Free Trade Zones in Nigeria

Did you know that outside the regular Customs Territory, business can be conducted in special designated economic areas known as the Free Trade Zones, in Nigeria? When you set up a Company or Business Name, under the administration of the Corporate Affairs Commission (CAC), such Company or Business Name is subject to uniform custom and tax laws, and there is no exemption from the payment of customs duties and remittance of relevant applicable taxes. You are also obligated to file returns as a business owner as prescribed by regulations or statutes. On the other hand, businesses in the Free Trade Zones operate differently. There are two types of Free Trade Zones (FTZs) in Nigeria, namely the general and the specialised FTZs.

General FTZ:

The general Free Trade Zone scheme was established pursuant to the Nigeria Export Processing Zones Act, No. 63 of 1992 (the NEPZA Act), vesting the power to license, monitor and regulate the FTZs (i.e., the Free Zone Developers or FZDs), Export Processing Factory/Export Processing Farm and the Approved Enterprises (otherwise known as Free Zone Enterprises or FZEs) registered within the FTZs in the Nigeria Export Processing Zones Authority (the Authority). Since the commencement of the FTZ scheme, about 43 FTZs have been licensed (with 25 of these Licensees in active operation) and over 400 licensed FZEs are currently operating within the various FTZs spread across the Federation. FTZ Licensees are sub-divided into

1. Free Zone Developers (FZDs),
2. Free Zone Enterprises (FZEs), and
3. Export Processing Factory/Export Processing Farm.

The approved activities undertaken within the FTZs cut across manufacturing of goods for export, trading and provision of services.

Specialised FTZ

The only specialized FTZ is the Oil and Gas Export Free Zone (OGEFZ) established pursuant Oil and Gas Export Free Zone Act (OGEFZ Act), 1996, with Onne Oil and Gas Free Zone, Rivers State being the first oil and gas export free zone to be established. About five other free zones including the Warri Port Complex (OGFZ), Eko Support Free Zone, Brass Oil & Gas City, Ikot Abasi Oil and Gas Free Zone and Ibaka Oil & Gas Free Zone, have subsequently either been licensed or proposed. The regulatory body is the Oil and Gas Export Free Zone Authority (the Authority).  

BUSINESS AND OPERATIONAL BENEFITS OF CONDUCTING BUSINESS IN THE FTZ?

The incentives or benefits enjoyed by investors include but not limited to:

1. Exemption from compliance with local incorporation requirements under the Companies and Allied Matters Act, 2020.
2. Exemption from all Federal, State, LG taxes, levies, and rates.
3. Repatriation of foreign capital investment, at any time, with accrued capital appreciation, amongst others.
4. Offshore remittance of profits and dividends.
5. Up to 100% foreign ownership of businesses in the Zones.

The FTZ scheme aims to accelerate the nation’s economic growth through the attraction of foreign direct investment, the enhancement of foreign exchange earnings, employment generation, transfer of technical know-how to Nigerian understudies, etc. We have itemized below, the compliance requirements for Free Zone Enterprises (FZEs) registered within the active FTZs, from registration stage to post-registration obligations, under the applicable Laws of the Federation of Nigeria.  

FTZ Regulatory Laws: Compliance Requirements For FZEs

The regulatory framework for Nigeria’s FTZs includes:

1992. the Nigeria Export Processing Zones (NEPZA) Act 1992.
1993. the Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria, 2004 (the NEPZA Regulations 2004), issued pursuant to Section 10 (4) of the NEPZA Act.
1994. the Oil and Gas Export Free Zone Act, 1996.
1995. the Oil and Gas Export Free Zones Regulations, 2003.
1996. the Oil and Gas Export Free Zone (Special Import Provisions) Order 2003.
1997. the Central Bank of Nigeria Guidelines for Banking Operations in the Free Zones in Nigeria, 2016.
1998. Byelaws of the various FTZs, such as the Lekki Free Trade Zone Regulations, 2010, Lagos Free Trade Zone Regulations, 2009, etc.

Understanding that the FTZ is an economic territory, like the customs territory, but differing in the applicable laws, regulations and procedures is crucial to fully appreciating the incentives, procedures and compliance requirements embedded in the framework that regulates the operations of FZEs. For a seamless business operation, it is important for investors to be well acquainted with the extant compliance obligations as much as the incentives and benefits. Consequently, FZEs are not absolved of the responsibility to furnish their Zone Management with returns on their operations. Section 19 of the NEPZA Act mandates FZEs to submit such statistical data, information and returns as regards the sales and purchases and other operations of the FZEs as the Authority may require or as the Authority may prescribe on occasion. Noteworthy, also, is the recent direction by the Federal Inland Revenue Service (FIRS) through a Public Notice issued in April 2021 for all approved enterprises operating within both the general and specialized FTZs to file their income tax returns for 2021 and subsequent years of assessment, and compute income tax and pay the tax due, if any. The Compliance requirements for FZEs is categorized into:

1. Pre-registration Compliance Requirements.
2. Post-registration Returns – Continuing Obligations.

Pre-registration Compliance Requirements

An FZE must be registered with NEPZA, and obtain an Operating Licence, to operate within a licensed Zone. After identifying and indicating an approved activity it desires to carry on, the applicants for the FZE are required to undertake the following:

1. Complete NEPZA application forms and pay processing fee of $500 (or the fee prescribed).
2. Submit the completed NEPZA application forms along with an application letter, the Business Plan/Feasibility study document, Board resolution, Memorandum and Articles of Association, passport photographs and Director’s means of Identification, certificate(s) of incorporation of shareholders (where applicable).
3. On approval of the application by NEPZA (the Authority), a Certificate of Registration will be issued by the Authority and an Operating License (OPL) will be issued by the Zone Management.

**The Zone Management is the Management Body the active FTZ and FZE is registered within.

4. The Zone Management will discuss and assign or reserve the FZE’s work site (i.e. portion of land within the Zone).
5. A Certificate of Capital Importation will be issued upon remission of investment capital through banks located in the zones.
6. The FZE shall proceed to prepare its building/warehouse. If it will be constructing its own building, the FZE shall submit four (4) copies of full architectural drawings for approval by the Zone Management.

**Note that construction must start within three (3) months after the execution of a lease agreement and the structure must not exceed 70% of the leased land.

7. Operations of the FZE commences.

Post- registration Returns – Continuing Obligations

Some of the post-registration Compliance obligations are examined below:

S/No.	Regulatory Requirement	Timeline	Regulator (Who to apply/submit to)
1.	Licence renewal: Payment of the Licence renewal fee. Submission of documents, returns or information which the Management may require. Payment of all outstanding amounts (if any) due to the Authority.	Yearly	Zone Management
2.	Quarterly returns: Duly completed Data Summary Sheet.	On or before the last working day of the first month of the next quarter	Zone Management
3.	Filing of Audited Financial Statements	Within thirty days after its adoption	Zone Management
4.	Company Income (CIT) Tax returns	6 months after the financial year end	Federal Inland Revenue Service (FIRS)
5.	Maintenance and update of the FZE’s Register	For the lifespan of the FZE	Zone Management
6.	Notice of change in particulars of directors and secretary	Within 14 days	Zone Management
7.	Notice of Owner’s Declarations at the Free Zone Registry	Within 14 days	Zone Management
8.	Notice of Security Interests	Within 7 days	Zone Management
9.	Notice of distribution other than profits	Within 7 days	Zone Management
10.	Notice of the details of the owner and the ultimate ownership of the FZE	Within 7 days	Zone Management

For further discussion and assistance with filing any of your organization’s returns, as well as providing you with Board Evaluation and Nominee services, please contact us below.