Doing Business In A Free Trade Zone In Nigeria

Free Trade Zones (“FTZ”) are areas in which businesses are exempted from trade barriers, particularly with regard to customs duty and tax. These exemptions are granted to companies operating within the FTZ for the purposes of attracting foreign direct investment, increase foreign exchange earnings, boost national exports, create jobs and help in diversifying the Nigerian economy by bringing in new activities.

While the regulatory body of the FTZ is the Nigerian Exporting Processing Zones Authority (“the Authority”) established by Section 2 of the Nigerian Exporting Processing Zones Authority Act (“the Act”), a State can make regulations for the FTZ in its domain. For example, the the Lekki Free Trade Zone is specifically governed by Lagos Free Trade Zone Regulation 2016.

Any enterprise proposing to undertake an activity within an FTZ in Nigeria must first apply in writing to Nigeria Export Processing Zones Authority (“NEPZA”) for permission. NEPZA may grant a licence for any approved activity in an FTZ to an individual or business, whether or not the business is incorporated in Nigeria. The granting of a licence by NEPZA shall constitute registration for the purposes of company registration within an FTZ.

A licensed enterprise does not need to comply with the rules of local incorporation in Nigeria, which are governed by the provisions of the CAMA. This is because the granting of a licence by NEPZA is evidence of a company’s registration in an FTZ.

In view of the above, if a foreign investor chooses to register as a Free Zone Enterprise (“FZE”), the license issued by NEPZA is only valid within the FTZ and, as a result, an holder of such license that wish to carry on business outside the FTZ is required to comply with the applicable laws outside the FTZ.

Incentives 

The Act has made numerous provisions and incentives for enterprises wishing to operate in an FTZ in Nigeria.

The incentives for approved entities within the FTZs are as follows:

The incentives for approved entities within the FTZs are as follows: complete holiday from all Federal State and Local Government taxes, levies and rates; duty free importations of capital goods, machinery, components, spare parts, raw materials and consumable items in the zone; repatriation of foreign capital investment at any time with capital appreciation of the investment; remittance of profits and dividends earned by foreign investors; no export licences are required; 100% foreign ownership of business is permitted; foreign managers and qualified personnel may be employed by companies in the FTZs; liberalization the investment procedures and approval process thereby eradicating the bureaucratic bottlenecks that can accompany regulatory procedures and approvals in Nigeria; due to the potential adverse effects’ strikes could have on business activities in terms of output, the Act specifically prohibits employees from embarking on strike actions or lock-outs for a period of 10 years following the commencement of operations within an FTZ, therefore any trade dispute arising within an FTZ shall be resolved by NEPZA.

Prohibited Activities

Notwithstanding the liberalisation of free trade facilitated by the Act within FTZs in Nigeria, some activities are prohibited:

Notwithstanding the liberalisation of free trade facilitated by the Act within FTZs in Nigeria, some activities are prohibited: retail trade shall be concluded within an FTZ without the prior approval of Authority, and it may be subject to such terms and conditions as may be imposed from time to time by Authority.

If an FZE acts contrary, it may cause the revocation of such license the prohibition; specific goods are not allowed to be imported into the FZE as: firearms and ammunition; dangerous explosives, without prior approval from the Authority; petrol, inflammable materials, hazardous cargoes or oil fuels, other than in such quantities and on such terms and conditions as may be prescribed by the Authority; goods on which the Authority has imposed specific or absolute prohibition of importation into an FTZ.

Customs Regulations

An FZE is not bound by the provisions of the Central Bank 2007 mandating the payment of goods and services in naira. A foreign currency can be received for payment for goods and services supplied to customers within Nigeria.

Approved entities are also entitled to import into any EPZ, free of Customs duty, any capital goods, consumer goods, raw materials, components or articles intended to be used for the purposes of and in connection with an approved activity, including any article for the construction, alteration, reconstruction, extension or repair of premises in an FZE or for equipping such premises.

The Act prescribes for the provisions of the Customs and Excise Management Act and any regulation made thereunder to be applicable where goods that are dutiable on entry into Nigeria are sent from an FZE into Nigeria. NEPZA’s consent must be obtained, and the Customs authorities must be satisfied that all relevant import restrictions have been complied with and all duties payable in connection with the importation into Nigeria have been paid, particularly where goods are intended to be disposed of in Nigeria.

For further information, please contact:
Farouk Obisanya farouk.obisanya@roukco.com