Nigeria's legal framework and the rules and regulations for doing business

Some of the relevant laws regulating corporate business in Nigeria include the following:

• The Companies and Allied Matters Act CAP C20, Laws of the Federation of Nigeria (LFN) 2004;
• The National Office of Technology Acquisition and Promotion Act CAP N62, LFN 2004 (NOTAP Act);
• The Companies Income (Amendment) Tax Act 2007
• Capital Gains Tax Act CAP C1,

LFN 2004 The Notap Act

This Act established the National Office of Technology Acquisition and Promotion (NOTAP), which facilitates the flow of foreign technology into Nigeria.

NOTAP also registers all contracts for the transfer of technology to Nigerian partners and seeks to promote locally generated technologies.

The NOTAP Act specifies the types of agreements that must be registered with NOTAP. These include the use of trademarks, the right to use patented inventions, and the supply of technical expertise, engineering and machinery.

The Act further stipulates various scenarios in which an agreement will not be registered, such as where the technology to be transferred is freely available in Nigeria; where the consideration is not commensurate with the technology acquired or to be acquired; and others as listed in the Act. In addition, contracts or agreement in which the transferee is obliged to submit to foreign jurisdiction in the case of any controversy arising from the contract or agreement, such agreement will not be registered.

It is important to add that the same NOTAP Act includes the following language: “Notwithstanding the foregoing provisions of this Section, in any case where the Council [of State] is satisfied that it would be in the national interest so to do, it may direct the director to issue a certificate to an applicant notwithstanding any convergence between the terms and conditions of a contractor agreement and the specifications laid down in subsection (2) of this Section.” Therefore, it appears that NOTAP, through its Governing Council and at its discretion, may accept an agreement for registration notwithstanding certain provisions that appear to be contrary to the NOTAP Act. An application for registration may be made where the project contemplated is considered to be in the national interest.

It is also pertinent to note that where the parties, on the advice of the director and subsequent to a refusal to issue a certificate of registration, make required adjustments in respect of any contract or agreement or terms and conditions thereof, the director may issue the requisite certificate of registration.

In practice, we have discovered that even in circumstances where a Technical Assistance Agreement seems to comply with all the requirements of the NOTAP Act, that the director-general may still impose additional requirements or insist on additions to such an agreement.

In the reverse situation, where some provisions of an agreement appear to be in contravention of any of the provisions on non-registration, the director-general may sometimes overlook such a provision. For example, we are aware that agreements governed by foreign laws have been registered with NOTAP in the past.

The CITA

This Act provides for the imposition of tax on companies, and that tax shall be payable, for each year of assessment, at specified rates on the profits of any company, accruing in, derived from, brought into or received in Nigeria.

Companies Income Tax is chargeable at a rate of 30% of a company’s profits. Newly registered companies have up to 18 months after registration, or no later than six months after the end of the first accounting period, whichever is earlier, to file tax returns.

In addition to the above, the Act mandates a person (i.e. a body corporate or incorporate, government ministry, department etc) to deduct at source withholding tax at the rates specified (see chart), to remit the tax deduction to the relevant office of the Federal Inland Revenue Service and to issue a receipt for the tax so deducted.

The receipt should contain information including the nature of service or activity in respect of which payment was made, the gross amount paid or payable, the amount of tax deducted and the period to which the payment relates. The receipt is evidence of tax deduction upon which a company from whom tax is deducted may claim tax credit for the tax so deducted from the relevant tax authority.

Currently, the rates of withholding taxes that are to be deducted at sources are between 5% and 10%. Such rates may vary depending on the type of payments for which withholding tax is deductible.

It is worthy of note that non-resident companies are subject to withholding tax deductions on the income they earn from Nigeria.

Capital Gains Tax

The Capital Gains Tax Act regulates capital gains tax in Nigeria. Capital gains tax is payable on gains that accrue to any person on a disposal of assets for the year of assessment.

The tax is chargeable on all forms of property (including options, debts, incorporeal etc) whether or not it is situate in Nigeria. It is, however, useful to state that capital gains tax will be charged on assets situated outside Nigeria if any amount thereof is received or brought into Nigeria.

The rate of capital gains tax is 10%. Capital gains tax is not chargeable on gains arising from the acquisition of the shares of a company that is either taken over, absorbed or merged.

The following organisations and government bodies are exempt from paying capital gains:

• Ecclesiastical, charitable or educational institutions of a public character;
• Any statutory or registered friendly society;
• Any cooperative society under the cooperative societies law of any state;
• Any trade union registered under the Trade Unions Act; and
• Local government councils.

Value-Added Tax Act

This Act requires companies to pay taxes on goods and services which are consumed by individuals, corporate organisations and others. Value-added tax is charged at a rate of 5% on the value of all goods and services except for certain excepted goods and services, as well as “zero-rated” goods, the latter having been listed in the Act as non-oil exports, goods and services purchased by diplomats, and goods purchased for Nigeria in humanitarian projects.

Labour Law

The main law that governs the labour sector in Nigeria is the Labour Act. The Act, however, is limited in scope to persons who are defined as “workers” – i.e. persons who do not exercise any administrative, executive, technical or professional functions; in other words, the Act is only applicable to junior level workers performing manual labour or clerical duties.

The employment of all other professional employees is governed by their individual contracts of employments and policies and procedures of the company incorporated by reference to their respective contracts of employment. Trade Unions: The formation, registration and organisation of trade unions in Nigeria is regulated by the Trade Unions Act. This Act amended the Trade Unions Acts of 1978 and 1996 as amended, and further liberalised the labour movement and trade unionism in Nigeria, for example by granting employees the freedom to decide which unions they wish to join.

It is pertinent to mention that the Trade Unions Amendment Act of 2005 does not replace the principal Act, which is known as the Trade Union Act, but rather supplements and amends it. Some affected areas include the following: Voluntarism: Membership of trade unions by employees shall be voluntary, and no employee shall be forced to join a trade union or be victimised for refusing to join or to remain a member. Payment of dues: Trade Unions shall pay to the appropriate registered federation of trade unions such sums as may from time to time be specified in the constitution of the registered federation of trade union concerned. These payments shall be made from contributions received from the members of the trade union. Ban on strike or lock-out : No person, trade union or employer shall take part in a strike or lock-out or engage in any conduct in contemplation or furtherance of a strike or lock-out unless the following conditions have been met:

• The person, trade union or employer is not engaged in the provision of essential services.
• The strike or lock-out concerns a labour dispute that constitutes a dispute of right.
• The strike or lock-out concerns a dispute arising from a collective and fundamental breach of an employment contract or collective agreement on the part of an employee, employer or trade union.
• The provisions for arbitration in the Trade Disputes Act Cap 432 1990 have first been complied with.
• In the case of an employee or a trade union, a ballot has been conducted in accordance with the rules and constitution of the trade union at which a simple majority of all registered members voted to go on strike.

Trade Disputes: The Trade Disputes Act regulates the settlement of trade disputes and makes it unlawful for any person to commence an action which concerns a trade dispute, or a dispute between unions or within a trade union, in a court of law, breach of which renders the offender liable to a fine, imprisonment or both. The exclusive jurisdiction for matters involving trade disputes rests with the National Industrial Court, which was established by the National Industrial Court Act 2006.

Employee safety in the workplace: The Factories Act and the Employees’ Compensation Act (ECA) seek to protect employees working in potentially hazardous conditions and to regulate the payment of compensation to employees who are injured in the course of their employment.

The Factories Act requires factories whose employees are exposed to occupational hazards to be registered and also provides regulations for the safety of workers, as well as imposing penalties for any breaches of the regulations.

The ECA stipulates a specific set of categories of workplace injury for which an employer will be liable to the employee; it also regulates the payment of compensation to those employees (both in the public and private sectors) who are injured in the course of their employment.

Finally, the ECA establishes the Employees’ Compensation Fund, into which employers are required to make prescribed contributions. The fund is managed by the Management Board of the Nigeria Social Insurance Trust Fund, in the interest of employees and employers.

Foreign Investment

The laws regulating foreign investment in Nigeria include:

• The Nigerian Investment Promotion Commission (NIPC) Act, CAP N117, LFN 2004 (NIPC Act); and
• The Foreign Exchange (Monitoring & Miscellaneous Provisions) Act, CAP F34, LFN 2004 (Forex Act).

The NIPC was established as by the NIPC Act as a “one-stop” agency that coordinates all investment promotion activities in Nigeria.

Repatriation of funds by investors: The NIPC Act guarantees that foreign investors are able to transfer their capital, profits and dividends (less 10% withholding tax) attributable to their investments, in any convertible currency unconditionally through an authorised dealer.

Funds can be repatriated abroad to the place from which they were imported to Nigeria through the appropriate channels, and a Certificate of Capital Importation (CCI) is then issued to the importer of the funds. However, the funds must have been imported for the purpose of investment in a lawful enterprise.

The Forex Act provides that no foreign currency imported into Nigeria will be seized, forfeited or expropriatezd by the government except as provided under the Act. Investments made in foreign currency are imported through an authorised dealer and converted into naira at the official exchange rate. The authorised dealer subsequently issues a CCI to the investor as evidence of the capital importation.

The CCI guarantees to the shareholders and investors the unconditional transfer or repatriation of their profits, dividends, etc which are attributable to their investment through the Nigerian banks overseas.

Public-private partnerships: Due to the growing demand for infrastructural development, partnerships with the private sector have become an increasingly viable option to successive governments, both at the state and federal levels.

As a result, in recent years legislation has been enacted to regulate the participation of the private sector in the development and maintenance of public infrastructure.

In the state of Lagos, for example, the Lagos State Public-Private Partnership Law 2011 (PPP Law) established the Office of Public-Private Partnerships (PPP Office) and promotes infrastructural and service development in Lagos State. The PPP Office is charged with initiating the procurement of PPPs for the development of public infrastructure and public assets by conducting a pre-qualification process for private investors who are interested in entering PPP arrangements with the state.

The PPP Office also determines the framework for the engagement of consultants, specialists and advisers for PPPs. Several States in Nigeria have followed the example of Lagos in enacting similar laws.

Pension Regime

The Pension Reform Act 2004 (“the 2004 Act”) has been repealed by the new Pension Reform Act 2014 (“the 2014 Act”).

Like its predecessor, the 2014 Act governs and regulates the administration of the Contributory Pension Scheme (“the Scheme”) for both the public and private sectors in Nigeria. The commencement date was July 1, 2014.

Some of the significant changes introduced by the 2014 Act are discussed below.

Scope: The 2014 Act applies to employees of the public sector and private organisations in which there are 15 or more employees. It has therefore increased the threshold of the minimum number of employees at which mandatory contributions are required under the Scheme.

The 2014 Act also provides that in cases where a private organisation employs less than three employees, participation in the Scheme shall be governed by guidelines issued by the National Pension Commission.

It is important to note that the Act does not make provision for private organisations with more than three but less than 15 employees.

Contribution to the Scheme: Under the 2014 Act, the minimum contribution required to be made by employers and employees has been increased.

Both employers and employees are now required to make the following minimum contribution;

• Employers: 10%
• Employees: 8%

The 2014 Act also provides that employers may take full responsibility for the contribution to be made on behalf of an employee. In such a case, the contribution shall not be less than 20% of the employee’s monthly emolument. This is, however, higher than the combined contribution of 18% to be made in other cases by the employer and employee, which may arguably discourage employers from taking full responsibility for their employees.

Exemption from tax: Whereas the 2004 Act merely states that any amount payable as retirement benefits shall not be taxable, the 2014 Act clearly states that contributions shall be tax deductible and that “all interests, dividends, profits, investment and other income accruable to pension funds and assets” shall not be taxable.

Withdrawal from retirement savings accounts: The 2014 Act has introduced another instance in which a contributor is allowed to make withdrawals from his or her retirement account.

Where an employee “disengages” or “is disengaged” from employment before the age of 50 and has been unable to secure employment within six months, such an employee will be permitted to make withdrawals from his or her retirement account of an amount not exceeding 25% of the total amount that has been credited to the account.

Recognition of specific insurance bequest: Under the 2004 Act, the proceeds of an employee’s Life Policy Cover were paid into the deceased employee’s retirement savings account, which can often be difficult to access by the beneficiaries.

The 2014 Act, however, now allows payment to be made directly to a named beneficiary or beneficiaries. The employer is required to ensure that its employees provide their insurer with a list of intended beneficiaries.

Offences and penalties: As well as criminalising certain offences, the 2014 Act has also criminalised the attempt to commit an offence, on which it imposes the same penalty as the offence itself.

The penalties for misappropriation have also been increased. As well as a prison term of 10 years, and a fine of three times the amount misappropriated, the convicted person is now also required to refund the amount misappropriated as well as forfeit any property, asset or fund, together with interest, or the proceeds of any unlawful activity under the Act, to the federal government.

In addition to this, the Act imposes a penalty of at least NGN10m ($61,000) upon conviction where a pension fund custodian fails to hold the funds to the exclusive preserve of the Pension Fund Administrator and Pension Commission, or where it applies the funds to meet its own financial obligations. Such a penalty will upon conviction be N5m ($30,500) in the case of a director or a term of five years imprisonment or both.

Privatisations

The Public Enterprises Act was enacted in 1998 and provides for privatisation and commercialisation of certain public enterprises. It also established the National Council on Privatisation (“the Council”) and the Bureau of Public Enterprises (BPE). The Act provides that enterprises listed in Part I of the First Schedule shall be partially privatised while the enterprises listed in Part II of the First Schedule shall be fully privatised in accordance with the provisions of the Act.

The Act provides that the mode of privatisation shall be either by public issue or private placement; and for the further divestment of Federal Government shares .

An annual report on privatisation and commercialisation of public enterprises shall be prepared and submitted to the president not later than June 30 of each year.

The functions of the BPE include privatisation, commercialisation and the provision of secretarial support to the Council. The powers of BPE include the power to acquire, hold and manage movable and immovable property, and to enter into contracts or partnerships with any company, firm or person which in its opinion will facilitate the discharge of its functions.

A subsidiary legislation made pursuant to this Act provides that 51% of government shares in enterprises that are to be privatised may be offered to core investors, while the staff of the public enterprises to be privatised may have up to 10% of the shares that are to be offered for sale to the public reserved for them.

Telecommunications

The current focus of telecommunications law, practice and regulation in Nigeria is on the quality of service, the creation of an equal playing field, and the encouragement of healthy competition among private providers. Competition has put enormous pressure on the operators, who are now constantly upgrading their infrastructure with the aim of improving coverage and quality (albeit not always successfully). Liberalisation: With the benefit of hindsight, it is now clear that the Nigerian government introduced competition into the telecommunications sector by the enactment of the Nigerian Communications Act of 1992, while establishing the Nigerian Communications Commission (NCC) with the mandate to create a regulatory environment for the supply of telecommunications services and the facilitation of the entry into the market of persons wishing to supply such services. The Act permits private sector participation in several of the deregulated telecommunications undertakings including the operation of public pay phones, the operation of public mobile communications and the operation of community telephony.

The Nigerian Communications Commission (Amendment) Act 1998 (NCA) further deregulated the sector by removing previously existing barriers to entry into the sector by foreigners.

The privatisation of government-owned corporations that were providing public services led to the creation of the NCC. This was followed by separation of the NCC from the operators. Thereafter, the government embarked on the opening of the telecommunications market to various operators to promote competition.

The federal government took additional steps to increase competition in the telecommunications sector by advertising for parties to express interest in the second network operator licence and the grants of digital mobile licences to three operators with provisions for international gateway services. The recent introduction of the Strategic Management Plan by the NCC is geared towards areas such as last-mile access, a planned push for e-government services and the roll-out of further telecoms services in the rural areas.

In an era of trade liberalisation in Nigeria, the NCA represents the needed progressive law that gives the NCC, as a regulator, the absolute power, devoid of government or other external interferences, to regulate the telecommunications industry in accordance with best global practices as enshrined by the International Telecommunication Union of the UN and other regional telecommunications regulatory bodies.

Therefore, the NCC’s policy currently guarantees a safe market for foreign investors so that they can invest in Nigeria with the assurance that the law will protect their investment. Telecommunications Facilities Bill: The purpose of the Telecommunications Facilities (Lawful Interception of Information) Bill 2010 is to ensure that telecommunications service providers can enable national security and law enforcement agencies to exercise their authority to intercept communications, and to require service providers to provide subscriber and other information, without unreasonable impairment.

It also concerns matters relating to:

• The privacy of individuals;
• The provision of telecommunications services to Nigerian citizens; or
• The competitiveness of the Nigerian telecommunications industry.

In addition, telecommunications service providers under the bill are obliged to acquire and install equipment or apparatus for the purpose of facilitating the interception of communications. The only exception is a telecommunications service provider which has fewer than 100,000 subscribers.

The following activities and service providers are excluded from the scope of application of the bill:

• A telecommunications service intended principally for the use of its provider and the provider's household or employees, and not by the public;
• Telecommunications service providers that also provide broadcasting undertakings, as defined in the Broadcasting Act; and
• Telecommunications service providers whose principal function is operating:
  1. A registered charity within the meaning of that expression in the Income Tax Act (other than any service provider in a class listed in Schedule 2 of the bill);
  2. An educational institution, other than a post-secondary institution; and
  3. A hospital, a place of worship, a retirement home or telecommunications services that are provided ancillary to their principal function.

If enacted, these laws will empower various security agencies to intercept phone calls, emails and telegraphic communications, as well as prohibit certain telecommunication services which cannot be monitored.

Opportunities in the Telecoms Sector: Nigerian operators can also tap into cloud services, since these will enjoy strong growth, with revenue expected to grow to $245m in 2017, up from just $72m in 2011. Reports from experts in the telecommunications business also show that a moderate growth is expected of 3.7% in local currency terms, which is equivalent to 1.6% in dollar terms.

Furthermore, for operators who diversify their services, the mobile broadband segment is expected to grow at a compound annual growth rate of 28.1%, and mobile services in the country are expected to benefit handsomely from this development. With such a fast pace of growth for the market, an increase in congestion and a decrease in service quality is a concern for the regulator, which is expected to take further steps to ensure that subscribers are provided with the best of service.

Much attention must be paid to the pay-TV sector, which will be a bright spot for the fixed sector and is expected to grow from $788m in 2012 to $914m by 2017.

Many opportunities also exist in network expansion, improving quality of service and infrastructure development.

Cyber-Security & E-Commerce

In recent years, increasing internet access and mobile connectivity in Nigeria has seen a market for electronic commerce emerge as one of the most important applications on the internet. Consequently, there has been increasing recognition of the need for regulation not only specific to electronic commerce but also of cyberspace in general.

Cyber-security legislation and enforcement: According to the OECD, in its paper “Computer Related Criminality: Analysis of Legal Politics” of 1986, a computer-related crime is considered as “any illegal, unethical or unauthorised behaviour relating to the automatic processing and transmission of data”.

With the proliferation of computers, digitised equipment and electronic data processing apparatuses in the last 25 years, Nigeria has witnessed introduction of two major bills to the federal legislature towards creating a veritable cyber-security law as follows:

• The Cyber Security Bill of 2011; and
• The Cyber Security Bill of 2013.

These two bills make provisions regulating cyber-crime in general which are similar to international legislation, such as the Council of Europe Recommendation No. R (87) 15 of 1987, the Recommendation No. R (89) 9 approved by the European Committee of Ministers of the Council of Europe on September 13, 1989, and the report by the European Committee on Crime Problems, “Computer-related Crime”, which was published in 1990.

The Cyber Security Bill of 2011: Part 1 of the 2011 bill deals with the general objectives, the scope of the bill and its application. It states that the objectives and scope of the bill are:

• To provide an effective, unified and comprehensive legal framework for the prohibition, prevention, detection, prosecution and punishment of cybercrimes in Nigeria; and
• To enhance cybersecurity and the protection of computer systems and networks, electronic communications, data and computer programs, intellectual property and privacy rights; and that
• The provisions of this Bill shall be enforced by law enforcement agencies in Nigeria to the extent of a given agency's statutory powers in relation to similar offences.

Part II of Bill (covering Sections 2-18), lists the following computer and computer-related offences:

• Unlawful access to a computer;
• Data forgery;
• Computer fraud;
• Identity theft and impersonation;
• Child pornography;
• Unauthorised records retention and preservation;
• Unlawful interception;
• Cybersquatting;
• Cyberterrorism; and
• Racist and xenophobic offences;

The Cyber Security Bill 2013: The aim of this bill is:

• To provide an effective and unified legal, regulatory and institutional framework for the prohibition, prevention, detection, prosecution and punishment of cybercrimes in Nigeria;
• To ensure the protection of critical national information infrastructure; and
• To promote cybersecurity and the protection of computer systems and networks, electronic communications, data and computer programs, intellectual property, and privacy rights.

Part II of this bill provides for the protection of critical national information infrastructure. It contains provisions that designate certain computer systems or networks as critical national information infrastructure. It also provides for audit and inspection of critical national information infrastructure.

The Bill also provides for the establishment of the Cybercrime Advisory Council, (“the Council”) which shall be comprised of a representative of each of the ministries and agencies listed under the Schedule to the Act .

Part VII (covering Sections 33-39) provides for jurisdiction and international cooperation. The Federal High Court has jurisdiction. It also provides for extradition. The attorney general is authorised to make requests for mutual assistance from a foreign state. It makes provision for judicial notice of records of proceedings from a foreign state. It makes provisions for the form of request to a foreign state, and allows for the federal attorney general to expedite the preservation of computer data upon request. Finally, the attorney general must designate a contact point for compliance with provisions under the Act.

Electronic Commerce: The Electronic Commerce (Provision of Legal Recognition) Bill of 2008 is modelled after the UNCITRAL model law of 1996 on ecommerce and incorporates some of the provisions of the UNCITRAL Model Law on E-Commerce and ESignatures.

The Bill provides for the legal recognition of electronic commercial transactions where parties have, either expressly or by conduct, accepted a contract through electronic means; and that where there is such consent in the formation of contracts, the communication, acceptance and revocation of proposals may be expressed by electronic messages .

The requirements of writing, signature and affixation of seals are deemed to be complied with when done electronically.

General Observations:  This is a laudable provision which gives legal backing to the use of ICT for commercial transactions. However, to further adapt the law to the level of awareness and development in Nigeria, there is a need to include adequate provisions on consumer protection, especially in business-to-consumer transactions but also in businessto-business contracts.

Thus, requirements need to be put in place concerning the disclosure of the physical address of the seller of goods to which complaints by the buyer may be addressed, and regarding the mechanisms for addressing grievances relating to non-performance, defective performance and other customer complaints. Where possible, a verification or certification body also needs to be set up to ensure that consumer protection is safeguarded from the possibilities of fraudulent sellers who have no physical existence beyond their online email address or website.