Operating in a free trade zone in Nigeria

The Dangote Refinery is situate in a free zone, owned and managed by the Dangote Industries Free Zone Development Company. More than ever before, businesses, both local and foreign, have shown interest in understanding the Nigerian free trade zone, its benefits, and how to set up a business within a free zone.

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This publication provides more information on the free trade zones, the licensing requirements, and the benefits of investing in a free trade zone in Nigeria.

1. WHAT IS A FREE TRADE ZONE?

A free trade zone (“Zone”) is a geographical location or area within a country where business (including manufacturing, storage, importation, and exportation of goods) may be conducted under less stringent regulations than that which is applicable to the rest of the country. The World Bank has defined it as “small, fenced-in, duty-free areas offering warehousing, storage, and distribution facilities for trade, transshipment, and re-export operations”.

The primary legislation regarding free trade zones in Nigeria is the Nigeria Export Processing Zones Act LFN 2004 (the “Act”). The Act establishes the Nigeria Export Processing Zones Authority (NEPZA), as the principal authority and regulator of the Zones within Nigeria. Although the Act makes no provisions on the definition of a free trade zone, the NEPZA Regulations (the “Regulations”) made pursuant to the Act provides that free zones mean “export processing zones, border free zones, free trade zones, export processing factories and export processing farms established pursuant to the Nigeria Export Processing Zones Act No. 63 of 1992”.

According to the Act, a Zone may be operated and managed by a public, private, or a combination of public and private entity under the supervision of and with the approval of NEPZA. There are currently 19 operational Zones in Nigeria which include the Lagos Free Trade Zone, Snake Island Integrated Free Zone, Lekki Free Trade Zone, Calabar Free Trade Zone, Nigerian International Commerce City (Eko Atlantic), Dangote Industries Free Zone Development Company, etc.

2. WHY SET UP AN ENTITY WITHIN THE ZONE?

The Act provides various incentives for entities investing and setting up their business within the Zone, and they include:

1. Zero tax- entities within the Zone are excluded from paying Federal, state and government taxes, levies and rates which are ordinarily applicable to companies operating within Nigeria.
2. full repatriation of foreign capital investments, profits and dividends earned by foreign investors in the Zones;
3. right to import capital goods, consumer goods, raw materials, and other components used in connection with an approved activity into the Zones free of customs duty;
4. entities are not required to pay rent for any lease during its construction stage;
5. 100% foreign ownership of business;
6. ease of doing business, as NEPZA provides a one-stop approval for permits and operating licence. For instance, an entity seeking to employ a foreigner is only required to apply directly to NEPZA on behalf of such foreigner for all requisite immigration and employment permits, rather than dealing with the immigration authority. Also, where the entity has not already been registered as a company with the Corporate Affairs Commission, an operating licence issued by NEPZA satisfies this requirement of registration;
7. holders of a free zone developers licence also have the opportunity to obtain a large expanse of land at a highly subsidized price, which can in turn, be leased to entities that set up operations within their Zone.

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3. WHAT ARE THE VARIOUS LICENSES REQUIRED TO OPERATE WITHIN A FREE TRADE ZONE?

Further to the provisions of the Act, any entity that intends to undertake any of the approved activities within the Zone shall apply to NEPZA requesting permission to do so. Upon such application, NEPZA may, subject to the fulfillment of any terms and conditions as it may direct from time to time grant such entity approval to conduct the approved activity and issue a licence to such entity.
Paragraph 2 Part 4 of the Regulations provide for 3 (three) different licenses-

1. Free Zone Developers Licence– this licence is issued solely by NEPZA to either a public, private or a combination of the two for the establishment and management of a free zone in Nigeria. The Zone, when established, shall be under the direct supervision of NEPZA. The licensee shall have supervisory and managerial control over the activities within the Zone and is empowered to grant licences to other entities to operate within the Zone. In the exercise of its supervisory and managerial authority, the licensee may release regulations and circulars to direct the licensing and activities of enterprises within the Zone.
2. Free Zone Enterprise Licence– this is a license granted to an enterprise to undertake an approved activity within a Zone. These activities may be manufacturing, trading, or service provision. This license may be granted by either NEPZA or the holder of a Developers’ licence (referred to as the “Zone Management”).
3. Export Processing Factory/Export Processing Farm Licence– this licence is issued solely by NEPZA to export-oriented manufacturing farm enterprises (production of agricultural produce) located in Nigeria, that have the capacity to export over 75% of its production.

4. WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR OBTAINING A LICENCE?

To be eligible for any of the licences listed above, NEPZA or the Zone Management (depending on the issuer) may consider the following:

1. the activities the applicant proposes to carry on within the Zone;
2. how much the proposed activity will add to and be consistent with the development programme of the Zone;
3. compliance with the Act and applicable rules and regulations put in place by NEPZA or the Zone Management;
4. technical, financial and managerial capabilities of the applicant;
5. applicant’s experience and track record;
6. level of foreign direct investment proposed by the applicant;
7. payment of the prescribed licence fee; and
8. in the case of applicants for the developers licence, evidence of title to a suitable land area free of any encumbrance. The applicant will also be required to provide the following details-
   • the name and profile of the chief executive officer of the entity;
   • major selling points of the Zone;
   • number of enterprises that may be able to operate within the Zone;
   • key partners;
   • sectors available for investment;
   • percentage of land for future development, etc.

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The licence when granted cannot be assigned or transferred either in whole or in part to any other entity. The licence is valid from the time of issue until the end of the year of issue. It may be renewed upon expiration following the payment of a renewal fee, production of any required documents, returns or information, and payment of all outstanding amounts due to NEPZA or the Zone Management, if any.

It is important to note that this licence can only be used within the Zone for which it was issued and cannot be used anywhere else within Nigeria. Any licensee who wishes to carry out any business outside the Zone must comply with all applicable laws in force outside of the Zone.

5. CAN A FOREIGNER OR FOREIGN ENTITY SET UP OR OWN A ZONE?

Yes, foreigners and foreign entities are allowed to operate or establish a business within a Zone. This can be inferred from the provision of the Act which allows for 100% ownership of an entity within a Zone.

6. WHAT ARE THE APPROVED ACTIVITIES WITHIN A ZONE?

The following are some of the approved activities within a Zone:

1. manufacturing of goods for export;
2. handling of duty-free goods;
3. banking, stock exchange and other financial services, insurance and reinsurance;
4. import of goods for special services, exhibitions and publicity;
5. international commercial arbitration services;

No entity is permitted to engage in any retail business within the Zone.
Some of the permissible industries include electrical and electronic products; textile products/garments; leather and petroleum products; cosmetics and other chemical products; medical kits, optical instruments, and appliances; pastries and food processing businesses; pharmaceutical products; shipbuilding & repairs, Oil and Gas logistics; etc.

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CONCLUSION

There are numerous incentives made available by the Nigerian government to encourage entities to set up operations within a Zone. Businesses seeking to set up operations within the Zones should seek guidance from their legal counsel to obtain the necessary licences and permits.