The Knowledge

Doing Business

With the myriad opportunities to be unlocked within Africa's largest economy, prior knowledge of the laws and regulations is vital if the newcomer is to succeed.

Thanks in large part to recently implemented policy reforms and initiatives that served to galvanize economic growth, Nigeria is now Africa’s largest economy. According to the US Energy Information Administration, the petroleum sector accounts for over 90% of the country’s total export earnings, and is the 13th largest producer of crude oil. The country also has significant deposits of iron ore, tin, columbite, coal, niobium, lead, zinc, and bauxite. Due to its large oil reserves, the economy counts a large service sector and a significant market and population for goods and services.


Full or partial ownership of businesses by foreign investors is allowed, and according to KPMG, investors are able to import capital and freely repatriate both the capital and any returns on investment upon exchange control requirements. Specific ownership limitations and/or license restrictions will be required in highly regulated sectors, such as banking, mining, aviation, oil and gas, and insurance. Nigerian businesses are carried out over multiple platforms, though the four most common are sole proprietorship, partnership, company, and free trade zones.

Sole proprietorships are a form of business owned and run entirely by an individual, and there is no legal distinction between the owner and the business. Foreigners are unable to operate as a sole proprietor unless they are able to obtain citizenship or residency status for immigration purposes.

Partnerships include two or more individuals involved in owning a business and are personally responsible for any debt accrued. With the exception of certain professions, such as law and accountancy, partnerships may be established between a maximum of 20 partners. Provided that investors are able to secure residency status and a work permit, foreign participation is legal.

Establishing a company with foreign shareholding requires a minimum share capital of $50,000 in order to receive a business permit from the Nigerian Investment Promotion Council (NIPC). In regulated sectors, the minimum share capital is higher; banks, for example, must have a minimum of $125 million.


According to KPMG, as of April 2015, there are currently 31 FTZs, though only 14 are fully operational. Foreign investors are able to set up businesses directly in FTZs without incorporating a company in the customs territory, and registered companies are also eligible to register separately and operate within an FTZ, provided they attach the FZE suffix to their name. Any businesses operating in an FTZ is offered the benefits of 1% capital and profit repatriation, exemption from federal, state, and local government taxes, and waivers on customs and import duties.


The legal basis for taxation on company profits is the Companies Income Tax Act (CITA), which established a tax rate of 30% on taxable profits. Nigerian companies are taxed on their worldwide income, though non-resident companies are only tax-liable for any profits deemed to be derived from Nigeria.

Capital allowances are claimable on qualifying capital expenditures in lieu of depreciation, though initial allowance is granted only within the first year of acquisition. Annual allowance is claimable yearly at defined rates over a specified period, and an investment allowance of 10% is granted with respect to capital expenditures on plant and equipment in the year of acquisition. Manufacturing and agro companies are allowed to claim 100% capital allowances, whereas other companies are restricted to claim a maximum two thirds of assessable profits, or accounting profits after adjustments for tax purposes. Additionally, KPMG notes that different rates apply for qualifying expenditures for both initial and annual capital allowances.

In terms of dividends, if a payout amounts to more than the taxable profit, the excess will be taxed at 30% as if the dividend is the taxable profits of the company.

According to KPMG, personal income taxes are regulated under the 2011 Personal Income Tax Act (PITA), which stipulates that an employer deduct and remit its employees’ income tax under the pay-as-you-earn (PAYE) scheme. Employees are taxed if the employer is in Nigeria, unless the job is wholly performed and the remuneration paid outside of Nigeria. PITA outlines that personal income tax rates are determined on a graduated scale, and there is a non-taxable personal relief of 20%. The marginal tax rate is 19.2%.

Value-added tax is collected at a flat rate of 5%, except for those exempted or zero-rated under PITA. For oil and gas companies and specific government agencies, it is required that VAT be paid on purchases directly to the FIRS and not to vendors. Non-resident companies operating in Nigeria only need to register for VAT with the local address of its local affiliate. In turn, the local company must pay the VAT directly to the FIRS, rather than pay it to the non-resident company.

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