Contributed by: Bloomfield Law Practice
GENERAL OVERVIEW OF NIGERIA
 Nigeria is often referred to as the "Giant of Africa",
owing to its large population and economy. With
approximately 174 million inhabitants, Nigeria is the
most populous country in Africa and the seventh
most populous country in the world. Nigeria has one
of the largest populations of youth in the world.
 The country is viewed as a multinational
state, as it is inhabited by over 500 ethnic
groups, of which the three largest are the
Hausa, Igbo and Yoruba; these ethnic
groups speak over 500 different languages,
and are identified with wide variety of
cultures.
 As of 2015, Nigeria is the world's 20th largest
economy, worth more than $500 billion and $1
trillion in terms of nominal GDP and purchasing
power parity respectively. It overtook South Africa
to become Africa's largest economy in 2014. Also,
the debt-to-GDP ratio is only 11 percent, which is 8
percent below the 2012 ratio.
 Nigeria is a member of the
Commonwealth of Nations, the African
Union, OPEC, and the United Nations
among other international
organizations.
LEGAL SYSTEM AND STRUCTURE
Nigeria can be described as falling within what is
generally called a “common law” system. More
specifically, the sources of Nigerian law are:
 The Amended Constitution of the Federal Republic of
Nigeria, (the “Constitution”). The Constitution is
Nigeria’s supreme law from which all other laws derive
their validity;
 Statutes passed by legislative bodies in Nigeria – i.e.
the National Assembly, which makes laws for the
Federation, and which comprises of a Senate and a
House of Representatives, and the various Houses of
Assembly which make laws for each of Nigeria’s 36
States;
 English Law comprising of the received English law
(“Received English Law”) and some English statutes
made before October 1, 1960 that were extended to
Nigeria by an order-in-council. The Received English
Law comprises of:
 the Common Law of England;
 the Doctrines of Equity;
 Statutes of General Application in force in
England on January 1, 1900;
 Customary law of the various communities in Nigeria,
including Islamic Law which is accepted as the
customary law of various communities in the Northern
part of the country.
 Judicial Precedents. Nigeria, like most common law
countries with a hierarchical system of courts, operates
a system of binding judicial precedent where the
decisions of a higher court are binding on the courts
that are lower in hierarchy.
COMPLIANCE REQUIREMENTS FOR
SME: POST INCORPORATION
 Return of allotment (CAC 2A) must be completed
 Notice of change of authorized share capital (Cac 2.4
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must be completed)
Re-registration and conversion of company(cac 2.7
must be completed0
Notice of situation(Change of registered address)
Declaration of compliance with the requirements of
CAMA
Notice of change of Directors, or in the name,
Residential address or postal address of Director
Filing of annual return (CAC 10)
LEGAL AND REGULATORY REGIME
S/N
1.
2.
Agency
NIGERIAN INVESTMENT
PROMOTION COMMISSION
(NIPC)
Functions/Role
Registration of Foreign Investments,
Issuance of Business Permits,
Complaint Management, Linkages
with NIDC Departments, and other
Government Agencies, Country-wide
Liaison with the 36 States on
Investment matters etc.
NIGERIA IMMIGRATION SERVICE Expatriate Quota Positions,
(NIS)
Regularization of Permanent Work
Permits, other immigration facilities.
S/N
Agency
Functions/Role
3
NIGERIA CUSTOMS SERVICE
(NCS)
Issuance of Import and Export
Guidelines, Procedure for citing Excise
Factories, Goods clearance facilitation
and general information of fiscal
policy issues.
4.
FEDERAL INLAND REVENUE
SERVICE (FIRS)
Tax registration, payment of stamp
duties, issuance of tax clearance
certificates and issuance of tax forms.
5.
NATIONAL OFFICE FOR
TECHNOLOGY ACQUISITION
PROMOTION (NOTAP)
Registration of contracts agreement
dealing with transfer/acquisition of
technology, Approvals/licenses for
technology transfer, patents and
franchises, etc.
S/N Agency
Functions/Role
6.
NATIONAL AGENCY FOR
FOOD AND DRUG
ADMINISTRATION AND
CONTROL (NAFDAC)
Registration of regulated products, issuance
of export certificates, authorization to
import unregistered food and drug
products.
7.
STANDARDS
ORGNANIZATION OF
NIGERIA (SON)
Facilitates all aspect of standardization
activities, approvals or permits for use of
standards.
8.
FEDERAL MINISTRY OF
FINANCE
Administration of incentives, tariff
administration and general information
and guidelines on fiscal policy.
9.
FEDERAL MINISTRY OF
SOLID MINERALS
DEVELOPMENT
Exploration licenses, mining leases and
information and guidelines on investing
in the solid mineral sector.
10.
CENTRAL BANK OF NIGERIA
(CBN)
Provision of information and technical
advice on the Nigerian, Banking and
Financial System, guidelines on
correspondent banking and funds
transfer, including capital importation.
FISCAL REGIME – ADMINISTRATION
OF TAXES FOR SME
Companies Income Tax: This tax is payable for each
year of assessment of the profits of any company at a
rate of 30%. These include profits accruing in, derived
from brought into or received from a trade, business or
investment. Also, in Nigeria Company dividends or
other company distribution whether or not of a capital
nature made by a Nigerian is liable to tax at source at
the rate of 10%.
Education Tax: This tax is charged in accordance with
the Education Tax Act 1993 (as amended). It requires a
company (incorporated in Nigeria) to pay tax at the
rate of 2% of its profits as assessed under the
Companies Income Tax Act.
Withholding Tax: Nigerian law subjects certain
activities and services to Withholding Tax. This means
that where during transactions in any of the specified
activities or services, a payment is due from one person
to a company, the person making the payment is
expected to deduct tax at the applicable rate and remit
it to the relevant tax authority. The applicable rates
range from 5% to 10%.
Stamp Duties: Stamp duty is imposed on most legal
documents and is jointly administered by the State
and Federal authorities, depending on the type and
nature of the document. Stamp duties are regarded as
transaction taxes, and the rates chargeable would
depend on the classification of the document. Some
documents attract stamp duties on flat rate basis while
others are assessed at ad valorem basis.
Capital Gains Tax: This applies to all gains accruing to a
company from the sale or lease or other transfer of
proprietary rights in a chargeable interest which are
subject to a capital gains tax of 10%. The chargeable
assets may be corporeal or incorporeal and it does not
matter that such asset is not situated in Nigeria.
Where, however, the company is a non-resident
company, the tax will only be levied on the amount
received or brought into Nigeria.
TAX INCENTIVES FOR SMALL AND MEDIUM
ENTERPRISE
Pioneer status: This is a concession to pioneer companies
located in economically disadvantaged areas, providing a
tax holiday period of five to seven years. these industries
must be considered by the government, to be beneficial to
the country's economy and in the interest of the public.
Companies that are involved in local raw material
development; local value added; labour intensive
processing; export oriented activities; in-plant training;
are also qualified for additional concessions.
Tax Relief For Research And Development
(R&D)
Up to 120% of expenses on r&d are tax deductible
provided that such r&d activities are carried out in
Nigeria and are connected with businesses to which
allowances are granted. the result of such research
could be patented and protected in accordance with
internationally accepted industrial property rights.
LOCAL RAW MATERIALS UTILISATION:30% tax
concession for five years to industries that attain
minimum local raw materials utilisation as follows:- agro 80% - agro allied 70% - engineering 65% - chemical
60% - petro-chemical 70%
LABOUR INTENSIVE MODE OF PRODUCTION:15%
tax concession for five years. the rate is graduated in such
a way that an industry employing one thousand persons
or more will enjoy 15% tax concession while an industry
employing one hundred will enjoy only 6%, while those
employing two hundred will enjoy 7%, etc.
LOCAL VALUE ADDED:10% tax concession for five years. this
applies essentially to engineering industries, while some
finished imported products serve as inputs. this is aimed at
encouraging local fabrication rather than the mere assembly of
completely knocked down parts.
IN-PLANT TRAINING: 2% tax concession for five years, of the
cost of the facilities for training.
EXPORT ORIENTED INDUSTRIES:10% tax concession for
five years. this concession will apply to industries that export
not less than 6% of their products.
INFRASTRUCTURE
20% of the cost of providing basic infrastructures such as
roads, water, electricity, where they do not exist, is tax
deductible once and for all.
INVESTMENT IN ECONOMICALLY DISADVANTAGED
AREAS
100% tax holiday for seven years and additional 5%
depreciation over and above the initial capital depreciation.
IMPORT DUTY REBATE
25% import duty rebate was introduced in 1995 to
ameliorate the adverse effect of inflation and to ensure
increase in capacity utilisation in the manufacturing sector.
investors are however, advised to ascertain the current
operative figures at the time of making an investment,
because these concessions have undergone some
ammendments in the past few years.
RE-INVESTMENT ALLOWANCE:This incentive is given to
manufacturing companies that incur capital expenditure for
purposes of approved expansion of production capacity;
modernisation of production facilities; diversification into
related products. it is aimed at encouraging reinvestment of
profits.
INVESTMENT TAX ALLOWANCE:Under this scheme, a
company would enjoy generous tax allowance in respect of
qualifying capital expenditure incurred within five years from
the date of the approval of the project.
Dividends derived from manufacturing companies in petrochemical and liquefied natural gas sub-sector are exempt from
tax.
Companies with turnover of less than N1 million are taxed at a
low rate of 20% for the first five years of operation if they are
into manufacturing.
TAX INCENTIVES FOR OTHER LINES OF TRADE
Companies profits in respect of goods exported from
Nigeria, are exempt from tax provided the proceeds are
repatriated to Nigeria and used exclusively for the purchase
of raw materials, plants equipment and spare parts.
Profits of companies whose supplies are exclusively input
to the manufacturing of products for exports, are excluded
from tax.
All new industrial undertakings including foreign
companies and individuals operating in an export
processing zone (epz), are allowed full tax holidays for
three consecutive years.
Challenges of SME’s in Nigeria are:
 Poor access to affordable finance leading to inadequate
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working capital;
Lack of work space;
Poor access to local, regional & international markets
leading to poor business turnover;
Obsolete technology leading to inability to compete
globally;
Inadequate government support and encouragement;
Weak infrastructure leading to high cost of doing
business;
 Non insurance of business risk;
 Non effective implementation of the National Policy
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on SMEs;
Poor management of business operation due to lack of
business management skills;
Administrative barriers in doing business, Multiple
permits and fees are required at the state and
municipal level, often spontaneously.
Absence of a general rating scheme;
Non availability of qualified artisans (skill gap).
Government efforts in addressing
these challenges:
 The establishment of the Bank of Industry (BOI) in 2001 from the
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defunct Nigerian Industrial Development Bank (NIDB) and the Nigeria
Bank for Commerce and Industry (NBCI);
The establishment of the Small and Medium Enterprises Development
Agency of Nigeria (SMEDAN) via SMEDAN ACT 2003;
The launching of the Micro Finance Policy, Regulatory and
Supervisory Framework for Nigeria in 2005 which resulted in the
establishment of Microfinance Banks;
The N200 Billion intervention fund for re-financing and restructuring
of Banks’ loans to the manufacturing sector;
The establishment of the N200 Billion Small and Medium Enterprise
Credit Guarantee Scheme (SMECGS) in 2010 by the Central Bank of
Nigeria;
The Nigerian Incentive Based Risk Sharing System (NIRSAL) for
agricultural lending launched in 2011;
 The N100 Billion bond-funded Cotton, Textiles and
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Garment Industry Revival Scheme;
The Bank of Agriculture (BOA) has emerged from the
Nigerian Agricultural, Cooperative and Rural Development
Bank (NACRDB );
Facilitating and guaranteeing external finance through the
World Bank, African Development Bank (AfDB),
International Finance Corporation (IFC) and other
international institutions willing and capable of assisting
SMEs;
Marching funds from big Entrepreneurs by BOI such as
the N5 billion by Aliko Dangote;
Marching funds from States by BOI;
Youth Enterprise With Innovation In Nigeria (YOUWIN)
DISPUTE RESOLUTION
MECHANISMS SME MUST NOTE
The Court System: The Nigerian courts have evolved
and the rules of court are constantly being
modernised to achieve the expeditious trial of
cases and to encourage the amicable pre-trial
resolution of disputes. In 2004, Lagos State
adopted new rules of court and thus set the pace
for other courts in Nigeria. Several states such as
Rivers, Akwa Ibom, Cross River and Abuja among
others have followed suit. The 2004 rules have
now been repealed by new rules of court adopted
by Lagos State in 2012, with effect from 1st January,
2012.
Alternative Dispute Resolution: Arbitration: The
Arbitration and Conciliation Act Chapter A18, LFN
2004 makes provision for the recognition and
enforcement of arbitral awards by the courts. The
Act incorporates the 1976 UNCITRAL rules on
International Commercial Arbitration so that
once obtained, an international arbitral award
may be registered and enforced in Nigeria by
virtue of the Foreign Judgment (Reciprocal
Enforcement) Act – an act which makes applicable
the New York Convention on the Recognition and
Enforcement of Arbitral Awards 1958.
CONCLUSION AND
RECOMMENDATION
Nigeria is ripe for long term investment. It has a
huge domestic market, an aggressive private
sector, and a reasonably well educated labour
force.
As lawyers, we would recommend the following:
 Necessary to seek legal advice from a reputable lawyer
on the type of business you need to register because
the different types of businesses recognized under
Nigerian law, which we have mentioned have different
legal effect.
 Carry out thorough due diligence
 Follow the rules - abide by laws and regulations and
avoid shortcuts.
 Be ethical; and
 Use trusted advisers with an established track record.