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Essential Financial and Audit Services for Foreign-Owned Subsidiaries in Nigeria

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Tel: (+234) 802 320 0801, (+234) 807 576 5799)

E-Mail: enquiry@mocaccountants.com

Office Address: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria.

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Introduction

The substantial and dynamic business environment in Nigeria, which is influenced by regulatory challenges alongside economic fluctuations and diverse market demands for foreign-owned subsidiaries, has constituted the primary obstacle to their growth. The success of these subsidiaries in this setting necessitates the provision of strong financial and audit services that ensure compliance, promote transparency, and facilitate strategic development.
The report examines the fundamental financial and audit services required for foreign-owned subsidiaries in Nigeria, emphasizing their crucial role in ensuring operational excellence and competitiveness. The complete range of financial and audit services encompasses precise bookkeeping, financial reporting on an individual basis, independent audits, tax compliance, risk management, and governance practices.
These services not only aid businesses in maneuvering through the regulatory landscape but also offer essential insights that facilitate informed decision-making. By utilizing professional financial and accounting services, foreign companies can mitigate risk, enhance financial outcomes, and establish confidence among shareholders. This executive summary delineates the primary areas that foreign entities should focus on to guarantee enduring stability and success within the Nigerian economic and regulatory framework.

What is Audit

Audit is a defined process of examining and commentating on the financial records of an entity, which was previously agreed upon, undertaken by an authorized agent and which is not contrary to applicable law and regulation.

Let’s consider cases when some trusts funds are managed by others. In these circumstances, the accounts will have to be verified and a conclusion drafted on the performance of the trust relations.

There are accounts of stewardship whereby the directors accounts on how the investments or the assets of the company were managed for the shareholders, the end results of the stewardship in this case being the financial statements.

These include; Profit or Loss Account, Statements of Financial Position, Cash flows, Added Value and Director’s Report.

Generally, the audit originated under the principle of separating ownership and control in companies.

Stakeholder protection has now taken the first place at the governance structure of the company and for this purpose, the voice of the many Windows of the Board is important. Financial audits are now being carried out by qualified professionals who are specialists in the forensic examination of management’s financial reports and making conclusions about their accuracy and fairness.

In Nigeria under the Companies and Allied Matters Act CAPC20LFN2004, every public limited company has a regulatory obligation to perform an audit of their annual financial statement before dissemination to its members. Specifically, Section 357 (1) states the following; ‘There shall be an auditor at each annual general meeting of the company who shall be appointed to audit the company’s accounts.’ Other nation-states have similar laws which compel the auditing of public firms’ financial statements.

The audit appointed person (it may be a person who is a qualified member of a constitution-done professional accounting body duly licensed to practice and has not been disqualified by any law) is expected to give opinion on the accuracy and fair view of the accounts prepared by directors and presented to shareholders in an annual general meeting including the profit or loss account, statement of financial position, cash flow statement and value added statement all which would have been prepared by the directors and presented to the shareholders in an AGM.

Types of Audit Services

Financial Statement Audit

Financial statement audit establishes the fairness of presentation of the financial statements within a specific reporting framework including the applicable financial accounting standards. This type of audit usually involves the basic set of financial statement (statement financial position and statement of financial performance) serve as the criteria. Peer Review Guidelines from the American Psychological Association indicate that other financial statement audits may utilize different criteria, including BOFIA (Nigerian Bank audit) as one example.

Compliance Audit

A compliance audit is an evaluation of the manner in which policies, rules and regulations, laws, covenants or government regulation are adhered to by the company or the person being audited. For example, a company may have auditor determine within the organization. The corporate rules and policies serve as the criteria for measuring the departments’ compliance.

Operational Audit

An operational audit is the evaluation of an organization, or one of its subdivisions and or affiliated units regarding the use of resources efficiently and effectively.

An operational audit aims at reviewing performance, finding weaknesses, and making recommendations. This can also be called a performance audit or management operational audits. Operational audits are by far more challenging than financial statements audit or compliance audits because it is extremely easy. Measuring effectiveness or efficiency poses a great challenge. Therefore, some organizations seem to have started appreciating there are gains in operational auditing.

Forensic Audit

This is an audit of transaction or situation with the utmost intention of determining the nature, extent, involvement and impact of fraud. It includes identifying or determining a wide scope of activities associated with fraud. There has been an upsurge in harnessing auditors for forensic purposes mostly crime involving finance. A forensic audit may be needed in the following situations:

  • Employment or commercial fraud
  • Criminal executions
  • Conflict between shareholders and partners
  • Abuse in Business economy
  • Divorces and marital conflicts

For instance, during the audit engagement in business fraudulent activities, the task may involve the audit of tracing funds or assets on identification and recovery.

An employee fraud investigation may include the consideration of employee theft and/or embezzlement on assets using various methods. This is included even in separating the assets in divorcing portions through forensic audit.

Tax Audit

This is filing of tax returns by an individual or corporate body to ascertain whether the tax information filed and the amount of tax paid is accurate.

Information System Audit

This is concern with evaluation of controls surrounding software development, data processing and or access to computer controls. The purpose of such an audit is to identify any potential obstructions to the efficient functioning of IT systems in terms of provision of accurate information to its users and also restriction of access to unauthorized personnel.

Value for Money Audit

Within this particular audit exercise, the extent of the project’s compliance with economy, efficiency and effectiveness practices of the project is evaluated by the auditor. In terms of value for money of an audit, the following are details:

Economy: an audit assessment is done by the auditor to determine if any organization implements the resources available to the project, with respect to the principles of economy.

It is the project’s responsibility to formulate written procurement policies and procedures which are acceptable for projects and allows for the procurement process to incur the minimum expenses possible and still provide the necessary quality and quantity of goods and services.

Effectiveness: This review assesses whether resources are utilized effectively to obtain the expected output.

Efficiency: this is what always tends to come last during the project cycle. The last steps include the project purpose, its available funds, as well as its outcome measured by the auditor.

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The Goals of the Audit

The objectives of an audit are the first goals that an audit center strives to reach, and they can be categorized as:

The primary objective

The primary focus is expressing an opinion on an audited entity’s financial statements. The following question is posed. In the report, does the encasing institution fully disclose an investor-oriented framework in the development of which they wholly participate? It is expected that the financial statements accurately depict the entire industry and offer a fair evaluation of the individual’s entity’s within a specified time frame.

Secondary audit objectives:

Evading and detection Weightage for fraud, errors or the risk of fraud being committed or errors occurring within the transactions that would not be flagged up by the accounting records. • Weightage for fluctuations in practice and other irregularities and whether reporting on these is provided for within the accounting records.

The degree to which management embeds policies and practices, which manage risk throughout the organization, so that risk management is effective.

The assistive management in the deployment of an efficient auditing process within the enterprises.

The recommendatory functions about finance for improved management decisions.

Functorial confirmation functions that ascertain and protect the compliance enterprise to the statutory order and professional requirements. Moreover, Pension Advisory Services are also provided.

The Importance of Audit

Management and ownership separation Management separation and ownership integration are features distinct across various business organizations. The company merges ownership and management in that business managers (directors) as agents have the obligation to provide clients (the owners) information about the conduct of the enterprise.

The owners are interested to know if the account of stewardship has been prepared with any errors or otherwise misleading material in it.

Three methods will be used in order to increase the credibility of the information conveyed in financial reports.

The appointment of an independent person, referred to as an auditor, to investigate the report and express his opinion on it will increase the credibility of the financial statement.

Multinational entities complex reporting environment

Multinational companies have investment and investor been expanded across political boundaries, the preparation of accounts for such companies is complex since it encompasses various legislations, standards, conventions, policies and control systems. It is important that such accounts are inspected by outsiders who have knowledge and background in the analysis of financial statements because various statutes and accounting standards govern their use. This requirement can be secured if the audit is performed on the financial accounts.

Numerous shareholders

In most companies have many shareholders which will make it slightly difficult for them to do independent verification of the companies individually.

Numerous stakeholders

A number of interested parties use the information that is included in the financial statements in making decisions. Bankers, creditors, employers, prospects investors, etc all have a stake in the affairs of the company.

The independent audit requirement has the advantage of ensuring that those financial reports are impartial in order not to contain material misstatements while at the same time they are useful for the need of the users.

Fulfilment of the legal requirement

Different financial statements are required to adhere to different laws as well as standards. There is a legal obligation that all companies which are quoted in the stock exchange have to be accompanied with an audit opinion which is given by external auditors. Adherence to this requirement can only be guaranteed through an audit of the books of accounts.

Merits of Auditing

There is provision of conducting an audit in order to increase the reliability of detailed financial reports in question and give the relevant parties confidence in the actual truth as well as fairness for the said reports.

  • There is an element of auditing acts as a voluntary deterrent against fraud staff around the business in question
  • Disagreements amongst partners can be avoided to a larger extent especially where intricate profit-sharing schemes are in the picture. Independent examination of partnership accounts will ensure accurate assessment and division of the profits in question.
  • In the course of mergers or acquisitions, an audited financial statement offers a point of reference for price negotiation for business being targeted for acquisition or merger.
  • It is always prudent for banks and other financial institutions to assess loan/overdraft applications against certified audited financial statements of the borrower.
  • Tax authority is likely to recognize and accept any financial statement independently verified by a certified public accounting for tax purposes.
  • Such a statement allows to measure achievements of the potential investors able to have any effectiveness and credibility.
  • At least most recent past three (3) years’ audited financials is among the requisites for a company requesting to be listed on the Nigerian Stock Exchange.

Audit Hierarchical Order

Auditing is a more of a practice than a theory, and for this reason, audits can never be the same. Nonetheless, all audit work is governed by a procedure, as follows:

Stage One

As for this stage, the aim is to identify the history, and the system that is in place. The ways of accomplishing this aim include the following approaches:

  • Identifying business background and its current field of operations
  • Management that was chosen is Interviewed
  • A procedural manual and organizational structure are referred to

Stage Two

As for this stage, the aim is to establish the system that was studied as the one in use. This is done through:

  • Sight seeing
  • Doing some selected walk through the test of the transaction procession

Stage Three

The aim is to detail out the control systems, outlining their strengths and weaknesses. This is achieved by:

  • Answering questions in the internal control questionnaire that relate to the audit area under discussion
  • Assessment of compliance in practice

Stage Four

The focus is to measure the degree of weakness possessed by each operational area in relation to one another. The specific tasks to accomplish this are:

  • An internal control evaluation schedule but applicable after outlining the weakness
  • Management is given an analysis of the major weakness effect

Stage Five

Last but not least, the goal is to assure that the data that is up for account preparation processes is reliable.

Generally, the means of achieving this objective include:

  • Preparation of audit programme by providing detailed information about A-type material tests aimed at individual balances and level of testing of transactions and balances types.
  • Implementing such an audit programme through the application of a intensive testing approach.

Stage 6

The purpose here is to ascertain that the financial statements are consistent with the financial records that were utilized in drafting them. For effective performance of this stage, the following activities have been put in practice:

  • Preparation of the annual summaries of profit and loss accounts describing schedules and asset line amounts and cross snappiness to the balance sheet
  • Tracking changes in an asset from the last position to the current position and activities that occurred during that time.

Stage 7

The fourth stage is concerned with making a conclusion ‘true and fair’ or otherwise concerning the financial statements prepared and presented in that period. The accounting practices in this period stage could include:

  • Receiving a case opinion letter from the Chief officer of the institution
  • Finalizing review- audit of assets and liabilities
  • Undertake analytical review

Stage 8

The last phase is envisioned towards the presentation of the opinion on the audit report to the members. In this final stage, the listed tasks are performed by the auditor:

  • Studying the Main report of the Directors in draft form
  • Requires whether the qualification is needed
  • Prepare the closing audit report so that the accounts can be published.

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Statutory Audit Services

We define statutory audit as an independent examination of the financial statements of organizations. In fulfilling this role, the auditor’s role is to report on whether the financial statements issued by the organization are “true and fair” and whether they comply with other legal and regulatory requirements.

Statutory Audit Requirements

In Nigeria, small businesses are exempted from statutory audit, thanks to the Finance Act, 2020.By law, small businesses with a turnover of less than N25 million are now exempt from paying corporate tax, subject to timely filing of corporate tax returns and subsequent verification of their accounts.

The Companies and Allied Matters Act (CAMA) 2020 defines a small business as a private company that has an annual turnover and net asset value not exceeding N120,000,000 and N60,000,000 respectively, does not have foreigners as members and where the company has a share capital, the directors own at least 51% of the share capital.

Every other company must have its accounts audited by law.

However, a company exempted by law from having its financial statements audited by law may still need to have an audit carried out for the added value and assurance that the report provides.

Public interest organisations require statutory audits

Some companies, regardless of their size, are still subject to a statutory audit to ensure transparency and efficiency.

This includes: Banks or investment companies

Insurance companies

Brokerage firms

Public companies

NGOs Investment bankers

Pension fund administrators/custodians

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An exceptional statutory service audit, developing a deep understanding of individual businesses and providing proactive advice and information that goes beyond basic requirements.

We work to provide you with the benefits of auditing and the use of various re-execution auditing tools, calculations, links, substantive and compliance tests, review of controls and systems to obtain audit evidence. You are guaranteed to benefit from the best benefits and information.

Statutory requirement covering the sectors that ensure that, transactions are recorded in accordance with international financial reporting standards and are recorded with the relevant accounting heads. Goods and services are purchased in accordance with the law.

Regularity of transactions.

Verification of the keeping of books and accounting records.

Verification of bank reconciliation statements.

Verification of expenses by component, by category and account.

Verification of investments, short-term deposits, etc. carried out from time to time.

Verification of various taxes / legal compliance.

Verification of term deposit records and verification of interest received.

Check all legal records including minutes and ensure that the accounting effects of all decisions taken at the relevant board meetings/central committees or groups are reflected in the books of account.

Give a summary including all points/questions which are of high importance in nature.

Financial books

Verification of bank ledger journal, proof of advance.

Review of general ledger, advance notes of staff, comments on outstanding loan entries, etc.

Verification of cash, cash checks, etc. on December 31st of each year.

Verification of all computer vouchers and slips to ensure accurate coding and accounting. Reviewing the general ledger and verifying the income and expense statement, budget and other plans.

Verification of salary/consultant payments, etc., and verify the timely submission of various declarations to the competent authority.

Verification of all financial information in full, immediately and after the registration of the necessary authorization.

Full audit

The areas covered by a full audit may cover the comparison of the results presented in the financial statements of the current period with those of previous periods and, if any, with the budgets and forecasts, investment decisions, delegation of financial powers and management of information systems, organizational efficiency, management of equipment, installations and machinery, etc.

Accounting Policy and Standard

Review and assist management in implementing appropriate accounting procedures, internal controls and computerized systems.

Examination of accounts.

Verify that all entries recorded are in accordance with the accounting standard.

Improve the system

Report any deficiencies noted in the existing procedures and suggest improvements. Any duplication of work or unnecessary work or data noted will be highlighted and reported.

Audit Certificate/Audit Opinion -Audit Certificates and issue of any other certificates that may be required by the company from time to time without any additional cost to the Company.

Statement in the annual report/audit describing the work of the Company and reporting on the adequacy of the statements.

Compliance Review the compliance of previous audit objections raised (if any) and verify or comment on the supporting documents/evidence submitted at a later stage, to resolve the audit reservations in the statutory audit report of this engagement.

Report after completion of the audit, Submit the audit report for the audited accounts.

Prepare and file with the authorities the Company’s income tax return and also appear before the Income Tax Officer, on behalf of the Company, to obtain the necessary assessment orders, and also when the tax control measure is taken.

A Guide to Foreign Investors doing Business in Nigeria

Nigeria is recognized as a developing capitalist economy. While free enterprise predominates, there are significant sectors such as Electricity and Water that remain partially owned and controlled by the government. The majority of Nigeria’s economic activities take place in key metropolitan areas such as Abuja, Lagos, Kano, Onitsha, and Port Harcourt. The Oil and Gas sector serves as the primary export and revenue generator for the country.

In 1989, the Nigerian government allowed for 100% foreign ownership in any new venture, with the exception of those engaged in the production of arms and ammunition.

For every business owner aiming for successful enterprise, a sustainable and favorable business environment is of paramount importance and serves as a critical determining factor. In order for investors to choose a particular jurisdiction for establishing businesses, such jurisdiction must inevitably possess considerable potential to further their business objectives.

Nigeria boasts Africa’s largest economy, with a GDP of $477. 38 billion in 2023. As a major oil producer, Nigeria has a population exceeding 225 million individuals. Recently, the country has amended local company and tax laws to foster a more conducive business environment for both local and foreign business owners, which includes ratifying the African Continental Free Trade Area (AfCFTA) Agreement. This relatively recent development is designed to enhance the country’s appeal for foreign investments and establish profitable business opportunities for foreign investors in Nigeria.

Establishing a Business with Foreign Shareholding in Nigeria

According to Nigerian law, foreigners are permitted to own a new company in its entirety. The initial step toward foreign participation or ownership of a company in Nigeria involves identifying the partners/shareholders and their corresponding percentage shareholdings in the proposed company. Subsequently, the promoters of the company must determine the name of the proposed company, the initial authorized share capital, and the main objectives of the proposed company. Except in cases where the proposed company will be wholly owned by non-resident shareholders, the promoters should formulate a Joint-Venture Agreement among the prospective shareholders. The Joint-Venture agreement may specify, among other things, the mode of subscription by the parties, the manner of Board Composition, mutually protective quorum for meetings, and specific actions that would necessitate shareholders’ approval by special or other resolutions.

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Types of companies that can be set up in Nigeria

Multiple types of companies may be established in Nigeria based on the intended purpose of the establishment. Nonetheless, the most frequently utilized or established company type in Nigeria for profit-oriented commercial operations is either Private or Public companies, wherein the liability of each member is limited by shares.

From our experience over approximately a decade, the type of company registration that is most appropriate for the majority of foreign investors with their intended businesses is a private company limited by shares, which will be registered at the Corporate Affairs Commission (CAC).

The initial step towards the incorporation of the new company is to perform a search to ascertain the availability of the proposed company name and, if it is available, to reserve the name with the Corporate Affairs Commission (CAC). Subsequently, the Nigerian solicitor would facilitate the payment of stamp duties, CAC filing fees, and process as well as finalize the registration of the company as a legal entity.

Requirements for the Registration of a Private Company in Nigeria

Outlined below are the prerequisites for the registration of a private company limited by shares in Nigeria;

Two proposed names according to preference:

Object of the company: This refers to the nature of business that the owners intend for the newly established company to engage in within Nigeria.

Registered office address:

Details of Directors of the newly formed company:

Details of Secretary:

Proposed Share Capital of the Company: In accordance with Nigerian law, the minimum share capital for companies owned partially or wholly by foreigners is now N 100, 000, 000. 00 (One Hundred Million Naira).

Details of Shareholders/Subscribers and the amount of shares allotted by the company.

The names, addresses, occupations, email addresses, phone numbers, and nationalities of the natural or legal persons (individual or company) who are intended shareholders of the Company.

Copies of the information page of the international passport or national identity card of the shareholders/directors;

In instances where another company would act as a shareholder in the new company, a copy of the certificate of registration of the company in the jurisdiction in which it is registered will be required;

In the event that another company would serve as a shareholder or subscriber to the memorandum and articles of association, a duly signed and sealed resolution authorizing the subscription of shares of the new company will be necessary;

A scanned signature of the shareholders/representatives (in cases where a company serves as the shareholder);

Details of a witness

Nigerian Investment Promotion Commission (NIPC) Registration

Foreign shareholders of a proposed company in Nigeria may grant a power of attorney to their solicitors in Nigeria, permitting them to act as agents in executing incorporation and other statutory documents pending registration with the Nigerian Investment Promotion Commission (NIPC).

Upon issuance of the Certificate of Incorporation, the new business must be registered with the Federal Inland Revenue Service (FIRS) for a Tax Identification Number (TIN) and a Value Added Tax (VAT) Certificate. Furthermore, the new company should prepare and submit simultaneous applications to the Ministry of the Interior (using the prescribed NIPC Application Form) for the following: –

Registration and Expatriate Quota;

Pioneer Status and other incentives (where applicable)

The application to the Ministry of the Interior must be accompanied by the following documents:

Original and duplicate copy of the duly completed NIPC Form 1;

Original copy of the treasury receipt for the purchase of NIPC Form;

A copy of the Certificate of Incorporation of the applicant company;

A copy of the Tax Clearance Certificate of the applicant company;

Produce CAC’s forms duly certified;

A copy of the Memorandum and Articles of Association;

A duplicate of the treasury receipt serving as verification of the payment of stamp duties on the authorized share capital of the company as of the date of application;

A Duplication of the Joint-Venture Agreement -UNLESS 100% foreign ownership is anticipated;

A Duplication of Feasibility Report and Project Implementation Programme from a company for its intended business. It is recommended that quotations, letters of intent, and similar documentation relating to industrial plant and machinery to be acquired by the company be sent either as annexes or separately. To prevent the waste of administrative resources on speculative applications, the NIPC supports the applicant who has shown genuine intention to start business when approvals are granted. Therefore, the requests for proof of acquisition of business premises and proof of acquisition of the plant and machinery intended for use in the company’s business;

A Duplication of Deed(s) of Sub-Lease/Agreement demonstrating a firm commitment to secure essential business premises for the company’s operation. Implicitly, the ultimate NIPC approvals do include approvals of the industrial site locations specified in the application;

A Duplication of training programme or personnel policy of the company, including management succession schedule for qualified Nigerians;

Details concerning names, addresses, nationalities, and occupations of the proposed directors of the company;

Job title designations of expatriate quota positions needed, along with the academic and working experience needed for the individuals holding those positions.

Duplicates of information brochure on foreign shareholder (if available) as evidence of international expertise and credibility of the foreign partner in the proposed business niche.

Capital Importation

Following the acquisition of NIPC approvals, the non-resident shareholder must take decisive actions to import its foreign equity holding in the company. To ensure swift importation of the foreign equity components, the NIPC may register the company but delay approvals for Expatriate Quota and Pioneer Status and other relevant investment incentives, until evidence of capital importation is submitted. After receiving Certificate of Capital Importation from the bank, the NIPC is to be informed of this occurrence alongside the supporting documentation, allowing it to continue processing any pending approvals that might have been postponed on those grounds. Once expatriate quota positions are granted and the respective individuals to occupy those positions are recruited, the company must take measures to obtain work permits and residency status for the expatriate employees as well as their accompanying spouses and children (if applicable).

Current Legal Guideline on the Appointment of Foreign Directors

The promoters of business enterprises in Nigeria have the freedom to appoint directors of their choosing, whether foreign or Nigerian, and the directors may be resident or non-resident. The application to the NIPC must indicate the names of the proposed Nigerian and foreign directors (with a designation of resident and non-resident directors). The Registration Certificate subsequently issued following that application typically displays the names of the proprietors of the company, along with the directors representing each proprietor or co-proprietor.

Tax benefits to a “Pioneer Company”

By the authority of the Industrial Development (Income Tax Relief) Act, Cap. 17 Laws of the Federation of Nigeria, 2004, certain sectors are designated as “pioneer industries.”

Consequently, any corporation whose products align with the identified sectors may be granted Pioneer Status.

This label does not inherently indicate that a corporation was the original pioneer within the sector, as multiple firms within the same pioneer industry category could be eligible for Pioneer Status. If a company’s operations involve the manufacture of both pioneer and non-pioneer items, the tax relief associated with Pioneer Status would apply solely to the income generated from pioneer products. Under the existing industrial framework, the granting of Pioneer Status provides a company with exemption from income tax obligations for a duration of up to 5 years (tax-holiday status).

The Criteria for Granting Pioneer Status: –

(i) The level of qualifying capital investment in a firm must be confirmable through physical examination and corroborated by a report from the Industrial Inspectorate Division of the Federal Ministry of Industry prior to the issuance of a Pioneer Certificate;

(ii) The economic and social benefits of a firm’s operations to the Nigerian economy, as highlighted in its Feasibility Study, is also a significant factor.

Notwithstanding these stipulations, NIPC is authorized to bestow Pioneer Status and additional investment incentives in any other appropriate case as determined by the Council of NIPC in accordance with the provisions of the Nigerian Investment Promotion Commission Act and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1995.

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Our Core Financial Services

Bookkeeping and Accounting

Bookkeeping and accounting are the foundation of any business operation. For foreign companies in Nigeria, proper accounting ensures compliance with local laws and provides a clear view of financial activities. The main components are: Transaction Register: detailed records of all financial transactions, including purchases and sales, receivables, receivables and payables. Chart of Accounts: Additional accounts are required to reflect the unique needs of a foreign company in Nigeria.

Reconciliation: The bank, ledger and tax are consistent in ensuring data accuracy and identifying discrepancies.

Real-Time Monitoring: The use of digital tools to track and manage financial data, providing insight into cash flow and operational efficiency.

Financial Reporting Standards (IFRS)Compliance with International Financial Reporting Standards (IFRS) It is mandatory for foreign companies to comply with international financial standards. Nigeria has adopted IFRS and mandates that most companies comply.

Accounting Preparation: ensuring that the accounts (balance sheet, profit and loss account and cash flow statement) comply with IFRS requirements.

Transparency and comparability: providing financial data that is consistent, comparable and reliable across jurisdictions for investors and shareholders.

Regulatory Submission: Assisting subsidiaries in submitting appropriate financial reports to local authorities, such as the Corporate Affairs Commission (CAC) and the Federal Inland Revenue Service (FIRS).

IFRS Training and Updates: Informing the subsidiary finance team of IFRS changes and their implications.

Budgeting and Forecasting

Budgeting and forecasting are essential for planning and allocating resources. For foreign companies in Nigeria, these processes should take into account local economic conditions, regulatory changes and currency fluctuations.

Budget Development: Develop operating and capital budgets in line with the company’s strategic objectives.

Scenario Analysis: Analyze multiple scenarios, such as market fluctuations or regulatory changes, to predict possible outcomes.

Performance Monitoring: Compare actual performance to budget to identify variances and implement corrective actions.

Cash flow forecasting: ensuring that there is sufficient cash flow for the subsidiary’s operations and future investments.

Payroll and tax management

Good payroll and tax management ensures employee satisfaction and compliance with Nigerian labor and tax laws. This service includes:

Payroll Processing: Monitoring employee wages, benefits and deductions in accordance with local labor laws. Taxation Deductions and Remittances: Calculating and remitting taxes, pensions and other statutory contributions (Payroll).

Local Tax Compliance: An Overview of the Nigerian Tax Framework Including Value Added Tax, Corporate Tax and Withholding Tax.

Employee Tax Filing: Preparing and Submitting Employee Tax Filings, Ensuring Compliance with Legal Deadlines.

End-to-End Automation: Using Technology to Improve Payroll and Tax Processes Reduce Errors and Increase Efficiency.

Due Diligence for Foreign corporation doing business in Nigeria

Foreign companies in Nigeria must demonstrate due diligence when expanding their operations, which can be both exciting and daunting. Nigeria is one of the largest economies in Africa and is experiencing explosive population growth, which offers opportunities for expansion into various sectors of the Nigerian economy. However, for foreign companies that are not sure and Familiar with the terrain of the country, doing business in Nigeria can be complicated and navigating the Nigerian legal and regulatory landscape requires a very careful approach to due diligence across multiple borders.

Foreign companies that conduct due diligence more often have successful investments because their bases are covered. In this article, we will examine the essential elements of due diligence that foreign companies looking to conduct in Nigeria for foreign direct investment. must undertake before and during its operations in Nigeria. This guide aims to provide foreign investors in Nigeria with the knowledge and potential market information they need to understand Nigeria’s regulatory environment, local business practices, among others.

Understanding the Nigerian Regulatory Environment

Foreign investors [and their legal advisors outside Nigeria] should seek to understand the numerous regulatory bodies that govern various sectors and the general business sector of the Nigerian economy. Furthermore, while they can find a lot of valuable information on the Internet, we suggest that they look beyond the Internet and engage competent local consultants working in Nigeria for sound advice on Nigeria’s environmental regulatory authorities because, more often than not, much of the information available online from the regulatory authorities themselves is either outdated, irrelevant or, unfortunately, misleading.

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Regulatory Bodies in Nigeria and their Legal Frameworks

Corporate Affairs Commission

The Corporate Affairs Commission [“CAC” or “Commission”] is the principal body responsible for regulating business activities in Nigeria. The CAC is responsible for the registration of companies and the incorporation of companies, as well as for the supervision and regulation of their activities in Nigeria, until their dissolution, deregistration or liquidation, if necessary, if they have achieved their objectives. The Corporate Affairs Commission derives its powers from the Companies and Allied Matters Act. When a foreign company seeks to engage in business or deal with a Nigerian counterpart company, its first point of contact should be the CAC to conduct its due diligence on the existence of that company, its compliance records, its directors, shareholders and operating history. It is also important that they understand the relevant provisions of Nigeria’s CAMA, as they will serve as the main guidelines for their operations. Other laws apply, but CAMA is the main corporate law they should be familiar with.

Nigerian Investment Promotion Commission

The Nigerian Investment Promotion Commission [“NIPC”] is an agency of the Federal Government of the Federal Republic of Nigeria, which was established by the NIPC Act to encourage, promote and coordinate foreign investment in Nigeria. The NIPC is responsible for initiating and supporting measures that will improve the investment climate in Nigeria for Nigerian and [particularly] non-Nigerian investors; to provide up-to-date information on incentives available to investors in Nigeria, among others. Foreigners doing business in Nigeria or investing in Nigeria may be required to register with NIPC and apply for investment incentives from NIPC, if applicable to them and the sector in which they are investing their money in Nigeria.

Securities and Exchange Commission

The Securities and Exchange Commission [“SEC”] is an agency of the Federal Government of the Federal Republic of Nigeria established by the Investment and Securities Act to develop and regulate the Nigerian capital market. The SEC is responsible for the registration of securities and market intermediaries, conducts inspections of capital market operators and investigates suspected violations of the laws and regulations governing capital market operations.

Are there sector-specific regulations that govern specific industries?

There are many multi-faceted sectors that investors investing in the Nigerian economy can beam their sights on. It should be duly noted that there are numerous sector-specific regulators and regulations that apply for the oil & gas sector, telecoms sector, financial services sector, power sector, mining sector, aviation sector, health sector, among others. For operators in the oil & gas sector, it is important to be aware of the Petroleum Industry Act which is the primary regulation that governs oil and gas operations in Nigeria and regulates upstream operations, midstream and downstream operations and host communities development.

Key legal considerations for foreign investors in Nigeria

Ownership structures and control

When foreign-owned corporations are seeking to establish their operations in Nigeria, they should carefully consider the most appropriate ownership structure that will benefit them the most. In this regard, upon a careful scrutiny of their ownership, business operations and business needs [in Nigeria], they can arrive at a decision on whether to establish a full Nigerian subsidiary in Nigeria or to open a branch office in Nigeria.

Branch office, or subsidiary?

It is very important to note that the Companies and Allied Matters Act require foreigners seeking to do business in Nigeria to register their foreign-owned company with the Corporate Affairs Commission. However, does that mean that the company cannot establish a branch office in Nigeria without incorporating in Nigeria? The answer lies in the provisions of CAMA.

Branch Office: This will act as an extension of a [foreign] parent company, with ownership and control fully vested in the parent company. Such a branch office will limit its operations to what’s applicable to it by law and nothing more; for it to do anything else, it will have to incorporate in Nigeria. Please note that you cannot establish a branch office for a foreign-owned corporation in Nigeria without following due process, to wit: applying for exemption under section 80 of CAMA. Such exemptions are not granted as a matter of course; any foreign company applying for exemption from incorporation in Nigeria under section 80 of CAMA has to be providing certain specialized services, like foreign companies engaged in export promotion activities, engineering consultants and technical experts engaged in individual specialist projects under contract with any of the government cadres in Nigeria.

Nigerian Subsidiary: For most foreign companies seeking to operate in Nigeria, incorporating a full Nigerian subsidiary for their operations is the major way they can operate and participate in Nigeria’s economy. This subsidiary will be a fully foreign-owned company established under Nigerian law, or incorporated as a joint venture (JV) with Nigerian partners. If wholly foreign-owned, the control and ownership vests totally in the foreign corporation that owns it, but if incorporated as a JV, the ownership and control will be shared with the local partners in the percentage of their individual shareholding, and as agreed in their Founders’ Agreement and Articles of Association of the Nigerian company.

Companies and corporations in different companies have suffices affixed to their company/corporation names like “LLC”, “Inc.”, among other appellations. These appellations do not apply to Nigerian companies. In Nigeria, companies whether limited by shares or unlimited, are required to affix “Ltd” or “Limited” to the end of a company limited by shares and “unltd” or “Unlimited” to a company with unlimited liability. Thus, foreign companies setting up their Nigerian subsidiaries should be aware of this.

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Requirements for foreign-owned companies in Nigeria

Foreign companies that choose to set up Nigerian subsidiaries or engage in joint ventures with local partners are statutorily required to comply with certain requirements, among which include:

Minimum share capital: Every company incorporated in Nigeria with foreign participation [ownership] must have a minimum issued share capital of ₦100,000,000 [One Hundred Million Naira]. Even if the company being incorporated as a Joint Venture in partnership with local partners, so long as the company has foreign participation [whether as directors and shareholders or directors or shareholder], that company’s minimum issued share capital must be no less than ₦100,000,000 [One Hundred Million Naira]. Failure to meet this requirement will lead to the CAC querying the application for incorporation and withholding registration approval until the issued share capital is increased to meet statutory minimum.

Business Permit and Expatriate Quota: Upon incorporation, and before any foreign-owned Nigerian company can commence business, such company is required to apply for and obtain a business permit from the Federal Ministry of Interior. Companies applying for business permits usually apply for same together with expatriate quotas for the percentage of expatriate employees the company will be employing to work in the company in Nigeria. The company can apply for expatriate quota alone, though.

Registration with the NIPC: Foreign-owned companies are required to register with the NIPC for business incentives. As aforementioned, the NIPC regulates foreign investments in Nigeria and offers incentives to foreign-owned companies in Nigeria. Upon registration, the NIPC will issue a certificate of registration to the company which is necessary for their investment activities and protects them from expropriation and naturalization.

Local Content Requirements: This is sector-specific. Foreign-owned companies operating in certain sectors of the Nigerian economy like the oil & gas sector, are required to meet certain local content requirements. These foreign-owned companies note these requirements and comply with them if and where needed in order to prevent regulatory sanctions.

Compliance and Reporting obligations

Foreigners and foreign-owned companies in Nigeria must ensure that they continuously comply with regulatory reporting requirements over their activities. Depending on sector and scope of their activities, they may also be required to register with certain regulators if they meet certain thresholds, or if they access, process, store and use the data of data subjects in Nigeria. Some of these requirements include:

Annual Returns

Every company incorporated in Nigeria is mandated to file annual returns with the Corporate Affairs Commission at the end of its financial year. Annual returns filing must be done within fourteen days after the annual general meeting of each [financial] year. If a company’s end of financial year falls within January to June, they are required to file their annual returns on or before the end of December 31st of each year. Filing afterward attracts penalty. If a company’s financial year end falls within July to December, then the company is expected to file their annual returns before the end of June, the following year. Filing afterward attracts penalty for late filing. Where a company fails to file its annual returns consistently with the CAC for a consecutive period of ten years, the CAC will delist and strike out the name of that company from the Corporate Register.

Tax Reporting

Every company incorporated under the laws of Nigeria is expected to register with the Federal Inland Revenue Service and apply for tax identification number [TIN]. With this TIN companies can pay company income tax according to their tax threshold. For companies with gross annual turnover of ₦25 million or below, the company income tax is 0. For companies with gross annual turnover of over ₦25 million and under ₦100 million the CIT is 20% while for larger companies with gross annual turnover of over ₦100 million, the CIT is 30%.

Anti-Money Laundering

In Nigeria, it is the duty of the Economic and Financial Crimes Commission [“EFCC”] to combat incidences of economic and financial crimes, including money laundering. To combat money laundering, certain classes of companies incorporated in Nigeria are required to register with the Special Control Unit against Money Laundering [“SCUML”]. The SCUML was established in 2005 as part of the measures by the federal Government of Nigeria to combat money laundering. Designated non-financial businesses and professionals [“DNFBP”] are required to register their companies with the EFCC and obtain a SCUML Certificate. DNFBPS include dealers in jewelry, car dealers, audit firms, tax consultants, clearing and settlement companies, supermarkets; casinos, pool betting and lottery businesses; accountants and accounting firms, construction companies, consultants and consulting companies; real estate agents, estate developers and brokers; mortgage brokers, practitioners of mechanized farming, among others.

Contractual obligations and local partnerships

Foreign companies in Nigeria often enter into joint ventures or partnerships with local partners in Nigeria to either meet regulatory requirements [for example, where local content regulations require mandatory local participation], gain access to local markets, or even key into local domain expertise. However, it is pertinent that these foreign businesses are careful to understand the local nuances that is applicable to Nigeria due to socio-cultural and regulatory differences from their own home jurisdictions, and act accordingly. To this effect, very well-drafted commercial contracts that clearly outlines terms and factors in dispute resolution mechanisms that will be reasonably favourable to them. When it comes to dispute resolution, foreign companies should beware of outright courtroom litigation, given how protracted they can get in Nigeria, sometimes lasting for several years. To mitigate against this, including mandatory arbitration clauses for mandatory arbitration may be the best way to go, to ensure that any arising disputes are swiftly handled through arbitration or other alternative dispute resolution mechanisms other than outright litigation immediately a dispute arises.

Hiring local and expatriate workers.

Hiring local workers after a foreign corporation incorporates in Nigeria is not much of a hassle as there are basically little to no legal barriers to same. However, to hire expatriate workers in Nigeria, even for a wholly foreign-owned Nigerian company, numerous legal and regulatory compliance due diligence issues will surely crop up. Such foreign-owned company will have to meet up with these requirements in order to be able to hire foreign employees in Nigeria. First, the company has to be apply for, and obtain a Business Permit from the Federal Ministry of Interior. The company can, while applying for a Business Permit, apply for expatriate quota for the number of foreigners it intends to employ in Nigeria as well. Suppose the company does not intend to hire expatriate employees immediately in Nigeria upon commencement of business operations in Nigeria. In that case, the company can wait until such time as it needs to before applying for expatriate quota for the number of foreigners it needs to hire to work in the Nigerian company. This is a regulatory requirement for companies hiring expatriates—be they locally or foreign-owned companies—and it is important to adhere to these requirements or else the expatriates coming to work in Nigeria may be denied visas into Nigeria.

IP Due Diligence Considerations

Protecting your Trademarks, Patents, Copyrights, Industrial Designs

Nigeria has numerous laws that aim to protect intellectual property rights by both locals and aliens in Nigeria. Nigeria is also a signatory to  major international treaties that protect IP rights internationally.

The Nigerian Copyright Act: The Copyright Act protects literary, artistic and musical works. The Copyright Act also protects computer programs and films (cinematography). Under the Act, all protectable works that meet protection criteria are automatically protected and creators are given the exclusive rights to reproduce, perform and distribute their works for specified periods. International corporations that own copyright works can register them with the Nigerian Copyright Commission to keep a record of their copyrighted works in Nigeria.

Patent and Designs Act: Nigeria’s Patent and Designs Act protects innovation patents and industrial designs. Inventors can protect their inventions which are new, inventive and capable of industrial application locally in Nigeria through the registration of their patents with the Nigerian Trademark Registry. Industrial designs are registered and protected for their visual appearance/aesthetics aspects of their products. Foreign companies doing business in Nigeria who have either of these relevant IP should endeavour to register them locally in Nigeria and obtain protection in Nigeria even if their designs and patents were registered internationally. To seek protection in Nigeria and protect against infringers in Nigeria, they should endeavour to register their IP in Nigeria to gain local protection cover.

Nigeria is a member state to the Patent Cooperation Treaty (PCT) and foreign corporations that have filed an international application under the PCT can enter the national phase and file their PCT patent application in Nigeria with the PCT details of their patents within thirty months from the international filing date.

We have written extensive guides on filing PCT patent applications in Nigeria, filing patent applications in Nigeria and filing for the protection of industrial designs in Nigeria. These guides can serve a useful value to foreign corporations seeking IP protection in Nigeria.

Challenges IP owners can potentially face in Nigeria

  • Weak enforcement mechanisms
  • Piracy and infringement
  • Counterfeiting
  • IP illiteracy among the local population

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Due diligence in land transactions, acquisitions and property rights in Nigeria

Land Use and Ownership laws in Nigeria

The primary legislation that governs land holdings and land ownership in Nigeria is the Land Use Act which vests all land in any State in the federal Republic of Nigeria on the Governor of that State to hold same as trustee for the benefit of the citizens of the State.

Foreign companies either establishing branch offices (if they are not registering as exempt under section 80 of the Companies and Allied Matters Act) or incorporating Nigerian subsidiaries may need land to either develop for industrial purposes or for commercial purposes in line with their objects of incorporation at time of registration. Thus, it becomes pertinent to ask at this point whether a foreigner can own land in Nigeria? Subject to the alien land ownership procedure of each State (which will differ depending on the State), foreigners can acquire land in Nigeria. But given that the focus of this Guide is on foreign companies and foreign-owned Nigerian companies operating in Nigeria, we shall focus on that. Once a foreign company or individual registers a company in Nigeria, the company becomes a Nigerian entity and as such will be accorded all rights due to Nigerian entities under Nigerian law.

Conducting property searches and title verifications: the extreme importance of verifying land titles

Land holdings and ownership in Nigeria is opaque, plagued by land grabbing, lack of centralized records, and protracted property disputes in both criminal investigations and civil proceedings in numerous Courts across Nigeria and even at Nigeria’s apex Court. Individuals can sell land to multiple purchasers; individuals call sell portions of family land without the knowledge and consent of principal members of the family; land development companies sell phantom lands to purchasers; there are even incidences of double allocation of Plots of Government-owned land to different applicants. These lead to endless protracted disputes Because of this, foreign-owned companies need to conduct thorough due diligence into any land transactions they are entering into to forestall future disputes that could prevent them from using the land they sourced for.

They must conduct thorough land searches using experienced professionals when getting into land acquisition transactions. Any and all title documents given to them by vendors must be thoroughly scrutinized, assessed and searched upon for title verification. Land searches at the Ministry of Land in whatever location they are seeking land holding is also very important. Suppose the foreign corporations are seeking for large hectares of land for industrial purposes. In that case, it might be more advisable to apply directly to the Government of the State they were seeking to invest for a land allocation. Hence, they get a direct allotment from Government-owned land.

online banking, banking operations, payConclusion

For foreign subsidiaries doing business in Nigeria, going through the complexities of financial management and regulatory compliance requires specialized expertise and tailored solutions. Essential financial services such as accounting, bookkeeping, IFRS compliance, budgeting, forecasting, payroll, and tax management are vital for maintaining transparency, ensuring compliance, and promoting sustainable growth. By prioritizing these services, foreign companies can overcome the obstacles posed by Nigeria’s shifting regulatory and economic environment, gain valuable insights, and lay a solid foundation for long-term success. Access to expert financial and audit services allows subsidiaries to reduce risks, enhance operations, and concentrate on their strategic goals.
With a strong financial infrastructure in place, foreign subsidiaries can cultivate trust with stakeholders, broaden their market reach, and capitalize on opportunities within the burgeoning Nigerian economy. Selecting the appropriate partner with local knowledge and global standards guarantees that your business stays competitive, competitive, and adaptable in this ever-changing market.

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Make sure that your foreign subsidiary in Nigeria is in good standing and is financially sound. Reach out to our qualified professionals for customized financial and audit solutions that would protect your business and improve its effectiveness in Nigeria. Start moving towards smooth operations now.

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