Mixed legal system of English common law, Islamic law (in 12 northern states), and traditional law
President Muhammadu Buhari (since 29th May 2015)
Crude oil, coal, tin, columbite; rubber products, wood; hides and skins, textiles, cement and other construction materials, food products, footwear, chemicals, fertilizer, printing, ceramics, steel
English (official), Hausa, Yoruba, Igbo, Fulani, over 500 additional indigenous languages
Muslim 50%, Christian 40%, indigenous beliefs 10%
- Capital markets
The Nigerian Stock Exchange
Current number of Listed Companies
Approximately 172 on The Nigerian Stock Exchange
Public offers / disclosure regulations
Takeover / Merger Regulations
The laws and regulations governing takeover/merger in Nigeria are set out in the:
- SEC Rules
Corporate Governance Code
The principal regulation governing the capital market in Nigeria is the Investments and Securities Act (ISA).
- Competition regulation
Impact of regulatory regime on business
The SEC from time to time prescribes a lower and an upper threshold of combined annual turnover or assets, or a lower and an upper threshold of combinations of turnover and assets, in general or in relation to specific industries, for purposes of determining categories of mergers. The lower threshold is N500,000,000.00 while the upper threshold is N5,000,000,000.00.
Processing fee for schemes of merger / acquisition and take-over:
- Filing fee for pre-merger notice: N50,000.00 per company
- Filing fee for acquisition and takeover: N50,000.00
- First N500 Million of share capital: 0.30%
- Next N500 Million of share capital: 0.225%
- Any sum thereafter: 0.15% of share capital
Nigeria does not have a specific legislation on competition. However, the ISA, which is the primary legislation that governs mergers and acquisitions in Nigeria, has some anti-competition provisions. Consequently, where the SEC determines that the business practice of a company prevents or substantially reduces competition, the SEC may, in the public interest, order the break-up of the company into separate entities in such a way that its operations do not cause a substantial restraint of competition in its line of business or in the market.
In addition to the ISA, the Nigerian Communications Act - Competition Practices Regulations (the NCC Regulations) made pursuant to the Nigerian Communications Act, empowers the Nigerian Communications Commission (NCC) to review certain transactions for the acquisition of the shares of a telecommunications company for competition concerns.
However, the National Assembly recently passed the Federal Competition and Consumer Protection Bill. The bill is yet to take effect as it is yet to be assented to by the President. The bill, if assented to by the President, is expected to promote fair, efficient and competitive markets in the Nigerian economy.
The areas covered by the ISA and the NCC Regulations in relation to competition regulation are mergers and acquisitions. The Federal Competition and Consumer Protection Bill, upon coming into force will cover aspects of competition such as price manipulation, agreements in restraint of competition, cartels, abuse of dominant positions, monopolies and mergers.
- Corruption / transparency
Corruption Perception Index rank worldwide for 2017
Signatories to United Nations Convention Against Corruption (UNAC)?
Signatories to the African Union Convention on Preventing and Combating Corruption?
Corruption Perception Index Score for 2017
Signatories to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions?
Enforcement of foreign judgments
There are two regimes under which foreign judgments may be enforced in Nigeria:
1. The courts of Nigeria will recognise and enforce (without re-examination or re-litigation of the matter adjudicated upon) any judgment rendered by the courts of England and Wales, in respect of any dispute which satisfies the requirements of the Reciprocal Enforcement of Judgments Ordinance, Cap 175 Laws of the Federation of Nigeria, 1958 (the Ordinance). The requirements under the Ordinance are as follows:
- the application for registration and enforcement of the judgment of the English court must be filed within 12 months of the date of the judgment or such longer period as may be allowed by the Nigerian court;
- the English court must have acted within the scope of its jurisdiction;
- the defending party must have voluntarily appeared or otherwise submitted or agreed to submit to the jurisdiction of the English court;
- the defending party must have been duly served with the court processes (leading to the judgment);
- the judgment must not be one that was obtained by fraud;
- there must be no appeal pending and the other party must not be entitled to appeal the judgment (at the time the enforcement is sought) or, if the other party is entitled to appeal, it must be established that such party has not shown any intention of appealing; and
- the judgment is not in respect of a cause of action, which for reasons of public policy (or any other reason) the Nigerian courts would have refused to give judgment.
2. Under the Foreign Judgment (Reciprocal Enforcement) Act (the Act), a judgment obtained in a foreign country may be enforced in Nigeria within 6 years of the judgment or award where there exists a reciprocal agreement between Nigeria and the foreign jurisdiction to recognise and enforce judgments delivered by courts in their respective jurisdictions, provided that such foreign judgment will not be enforced if it has been wholly satisfied; or it could not be enforced by execution in the country of the original court. However, the courts of the Federal Republic of Nigeria will recognise and enforce (without re-examination or re-litigation of the matter adjudicated upon) any judgment of a court of a foreign jurisdiction to which the Act applies, even where there is no reciprocal agreement between Nigeria and such foreign jurisdiction, where:
- the application for registration and enforcement of the judgment of a New York court must be filed in a Nigerian court within 12 months after the date of the judgment or such longer periods as may be allowed by the Nigerian court;
- the judgment has not been wholly satisfied;
- the judgment is final and conclusive as between the parties thereto;
- there is payable under such judgment, a sum of money, not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty; and
- the judgments would have been enforceable by execution in the jurisdiction of the original court.
Effectiveness of the Court System
Nigerian courts are becoming increasingly effective in the administration of justice, however, due to the fact that litigation is sometimes protracted, arbitration is considered the preferred mode of dispute resolution in many commercial transactions. Mediation is also encouraged as a means of dispute resolution and many State governments are putting infrastructure in place to support mediation. For example, Lagos State has established the Lagos Multi-Door Courthouse as a mediation centre for the resolution of disputes.
Enforcement of arbitral awards
Arbitral awards may be enforced through the following procedures:
- by instituting an action upon the award;
- by registration under the procedure for the reciprocal enforcement of judgments;
- by an application for the recognition and enforcement of the award under section 31 or 51 of the Arbitration and Conciliation Act; and
- by enforcement under the New York Convention, 1958.
Structure of the court system
The structure of the Nigerian court system is as follows (in order of hierarchy):
- Supreme Court
- Court of Appeal
- High Court/ Federal High Court / National Industrial Court
- Magistrates' / District Court
- Customary Courts / Area Courts / Sharia Courts
Perception of the local courts
The Nigerian judiciary has undergone significant reforms in recent times as there have been concerted efforts to improve the case management system and restore confidence in the judiciary.
The prinicpal legislation on arbitration in Nigeria is the Arbitration and Conciliation Act.
- Foreign investments
Foreign investment incentives
The foreign investment incentives available in Nigeria include:
- unhindered repatriation of funds;
- pioneer status (a tax holiday for certain qualified industries);
- guarantee against expropriation; and
- 100% foreign ownership of businesses / companies (with the exception of businesses on the negative list). However, this is subject to local content provisions under the Nigerian Oil and Gas Industry Content Development Act, and the Coastal and Inland Shipping (Cabotage) Act.
Foreign investment rules
There is no restriction on the amount of equity that a foreign company may hold in a listed company. It is a requirement of The Nigerian Stock Exchange that at least 20% of the issued shares of a publicly listed company are held by the public. However, this is subject to local content provisions under the Nigerian Oil and Gas Industry Content Development Act and the Coastal and Inland Shipping (Cabotage) Act.
- Advertising Practitioners Registration, etc. Act CAP. A7 Laws of the Federation of Nigeria 2004
- Nigerian Communications Commission Guidelines on Advertisements and Promotions
- Guidelines for Advertisement of Regulated Products in Nigeria (NAFDAC/RR/019/00)
- Lagos State has its own law and regulatory body, namely, the Lagos State Structures for Signage and Advertisement Agency Law 2006, and the Lagos State Signage and Advertisement Agency, respectively. The Lagos State Signage and Advertisement Agency regulates outdoor advertising and signage displays in Lagos State. Although the Lagos State law is not nationally applicable, it is relevant to the extent that Lagos is the commercial nerve centre of Nigeria.
- Constitution of the Federal Republic of Nigeria
- The Consumer Protection Council Act (1992 No. 66) Consumer Protection (Sales Promotions) Regulations 2005
- Banking - Banks and Other Financial Institutions Act
- Aviation - Civil Aviation Act
- Companies - Companies and Allied Matters Act
- Power - Electric Power Sector Reform Act
- Manufacturing - Factories Act
- Insurance - Insurance Act
- Capital markets - Investments and Securities Act
- Foreign investment - Nigerian Investment Promotion Commission Act
- Petroleum - Nigerian Oil and Gas Industry Content Development Act
- Mining - Nigerian Minerals and Mining Act
- Petroleum - Petroleum Act
- Media - Nigeria Broadcasting Code
- Pensions - Pension Reform Act
- Telecommunications - Nigerian Communications Act
The foreign exchange market in Nigeria is regulated pursuant to the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act (FEMM Act), the CBN Foreign Exchange Manual (CBN Manual) and the guidelines and circulars issued from time to time by the Central Bank of Nigeria (CBN). The FEMM Act establishes a foreign exchange market and authorises the CBN to make regulations for transactions conducted within the market.
Nigeria’s foreign exchange market is made up of three major segments, the CBN window, the interbank and the Bureau de Change. The parallel market is not a market which has any legal backing but exists between unlicensed players who buy and sell (not in accordance with the rules) or licensed players and third parties that do not meet the documentation requirements.
The CBN appoints as Authorised Dealer or Authorised Buyer of foreign currency, any bank or non-banking corporate organization which shows evidence of adequate resources and capacity to operate in accordance with the provisions of the FEMM Act. All foreign currency to be utilised for the purchase of securities must be inflowed through an Authorised Dealer, which is required to issue a Certificate of Capital Importation (CCI) within a period of 24 hours.
In a bid to enhance transparency and efficient processing of foreign investment inflows to Nigeria, the CBN has deployed the electronic CCI platform and now requires Authorised Dealers to issue CCIs to investors in electronic form.
The CCI, once issued, guarantees an investor access to the Nigerian foreign exchange market for the repatriation of dividends, interest and profits (net of taxes) and the remittance of proceeds (net of all taxes) in the event of the sale or liquidation of the enterprise or any interest attributable to its investment.
Companies Income Tax is payable each year on the profits of any company at the rate of 30%. This includes profits accruing in, derived from, brought into or received from a trade, business or investment in Nigeria. Dividends to shareholders are paid after tax. Corporate tax for companies in the Oil & Gas sector are governed by a separate regime under the Petroleum Profits Tax Act (PPTA). Pursuant to the PPTA, the assessable tax for any accounting period for a company engaged in petroleum operations is an amount equal to 85% of its chargeable profits for that period. The applicable rate for a company in its first five years of engaging in petroleum operations is 65.75% while the tax rate for companies operating under a Production Sharing Contract (PSC) is a flat rate of 50% for the contract area.
Generally, company dividends and other company distributions, whether or not of a capital nature, made by a Nigerian company are liable to tax at source at the rate of 10%. Dividends paid in the form of bonus shares or scrip dividends to individual shareholders are not subject to withholding tax.
The Transfer Pricing regime in Nigeria is regulated in accordance with the Income Tax (Transfer Pricing) Regulations. The Companies Income Tax Act and the PPTA also contain provisions granting the Federal Inland Revenue Service the power to adjust transactions deemed to be “fictitious” or “non-arms length”.
The Transfer Pricing Regulations apply to transactions between connected taxable persons not carried out in accordance with the arm's length principle.
It is a requirement of Regulation 4(1) that connected taxable persons follow the arm's length principle when engaging in transactions. Where a connected taxable person fails to comply with the provisions of the Regulation, the Federal Inland Revenue Service (FIRS or the Service) is empowered to make adjustments where necessary to make a controlled transaction consistent with the arm's length principle.
In determining whether the result of a transaction or series of transactions are consistent with the arm's length principle, one of the following transfer pricing methods is applied:
- the Comparable Uncontrolled Price method;
- the Resale Price method;
- the Cost Plus method;
- the Transactional Net Margin method;
- the Transactional Profit Split method; or
- any other method which may be prescribed by regulations made by the Service from time to time.
Payroll tax and social security
The Pension Reform Act (PRA), 2014 establishes a contributory pension reform scheme for the payment of retirement benefits of employees of the Public Service, the Federal Capital Territory and the Private Sector in the Federal Republic of Nigeria. The pension scheme applies to all employees in the case of the private sector, who are employed in an organisation which has a minimum of 3 (three) employees. Employers are required to make a compulsory monthly pension contribution of 10% of an employee's basic salary, transport and accommodation allowances. An employee also contributes a minimum of 8% of earnings. The minimum total contribution is 18%, however, there is no maximum contribution limit.
Prior to PRA 2014, the contributory pension under the repealed PRA 2004 was an aggregate of 15 percent monthly with both employer and employee respectively required to contribute 7.5 percent of the employee’s monthly emolument.
Personal income tax
For residents, there is a graduated scale as indicated below.
- First N300,000 taxed at 7%
- Next N300,000 taxed at 11%
- Next N500,000 taxed at 15%
- Next N500,000 taxed at 19%
- Next N1,600,000 taxed at 21%
- Above N3,200,000 taxed at 24%
Where an employee is not in Nigeria for a period or periods amounting to an aggregate of 183 days (inclusive of annual leave or temporary period of absence) in any 12 month period commencing in a calendar year, and ending either within the same year or the following year, such employee will be regarded as non-resident and will not be required to pay personal income tax.
Dividends are subject to a 10% withholding tax whether paid to resident or non-resident recipients unless the rate is reduced under a double taxation treaty.
Where a non-Nigerian company which is not engaged in trade or business within Nigeria receives a dividend from a Nigerian company, the only tax payable on the dividend is the 10% withholding tax. No further tax is due from the non-Nigerian company.
Stamp duties are charged by both federal and state governments on various commercial and legal documents, such as deeds of transfer, insurance policies and bills of exchange.
Stamp duties are regarded as taxes on instruments recording transactions, and the rates chargeable would depend on the classification of the document. Some documents attract stamp duties on a nominal basis, while others are assessed on an ad valorem basis.
The applicable tax rate payable on royalty payments by resident companies is 10% while resident individuals are charged at a rate of 5%. Non-resident companies and individuals are charged at a rate of 10% unless the non-resident company or individual is domiciled in a jurisdiction which has a double taxation treaty with Nigeria, in which case the rate will not exceed 7.5%.
Capital Gains Tax
Capital Gains Tax (CGT) is charged at the rate of 10%. CGT accrues on an actual year basis and pertains to all gains accruing to a taxpayer from the sale, lease or other transfer of proprietary rights in a chargeable interest which may be corporeal or incorporeal whether in or outside Nigeria.
It is not possible to offset capital losses against capital gains.
Under the Companies Income Tax Act, when ascertaining the profits of a company, prior losses sustained in the business are deductible. A company may carry forward its tax losses or offset against its future taxable income indefinitely. However, losses from one trade / business cannot be offset against the income from another trade or business.
Export Processing Zone
Approved enterprises operating within an area designated by the president to be an Export Processing Zone (Zone) are exempted from all Federal, State and Government taxes, levies and rates. Legislative provisions pertaining to taxes, levies, duties and foreign exchange regulations do not apply within the Zones.
Thin Cap regulations
Under Nigerian law, there are no express thin capitalisation regulations and interest is a deductable expense. However, in related parties' transactions, the FIRS may adjust the transaction to impose an 'arm's length' interest rate and tax the borrower's profit accordingly.
Real property tax
Land use charge is payable in respect of properties. The charge is typically paid by the property owner and the computation of the charge would depend on the location of the property.
Technical service fees
Technical service fees are subject to withholding tax at the respective rates of 10% for corporate recipients and 5% for individuals.
Value Added Tax
VAT is currently charged at the rate of 5% of the purchase price of chargeable goods and services.
A withholding tax of 10% is imposed on the payment of interest to residents and non-residents. The expenses incurred by way of interest on related party loans are tax deductible.