Nigeria is the biggest economy in Africa and shows the fastest growth prospects than any other African country. Services sector accounts for nearly 50% of total GDP, with Information and Communication services at the top. There are also excellent opportunities in Wholesale & Retail services, Financial & Insurance services for global businesses in Nigeria.
Any business entity looking to expand in a foreign jurisdiction like Nigeria will need to choose between establishing a new company or acquiring an existing company. The high-level political commitment to improving business levels favors setting up a subsidiary in Nigeria and carrying out business as a distinct legal entity.
Incorporation of foreign subsidiary in Nigeria can be based on common business structures like sole proprietorship, partnerships, incorporated trustees and companies. The choice of business structure will determine the taxation and legal obligations of a subsidiary in Nigeria.
Here we will discuss the ease with which a foreign entity can locally incorporate a Nigerian subsidiary as a distinct legal entity and include a checklist for incorporation of foreign subsidiary in Nigeria.
What are the Types of Subsidiaries in Nigeria
The following are the business types that may be formed with CAC in Nigeria, according to the CAMA2020, the Companies Regulations 2021 and CAC 1:1.
Company: In Nigeria, companies are classified into four categories:
- Private company limited by shares: Members’ obligation is restricted to the number of unpaid dividends (if any) on the number of shares they own. Thus, shareholders are free of debt if their claims are entirely paid up. It establishes a blanket such that the corporation is responsible for all obligations committed in the case of insolvency.
- Public company limited by shares: Shareholders’ responsibility is restricted to the amount owed on the number of unpaid shares.
- Company limited by guarantee: Members’ liability is restricted to the amount they have agreed to contribute to the company’s assets if it is liquidated and for repaying its debts.
- Unlimited company: At the time of dissolution of the business, the responsibility of members who have signed the memorandum of association (i.e., elected to be shareholders) has no limit. Hence, if the company’s assets are inadequate to pay off the obligations, the shareholder’s assets might be sold to balance the remaining debt.
- Limited liability partnership: An LLP allows you to form a partnership and imparts the partnership as a separate legal entity. The partnership firm uses a common seal (optional) and participates in any other authorized activity that a corporate body can. As a result, it can sue and be sued in its name, acquire, possess, hold, develop, and dispose of immovable or movable property.
- Limited partnership: A limited partnership, according to CAMA 2020, consists of one or more general partners who are accountable for the firm’s debts, responsibilities, and limited partners. Whereas the general partners’ commitment is infinite, the limited partners’ liability is limited to the amount they contributed or committed to contributing.
How to Set Up Subsidiaries in Nigeria?
Setting up a subsidiary in Nigeria involves multiple steps and documentation. The setup process starts with finding the ideal business location and the type of subsidiary structure for your business.
To set up a subsidiary business in Nigeria, you must follow the steps given below:
Step 1: Registering at the CAC:
- The first step to subsidiary company formation in Nigeria is to check whether the chosen name is available at the Corporate Affairs Commission (CAC). it ensures that there are no two companies with the same name.
- Once an available name is finalized, the CAC issues a certificate of name reservation. This certificate is valid for 60 days. It enables companies to move to the next step.
- After obtaining the name reservation certificate, it is time to submit the application along with all the required documents. The required documents include the memorandum and articles of association.
- Here is a list of other information required while applying:
- The company type
- Registered address of the company
- Nature of business of the company and objective
- Minimum share capital
- Particulars of the proposed shareholders.
Step 2: CAC Approval
- The CAC verifies all the information submitted by the holding companies.
- A filing fee and stamp duty is charged. It is calculated as 0.75% of the minimum issued share capital.
- Once the CAC has verified all the information and is satisfied with the documents, they will issue a certificate of incorporation.
- The certificate of incorporation makes the company a legal entity authorized to start working in Nigeria.
- The Federal Inland Revenue Services (FIRS) issues a Tax Identification Number to the registered company.
- While filing taxes in the future, the TIN acts as a unique identifier for the company.
Step 3: Registering with the Nigerian Investment Promotion Commission (NIPC)
- It is mandatory for CAC-incorporated companies to register with NIPC before starting work.
- The NIPC encourages, promotes, and coordinates investment in Nigeria. It also grants incentives like pioneer status or more to appropriate companies.
- Here is the procedure to follow while registering at the NIPC:
- Filing the application form
- Presenting details of shareholders and directors of the company.
- Paying the official fee
- After the NIPC has verified all the details, they provide a Certificate of Business Registration to the company.
Step 4: For foreign wholly-owned companies
- A foreign wholly-owned company requires a work permit to work in Nigeria. The Nigerian Ministry of Interior and Expatriate Quota issues a business permit.
- The Combined Expatriate Residence Permit and Aliens Card (CERPAC) allows the employees of the company to reside and work in Nigeria.
Step 5: Obtaining a Certificate of Capital Importation (CCI)
- The company requires a CCI from an authorized dealer like a local bank as evidence of importation of capital in the form of equity, debt, cash, or goods in Nigeria.
- The CCI also ensures unconditional repatriation of capital and profits out of the country.
Step 6: Other Requirements
- These requirements are not similar for every company. They vary on the basis of the sector of the Nigerian economy in which the company wants to operate.
- Licenses or registration at some of these agencies is additionally required for various sectors of the Nigerian economy:
- – National Agency for Food and Drug Administration and Control (NAFDAC)
- – Central Bank of Nigeria (CBN)
- – Nigerian Communication Commission (NCC)
- – Nigerian Electricity and Regulatory Commission (NERC)
- – Nigerian Civil Aviation Authority (NCAA)
- – Nigerian Maritime Administration and Safety Agency (NIMASA)
- Miscellaneous compliance for foreign subsidiary in Nigeria:
- The foreign holding companies are required to pay a fee to the CAC and stamp duty to the Federal Revenue Service (FIRS).
- The share capital is required to be at least N10,000,000 for a foreign-owned subsidiary company.
- While registering the company, the capital is not required to be paid. The filing fees and incorporation fees are to be paid.
- Once the filing fee is paid, the statutory forms are filled and submitted with the proof of payment and other requirements to the Corporate Affairs Commission.
Benefits of Setting Up a Nigerian Subsidiary
Some of the significant advantages of setting up a subsidiary in Nigeria are:
- Access to new markets: A subsidiary formation gives access to new markets for the products and services. A foreign subsidiary company can form new commercial partnerships with local businesses and start joint ventures to take advantage of regional knowledge in a foreign nation.
- Offset the losses with the profits earned: The profits of its subsidiaries can offset a parent company’s expected losses. The usage of the subsidiary assets as a financial obligation shield is the ultimate benefit.
- Division of risks and losses: Both the subsidiary and the parent firm divide the risk of losses, challenges, and responsibilities.
- Division of operations among different subsidiaries: When a company’s size grows, it frequently engages in related and unrelated diversification. Subsidiaries aid in dividing operations into smaller firms based on common categories.
- Taxes are location-specific: The laws of the nation or state where a subsidiary is based govern it. It has a unique tax ID and pays taxes based on its classification.
- Innovate new products/services: Subsidiary firms can help the parent company in performing experiments and innovations in their products/services. They can sell and create different organizational structures, production processes, and product categories for testing the market and incase of failures the subsidiaries can be shut down easily.
- Increased revenue and growth options: Entering a new market allows businesses to achieve rapid growth and increased revenues which isn’t always possible in one’s own country, especially if the native market is saturated with competitors.
- Easy loans at lower interest rates: When the parent company has the financial strength, it may typically apply for loans at a cheaper interest rate for its subsidiary firms.
Documents to Prepare When Opening a Subsidiary in Nigeria
Documents required to be submitted at the Corporate Affairs Commission (CAC) for setting up a subsidiary in Nigeria are:
- Articles of association, duly signed and stamped
- Memorandum of Association, duly signed and stamped
- Two original application forms for the company registration containing the following list:
- Registered office address
- Details of the authorized share capital
- Details of the directors and their acting consent
- Identity proofs of every director and shareholder
- Work permit and expatriate Quotas
What Business Forms Can the Nigerian Subsidiaries Take?
Primarily there are two types of subsidiary companies in Nigeria: partly owned and wholly-owned.
In a partially-owned subsidiary, the parent firm holds 50% or more but not 100% of the shares in the holding company. Hence, the parent firm does not have complete control over the subsidiary company. On the other hand, the parent firm owns and controls 100% of the shares and control of the wholly-owned subsidiary.
Nigerian Subsidiary Laws
Nigeria’s subsidiary laws impose specific restrictions on LLCs for them to function. For example, any nationality is required for at least two shareholders and two directors. The minimum share capital is $1.
However, the complete Nigeria subsidiary formation procedure costs almost $13,000. If a firm follows the country’s subsidiary rules in every step of the process, it should take roughly six weeks to form.
Post Incorporation Compliance
It is important to remember that setting up a business in Nigeria is getting more accessible because the Corporate Affairs Commission (CAC) is actively trying to enhance the ease of doing business in Nigeria.
However, after the incorporation of a foreign subsidiary in Nigeria, you must also fulfill the necessary post-incorporation registrations.
- All firms registered and operating in Nigeria must register for the Value-Added Tax and Companies Income Tax.
- Registration with the Nigerian Investment Promotion Commission (NIPC). The NIPC is the Federal Government’s investment promotion agency, and it’s in charge of keeping track of foreign investments in Nigeria.
- The Money Laundering (Prohibition) Act and the AML/CFT Regulations for Designated Non-Financial Businesses and Professions in Nigeria require the registration of the Special Control Unit against Money Laundering (SCUML). This registration is completed at the Economic and Financial Crimes Commission (EFCC). It is required for opening a bank account.
- The Financial Reporting Council (FRC) requires all firms and professionals engaged in the financial reporting process to register.
- The Ministry of the Interior demands that all corporations get a business permit.
- As part of the statutory obligations the following compliances are required:
- All firms must register for the Contributory Pension Scheme and hence should make contributions to the retirement savings account of the employees.
- The organizations have an obligation to have training programs for their employees, and contribute 1% of the annual payroll to the industrial training fund.
- The organizations are obligated to make payment of 1% of the total monthly payroll in the Employee Compensation Fund so that an employee can guarantee adequate and prompt compensation payment in the event of any injury, disability or death caused at the place of work.
Taxes on Subsidiaries in Nigeria
Subsidiary businesses in Nigeria must maintain their financial accounts, submit their tax reports, and pay income tax on earnings. However, in rare cases, the law allows subsidiaries to diverge from these criteria.
The Nigerian corporate tax rate is 30% of the profits earned. Furthermore, 2% of the accumulated profits are deducted from the tertiary education fund.
Tax Incentives for Businesses Setting Up a Subsidiary in Nigeria
Setting up a subsidiary in Nigeria has several tax benefits, including tax-free dividends and pass-through taxation.
Any revenue generated by the different assets can be distributed to the individual owners via the holding company (tax-free dividends). The owners can then declare it on their tax returns (pass-through taxation).
If the holding company is appropriately organized, it can avoid double taxation. Some other tax incentives are as follows:
- Businesses set up in economically backward areas are exempt from paying taxes for five to seven years. However, this tax concession is possible only if they are considered beneficial for the Nigerian Economy by its government.
- Up to 120% of the tax relief is allowed for research and development in Nigeria. The place for research and development should be Nigeria and should be conducted by income generating businesses in Nigeria.
- Up to 30% of tax concession if the business utilizes local raw materials. This concession is provided for five years maximum.
- Businesses employing local labor are provided with a 15% tax concession for five years provided they are employing more than 1000 employees in their organization. If the organization is employing 100 employees they would be provided with a tax concession of 6% which would increase with their increase in the number of employees.
- Companies get a 10% tax concession for five years for manufacturing locally. This is especially for engineering industries for encouraging local production instead of assembly of parts.
- Companies get a 2% tax concession on the cost of training the local people for five years.
Other Important Considerations
Other essential requirements and obligations for setting up a foreign subsidiary in Nigeria are:
- You must pay the CAC filing fee and stamp duty to the Federal Inland Revenue Service (FIRS)
- Every foreign-owned subsidiary must have a minimum share capital of N10,000,000.00 (ten million Naira). This capital need not be paid up or delivered at the company’s registration. At the time of company registration, only filing costs and professional fees for incorporation must be paid.
- You must submit the payment of proof and statutory forms to the CAC.
How Multiplier’s Employer of Record Can Help You Hire & Expand in Nigeria?
With a strategic geographic & market location, large & growing population and over two decades of political stability, Nigeria is an attractive business destination in West Africa.
Registering a subsidiary in Nigeria is the one way a foreign entity can get recognized as a distinct authorized entity and legally run a business. The other way is to collaborate with a third party EOR like Multiplier
Multiplier manages all aspects of employment, payroll and related HR services compliantly. We offer tailor-made solutions for Small & Medium Enterprises like Employment contract generation, Payroll, multi-currency payments, multi-country payroll, insurance & benefits, ESOPs for startups, cryptocurrency for freelancers.
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