Nigeria is committed to attracting foreign investors and promoting economic growth in the country. To achieve this, the government has established free trade zones where businesses can operate without paying taxes or other fees. These areas are available to both local and foreign companies, and offer significant tax incentives, including tax holidays. In this write-up, we will discuss the benefits of free trade zones and how they contribute to Nigeria’s economic growth. We will also examine the types of businesses that are eligible for these zones, who can invest in them, and the application process. There are two types of free trade zones in Nigeria: general-purpose and specialized trade/export zones. The Nigerian Export Processing Zone Authority (NEPZA) oversees the general-purpose zones, while the Oil & Gas Free Zone Authority (OGFZA) is responsible for the oil and gas zones. Depending on the sector, businesses can apply to either NEPZA or OGFZA to operate within a free trade zone.
WHAT IS A FREE TRADE ZONE?
A Free Trade Zone is an economic zone within a country that offers special privileges to companies operating within its boundaries. The privileges are usually related to trade and business policies, specifically tax incentives for the companies operating within the zone. Similar zones in other countries may be referred to as Special Economic Zones, Foreign Trade Zones, Enterprise Zones, or Industrial Development Zones.
“Free Trade Zones” are specific areas within a country where both foreign and local investors can import materials, manufacture goods, export products, and provide services without being subjected to the customs, tax, labour policies, and other regulations that govern and monitor business activities in Nigeria.
It is worth knowing that this arrangement is a symbiotic arrangement or relationship between the Free Trade Zones and the Nigerian government. This is to say that as the Nigeria government exempts them from taxes and other policies, it is expected that the companies upon venturing into free trade zones will encourage economic growth, development, foreign direct investment, increase foreign exchange earnings, boost national exports, create jobs and foster diversifying Nigeria economy by bringing new activities into the country.
BENEFITS OF DOING BUSINESS IN A FREE TRADE ZONE IN NIGERIA
Doing business in a free trade zone in Nigeria has its benefits. Some of them include:
a. Companies operating within these sectors are legally protected from expropriation, nationalism, and compulsory government purchase of their products. This protection applies to companies both within the free trade zone and in Nigeria as a whole.
b. Companies operating within the zone are prohibited from carrying out strike or lockout activities for a period of ten years, with staff/personnel affected.
c. There are no taxes, levies, or customs duties applied within the zone.
d. Foreign investors can withdraw their capital and earn returns on their investment at any time within the zone.
e. Companies operating in a Free Zone may employ foreign managers and skilled personnel.
f. “Free remittances of profits and dividends earned in the Free Trade Zones” can be rewritten as “Profits and dividends earned in the Free Trade Zones can be remitted for free.”
g. Companies in the Free Zone do not need import or export licenses for materials.
h. A business operating in a free zone can sell up to 25% of its total production in Nigeria by obtaining legitimate permission and paying the necessary fees.
i. Disputes between the government and enterprises within the Zone are resolved quickly and fairly by the Authority.
j. To promote industrial technology, companies and organizations engaged in Research and Development activities for commercialization qualify for a 20% investment tax credit on their expenditures.
k. Enterprises in the Zone can sell up to 100% of their manufactured item, with up to 35% value addition, in the domestic economy, regardless of whether the item is banned or prohibited.
l. Allocation of land and space at a rent as determined by Zone Management.
m. Up to 100 percent foreign ownership of business in the Free Zone is allowed.
CAN A FOREIGNER OPERATE IN A FREE TRADE ZONE IN NIGERIA
Yes, a foreigner is permitted to invest in the free trade zone in Nigeria. Part 2, Section 3(g) of the NEPZA Investment Procedures, Regulations, and Operational Guidelines for Free Zones in Nigeria, 2004, confirms that foreign ownership of up to 100% of businesses in the free zone is acceptable. As long as all necessary requirements are met, a foreigner can own a business in the zone. The Act also allows for the employment of foreign managers without being subjected to expatriate regulations. Thus, both local and foreign investors are allowed to carry out business in the Free Trade Zone without any restrictions, as long as they comply with the necessary requirements.
QUALIFICATION TO OPERATE IN A FREE TRADE ZONE IN NIGERIA
To be able to operate within the free trade zone, a company needs to be registered with the zone and must propose activities that align with the approved activities within the zone. These activities should add value and be consistent with the zone’s development program. The company must also comply with the applicable rules and regulations, and demonstrate their technical, financial, and managerial capacities.
If the applicant is qualified and certified, the zone management will issue a license that is renewable annually. The license cannot be transferred to another person without the express consent of the zone management. Once the license is granted, the applicant is free to commence their activities within the zone without any restrictions.
It is important to note that the zone management determines the eligibility of the applicant based on their assessment.
REGISTRATION OF A COMPANY IN A FREE TRADE ZONE IN NIGERIA
1. Upon successful registration, all free zone enterprises shall make an application for an operational license in line with the approved activities in the zone which include trading, services, warehousing, packaging, manufacturing, etc.
2. Application for an operational license shall be made to the Zone management by completing the prescribed form as stated in the Guidelines.
3. The license application form shall be accompanied by all the documents as stated in the form
EXISTING FREE TRADE ZONES IN NIGERIA
i. Abuja tech village free zone
ii. Lekki export processing zone located in Lagos State
iii. Ogun Guangdong free trade zone
iv. Free trade zone in Lagos State
v. Ladle free zone
vi. Calabar free trade zone located in Cross River state
vii. Kano free trade zone located in Kano State. Etc.
TYPES OF COMPANIES/INDUSTRIES THAT CAN REGISTER IN THE FREE TRADE ZONE IN NIGERIA.
Companies that are involved in the production of the products listed below can apply to do business in the free trade zone in Nigeria.
1. Petroleum products
2. Rubber productions
3. Cosmetics
4. Garments productions
5. Chemicals productions
6. Electrical and electronic products
7. Textile productions
8. Wood products and handicrafts
9. Leather productions
10. Products
11. Educational materials and equipment
12. Communication equipment and materials
13. Sports equipment and materials
14. Machinery
15. Handicraft
16. Optical instruments and appliances
17. Medical kits and instruments
18. Biscuits and confectioneries
19. Printed materials, office equipment, and appliances
20. Paper materials
21. Food processing
22. Pharmaceutical productions
23. Plastic productions
24. Oil & gas. Etc.
CONCLUSION
If you are planning to conduct business within the free trade zone, it is important to follow the necessary procedures. If you need any guidance regarding the same, feel free to contact us here or through the Whatsapp icon located in the lower right corner of this page. We will be happy to assist you.
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