In the bid to maximize tax incentives, most businesses (both local and foreign) opt for setting up their businesses within free trade zones. In this article, we examine the purpose of free trade zones, who can operate within a free trade zone, incentives for operating within a free trade zone as well as other considerations you need to be aware of if you wish to operate within free trade zones in Nigeria.
WHAT ARE FREE TRADE ZONES?
A free trade zone (FTZ) is a specified geographical area within a country where goods can be manufactured, imported, exported, stored, handled, reconfigured, and services rendered without the intervention of customs authorities, without the subjection of taxes and levies, etc.
It is also a district zone in a country or state that confers special trade privileges and operates less stringent regulations than that which is applied to the rest of the country.
The zone was first introduced in Nigeria in the year 1991 and in 1992, the first legislation that regulates free trade zones was passed.
A free trade zone is regulated by certain laws which are:
i. The Nigeria Export Processing Zone Act 1992 (NEPZ Act). 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.
ii. The Oil and Gas Export Free Zone Act, 1996 (OGFZ).
iii. Lagos Free Trade Zone regulations, 2006.
iv. Central Bank of Nigeria Guidelines for Banking Operators in the free zones in Nigeria, 2016.
v. Tinapa Free Zone and Resort Regulations, 2009.
WHAT IS THE PURPOSE OF FREE TRADE ZONES IN NIGERIA
The main purpose of a free-trade zone is to promote international trade by removing trade restrictions caused by high taxes, levies, tariffs, and complex customs regulations.
WHO CAN OPERATE IN A FREE TRADE ZONE
Whether, public or private or a combination of public and private entities under the supervision of and approval of the Authority may operate in a Free Trade Zone. However, before an entity can operate in an FTZ, it must have first obtained a license from the Authority, which grants such an entity the status of “an Approved Enterprise”. Only an Approved Enterprise can operate in a Free Trade Zone.
Entities operating within the following scope of permissible business activities are allowed to operate in an FTZ:
a. Manufacturing of goods for export
b. Warehousing, freight forwarding, and customs clearance
c. Handling of duty-free goods (trans-shipment, sorting, marketing, packaging, etc.),
d. Banking, stock exchange and other financial services, insurance, and reinsurance
e. Import of goods for special services, exhibitions, and publicity
f. International commercial arbitration services
g. Activities relating to integrated Zones.
h. Other activities deemed appropriate by the Nigeria Export Processing Zones Authority.
Retail trade is however restricted from being carried out within a FTZ without the prior approval of the Authority and which may be subject to such terms and conditions as may be imposed, from time to time, by the Authority.
TYPES OF FREE TRADE ZONE IN NIGERIA
There are two types of free trade zones in Nigeria, which are:
1. Specialized trade zone.
2. General-purpose trade zone.
For proper management of these zones, at the federal level: two bodies are in place – the Nigerian Export Processing Zone Authority (NEPZA) for the general-purpose zones and the Oil & Gas Free Zone Authority (OGFZA) for (specialized trade zone) oil & gas zone.
The Free Trade Zones in Nigeria are:
i. Calabar Free Trade Zone.
ii. Kano Free Trade Zone.
iii. Lekki Free Trade Zone.
iv. Ogun Guangdong Trade Zone.
v. Oil and Gas Free Trade Zone.
vi. Nigerian International Commerce City (Eko Atlantic)
vii. Dangote Industries Free Trade Zone Development Company. Etc.
INCENTIVES AND FACILITIES AVAILABLE IN A FREE TRADE ZONE
The incentives available to businesses operating in Free Trade Zones are:
a. Exemption from payment of all federal, state, and local taxes, levies, rates, and customs duties;
b. Repatriation of foreign capital investment in EPZs at any time with capital appreciation on the investment;
c. No import or export license is needed;
d. Rent free land during construction of factory space;
e. Services such as warehousing, standard pre-built factories, transportation, sanitation, and canteen are available within the zones;
f. Unrestricted remittance of full profits and dividends earned in the zone;
g. 100 percent foreign ownership of enterprises in the EPZ is allowable;
h. Sale of up to 25% of production permitted in the domestic market.
LICENSES TO OPERATE IN A FREE TRADE ZONE
Any enterprise that desires to operate an approved activity in an FTZ should do the following:
1. Submit an application to the Authority in writing for permission.
2. Submit all necessary documents such as Business Plan; Memorandum and Articles of the Association; Board Resolution of the Company authorizing with a passport photograph of each director and information to support the application as required by the Authority, attach proof of payment as prescribed by the Authority.
3. The Authority after a proper review of the document which takes 2 weeks, will grant the license as far as the proposed “Authorized Enterprise” is within the list of permissible activities.
The licenses that can be acquired include:
i. Free-zone Developers License.
ii. Free-zone Enterprise License.
iii. Export Processing Factory/ Export Processing Farm License.
CAN A FOREIGNER OPERATE IN A FREE TRADE ZONE IN NIGERIA?
Yes. By Section 18 of the Nigeria Export Processing Zone Act 1992 (NEPZ Act), 100% foreign ownership of business is permissible within the zones. It’s, therefore, safe to say that a foreigner or a foreign-owned business can operate within an FTZ.
Doing business within the free trade zone in Nigeria like other parts of the world comes with enormous benefits. Hence many local and foreign-owned businesses are taking advantage of it. However, operating within the zone comes with restrictions that ought to be taken into consideration as well.
Are you considering operation within the free trade zone either as a local or foreign entity? Need expert guidance in this regard? Kindly leave a message through the Whatsapp icon on the lower right page of this page or HERE, and we’ll respond to you.