rated status.

Capital Gains Tax Act

Under the Capital Gains Act, tax is payable by both companies and individuals on capital gain

accrued from disposal of assets. Corporate bodies remit to the FIRS while individuals remit same

to the relevant tax authorities in their states.

The tax is charged at the rate of 10% on the difference between the cost of the asset and the

consideration received on disposal of the asset i.e. tax is chargeable on the gain and if there is no

34

OLUYEMISI O. DANSU



gain, no tax can be charged. The gain referred to here is not limited to cases of disposal of

property real or corporeal; it includes capital derived from the following:

Sale, lease, transfer, an assignment, a compulsory acquisition or any other disposition of assets,

notwithstanding that no asset is acquired by the person paying the capital sum, and in particular–

a) where any capital sum is derived by way of compensation for any loss of office or

employment;

b) where any capital sum is received under a policy of insurance and the risk of any kind of

damage or injury to, or the loss or depreciation of, assets;

c) where any capital sum is received in return for forfeiture or surrender of rights, or for

refraining from exercising rights;

d) where any capital sum is received as consideration for use or exploitation of any asset; and

e) without prejudice to paragraph (a) of this section, where any capital sum is received in

connection with or arises by virtue of any trade, business, profession or vocation.

Stamp Duties Act (SDA)

Under the SDA, tax is imposed on instruments and legal documents generally. Instrument as used

in the SDA includes every written document.

The Federal government is the competent authority to impose, charge and collect duties upon

instruments relating to matters executed between a company and an individual, group or body of

individuals while the State Governments collect duties in respect of instruments executed between

persons or individuals at such rates to be imposed or charged as may be agreed with the Federal

Government.

The rate chargeable is dependent on the classification of the document. Some documents attract

stamp duties on flat rate basis while others are assessed individually. For example stamp duty on

the statement of the share capital of a company is at the rate of 7.5% of the share capital while the

stamp duty charged on the Memorandum & Articles of Association is the sum of N 1,000.

35

OLUYEMISI O. DANSU



Education Tax Act

Under the Education Tax Act, all companies registered in Nigeria are to pay to the FIRS an annual

education tax which shall be at the rate of two per cent of the assessable profit of the company.

This a social responsibility demanded of all companies in Nigeria as their contribution to the

development of education in Nigeria.

The Industrial Training Fund Act (ITFA)

Under the ITFA, an Industrial Training Fund (ITF) is established to be utilized to promote and

encourage the acquisition of skills in the industrial sector with a view to generate indigenous

trained manpower sufficient to meet the needs/demands of the economy. The tax is charged at the

rate of1% on employers with 5 or more employees or with an annual turnover of N 50,000,000.

Petroleum Profits Tax Act (PPTA)

Under the PPTA, all companies engaged in the extraction and transportation of petroleum are

liable to pay tax. Tax is charged on the proceeds from the sale of oil and related substances plus

any other income of the company incidental to and arising from its petroleum operations.

The taxable income of a petroleum company is subject to tax at 65.75% during the first 5 years of

operation and increases to 85% afterwards. Oil companies who operate under production sharing

contracts are taxed at the rate of 50%. There are however some concessions granted to petroleum

companies which shall be discussed under Tax Incentives and Allowance.

Withholding Tax

Withholding Tax is an advance payment of income tax which may be used to offset or reduce tax

liability of the year of assessments i.e. where a payment is due from one person to another, the

person making the payment is expected to deduct tax at the applicable rate and remit it to the

relevant tax authority. The remittance should be done not later than 30 days after the deduction.

The obligation to withhold tax is provided for in the PITA, CITA and PPTA respectively.

Withholding tax is usually at the rate of 5 % or 10% depending on the transactions or services as

detailed below:

36

OLUYEMISI O. DANSU



TRANSACTIONS COMPANIES (%) INDIVIDUALS (%)

Royalties 10 5

Contract of Supplies 5 5

Contract of Construction 5 5

Dividend 10 10

Technical Service 10 5

Professional Service 10 5

Consultancy 10 5

Management Service 10 5

Commission 10 5

Rent 10 10

Interest 10 10

Hire, Charter, Lease 10 10

Directors fees 10 10

Transactions exempted from Withholding Tax:

1. Direct purchase across the counter;

2. Direct purchase of raw materials from supplier as distinct from contract of supplies.

3. Sale in the ordinary course of business.

4. All imported goods.

5. Inter- bank interest.

6. Income exempted from income tax

7. Claims in insurance business

8. Interest on Bonds

9. Dividends redistributed by Holding Companies

TAX INCENTIVES

37

OLUYEMISI O. DANSU



A wide range of incentives and reliefs have been designed by the Federal government to boost

industrial and agricultural production for export. These will be discussed below.

Pioneer Status

The Industrial Development (Income Tax Relief) Act provides for the grant of Pioneer Status. The

objective of granting Pioneer status is to enable the business concerned to make a reasonable level

of profit within its formative years in order for same to be ploughed back into the business. It is a

tax holiday granted to eligible industries for a period of three years in the first instance and may

be extended to a further period of two years. The investment must be in respect of industry or

products designated as pioneer, for example, agro-allied or export goods and solid minerals.

Pioneer Status Incentive Regulations 2014 sets out the objective and scope, as well as

processes/procedures guiding the application and issuance of the pioneer status incentive with the

NIPC. To qualify for pioneer status, the applicant must be a body corporate, registered in Nigeria

and must have incurred capital expenditure of not less than N10 million.

The application for Pioneer status is to be submitted within a year of commencement of

production by the applicant. The Applicant shall pay 2% service charge from its estimated tax

savings, derived from the five-year financial projections which is required to be submitted to

NIPC. Where an applicant records losses in its projections, the service charge will be calculated on

the higher of either 0.5% of its net assets or 0.25% of its turnover.

Some of the businesses eligible for Pioneer status are – mining of solid minerals, rubber plantation

and processing, real estate development and utilities, manufacture of cement, pharmaceutical,

iron and steel from iron ore, gas cylinders, solar energy powered equipment and gadgets and

maintenance of aircrafts.

Double Taxation Agreements/Treaties

38

OLUYEMISI O. DANSU



CITA provides for relief from payment of double taxation if there are bilateral agreements with

other countries. The objective of this is to ensure that the tax payable in Nigeria on the profits of a

Nigerian company being remitted into the country are reduced by the amount of “foreign Tax”

paid abroad and vice versa i.e. it affords relief from double taxation.

Rural Investment Allowance

Where a company incurs capital expenditure on the provisions of facilities such as electricity,

water, tarred road or telephone for the purpose of a trade or business which is located at least 20

kilometers away from such facilities provided by the government, there shall be allowed to the

company a rural investment allowance. Where a rural investment allowance has been given no

investment allowance shall be due or be given in respect of the same asset or in addition to the

allowance.

The rural investment allowance is made against the profits of the year in which the date of

completion of the investment falls and the allowance or any fraction thereof, is not available for

carry forward to any subsequent year and whenever full effect cannot be given to the allowance

owing to there being no assessable profits or assessable profits less than the total allowance for the

year the investment was made.

Export Processing Zone

A company which has incurred expenditure in its qualifying building and plant equipment in an

approved manufacturing activity in an export processing zone shall be granted 100 per cent

capital allowance in any year of assessment. A company granted capital allowance shall not be

entitled to an investment allowance.

The profit or gains of a 100 per cent export oriented undertaking established within and outside

an export free zone shall be exempt from tax for the first three consecutive assessment years

provided that‐

1. the undertaking is 100 per cent export oriented;

39

OLUYEMISI O. DANSU



2. the undertaking is not formed by splitting or breaking up or reconstructing a business already

in existence;

3. it manufactures, produces and exports articles during the relevant year and the export proceeds

form 75 per cent of its turnover;

4. The undertaking is not formed by transfer of machinery or plants previously used for any

purpose to the new undertaking or where machinery or plant previously used for any purpose

is transferred does not exceed 25 per cent of the total value of the machinery or the

undertaking;

5. The undertaking repatriates at least 75 per cent of the export earnings to Nigeria and places it

in a domiciliary account in any registered and licensed bank in Nigeria.

Gas Industry Incentives

A company engaged in gas utilisation (downstream operations) shall be granted the following

incentives:

1. An initial tax‐free period of three years which may, subject to the satisfactory performance of

the business, be renewed for an additional period of two years;

2. As an alternative to the initial tax free period of 3 years, an additional investment allowance of

35 per cent which shall not reduce the value of the asset. A company which claims this

incentive shall not be eligible for the incentive provided in 3 (ii) below.

3. Accelerated capital allowances after the tax‐free period, as follows ‐

(i) an annual allowance of 90 per cent with 10 per cent retention, for investment in plant and

machinery;

(ii) an additional investment allowance of 15 per cent which shall not reduce the value of the

asset;

4. Tax free dividends during the tax free period, where‐

(i) the investment for the business was in foreign currency; or

(ii) the introduction of imported plant and machinery during the period was not less than 30

per cent of the equity share capital of the company;

40

OLUYEMISI O. DANSU



5. Interest payable on any loan obtained with the prior approval of the Minister for a gas project,

shall be tax deductible.

The tax‐free period of a company shall start on the day the company commences production as

certified by the Ministry of Petroleum Resources.

Gas utilisation" means the marketing and distribution of natural gas for commercial purposes and

includes power plant, liquified natural gas, gas to liquid plant, fertiliser plant, and gas

transmission and distribution of pipelines.

Duty Drawback and Suspension Scheme

The Customs and Excise Management Act and the Customs Duty Drawback Scheme/Regulation

provides for the refund of import duties on the following:

1. Raw materials including packaging materials used in manufacturing goods that are exported.

2. Paper used for the manufacture of goods supplied for educational purposes to educational

establishments recognized by the Federal Adviser on Education.

3. Goods exported in the same state as that in which they were imported.

Exemption from Capital Gains Tax

The following societies/ institutions are exempted from Capital Gains Tax provided the gain is not

derived from any disposal of any assets acquired in connection with any trade or business carried

on by the institution or society and the gain is applied purely for the purpose of the institution or

society:

1. An ecclesiastical, charitable or educational institution of a public character;

2. Any statutory or registered friendly society;

3. Any co-operative society registered under the Co-operative Societies Law of any State; or

4. Any trade union registered under the Trade Unions Act,

In-Plant Training Tax Concession

41

OLUYEMISI O. DANSU



Industrial establishments that have set up in–plant training facilities enjoy a two percent tax

concession for a period of five years.

Investment in Infrastructure Incentive

Industries that provide infrastructural facilities which ought to be provided by the Government

such as access to roads, pipe borne water and electricity. Twenty percent (20%) of the cost of

providing these infrastructural facilities, where they do not exist, is tax deductible.

Investment in Economically Disadvantaged Areas

A pioneer industry sited in economically disadvantaged Local Government Area is entitled to

100% tax holiday for seven years and an additional 5% capital depreciation allowance over and

above the initial capital depreciation allowance.

Other industries or sectors that enjoy tax concessions/incentives include:

Industries with high labour/capital ratio i.e. industries with plants, equipment and

machinery, which are essentially operated with minimal automation.

Engineering industries, where some finished imported products serves as inputs.

Companies engaged in manufacturing which incur capital expenditure for the purposes of

Expansion of production capacity, Modernization of production facilities and

Diversification into related products enjoy re-investment capital allowance.

Agro- allied, Engineering, Chemical and Petrochemical industrial companies that attain the

minimum level of local raw material sourcing and utilization.

Companies with turnover of less than N1 million in the manufacturing business.

Companies in the agro-allied business do not have their capital allowance restricted. It is

granted in full i.e. 100%.

Solid Minerals sector

Petroleum companies that are into joint ventures with the Nigerian National Petroleum

Corporation and have signed Memorandum of Understanding.

Gas Industry

42

OLUYEMISI O. DANSU



Telecommunications

Energy/Electricity

Tourism

Transport

Export Industry

Export Manufacturers

Corporations and Companies exempted from Taxation:

The following are exempted from Taxation:

1. The profits of any company being a statutory or registered friendly society, in so far as such

profits are not derived from a trade or business carried on by such society;

2. The profits of any company being a co‐operative society registered under any enactment or law

relating to co‐operative societies, not being profits from any trade or business carried on by that

company other than co‐operative activities solely carried out with its members or from any

share or other interest possessed by that company in a trade or business in Nigeria carried on

by some other persons or authority;

3. The profits of any company engaged in ecclesiastical, charitable or educational activities of a

public character in so far as such profits are not derived from a trade or business carried on by

such company;

4. The profits of any company formed for the purpose of promoting sporting activities where

such profits are wholly expendable for such purpose, subject to such conditions as the Board

may prescribe;

5. The profits of any company being a trade union registered under the Trade Unions Act in so far

as such profits are not derived from a trade or business carried on by such trade union;

6. Dividends distributed by Unit Trust;

7. The profits of any company being a body corporate established by or under any Local

Government Law or Edict in force in any State in Nigeria;

43

OLUYEMISI O. DANSU



8. The profits of anybody corporate being a purchasing authority established by an enactment

and empowered to acquire any commodity for export from Nigeria from the purchase and sale

(whether for the purposes of export or otherwise) of that commodity;

9. The profits of any company or any corporation established by the law of a State for the purpose

of fostering the economic development of that State, not being profits derived from any trade

or business carried on by that corporation or from any share or other interest possessed by that

corporation in a trade or business in Nigeria carried on by some other person or authority;

10. Any profits of a company other than a Nigerian company which, but for this paragraph, would

be chargeable to tax by reason solely of their being brought into or received in Nigeria;

11. Dividend, interest, rent, or royalty derived by a company from a country outside Nigeria and

brought into Nigeria through Government approved channels. Government approved channels

means the Central Bank of Nigeria, any bank or other corporate body appointed by the

Minister as authorised dealer under the Foreign Exchange (Monitoring and Miscellaneous

Provisions) Act or any enactment replacing that Act;

12. The interest on deposit accounts of a foreign non‐resident company provided that the deposits

into the account are transfers wholly of foreign currencies;

13. The interest on foreign currency domiciliary account in Nigeria.

In conclusion, it is very important before embarking on any business venture to familiarize with

all the relevant laws and regulations in order to comply with same and also enjoy the benefits of

tax incentives as it relates to the industry.

NUTS & BOLTS OF INCORPORATING A BUSINESS IN NIGERIA

Documents

Transcript of NUTS & BOLTS OF INCORPORATING A BUSINESS IN NIGERIA