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Legal Alert May 2008 Legality of Bank Interest Rates In Nigeria
 
In this Issue:
1. Legal News
2. Legal Alert for May, 2008 – Legality of Bank Interest Rates & Charges.
3. Subscribe & Unsubscribe to Legal Alerts.
4. Disclaimer Notice.
Legal News
The accolades that the Lagos State Government has received in the introduction of the 30 day rule in the transfer of legal interest in landed property would ultimately wane and evaporate if the promise of the rule is not adhered to strictly. It for example takes days to pay for fees and obtain the relevant receipts from the treasury. The practice of privately facilitating the consent without which the process would be stalled is most unfortunate. It is hoped that the Lagos State Government would develop checks and balances in order for it to encourage private investments in real estate businesses in Lagos State.
Legal Alert for May 2008 – Legality of Bank Interest Rates & Charges in Nigeria.
Differences between banks and their customers over interest rates and other bank charges have reintroduced the distrust that customers have for banks. Some Nigerian banks are now charging a fee of N105 as maintenance fees on the savings account of their customers without any explanation or notice to the customers. Others have imposed some of their consolidation costs on their customers. The number of litigations on this subject has in turn increased.
This Alert is intended to very briefly provide some general information on what the Nigerian Law and Nigerian Courts have decided as the rules governing the imposition of bank charges and interest rates on customers in Nigeria. Suggestions are also made on a more transparent method of charging these fees.
Legality of Bank Charges & Interest Rates
The primary rule in all banking transactions is that the relationship between a bank and its customer is regulated by the written contract between the bank and the customer at the time of the opening of the bank account or accounts and such subsequently arrangements that may be agreed upon in the cause of their normal day-to-day banking business.
Nigerian Law and Courts jealously adhere to the terms and conditions of a written contract except where fraud, misrepresentation or other intervening circumstances is shown to exist.
Nigerian case law acknowledges that where there is no express provision in the contract between a bank and its customer - which is very rarely the case these days - Nigerian Law follows the universal practice which acknowledges that a bank is only entitled to charge simple interest.
Nigerian Law also recognises that subject to contract, interest rates and bank charges are not static and immutable.
The above stated universal practice and custom can however be varied by a written agreement between the bank and the customer with the customer authorising the bank to charge interest or other charges at rates above the ones recognised to be simple interest. Unfortunately, many customers do not pay close attention to the documents that they execute in favour of their banks and this leads to conflicts when an alleged debit is shown in the account of the customer.
Protection for Bank Customers
The principal protection for a bank's customer is to always ensure that he or she pays very close attention to the terms and conditions of any document that he or she receives from his or her bank with a demand for the customer to execute it. Whilst most of the terms and conditions of these documents are claimed to be standard and non-negotiable, their implications are permanent.
The Nigerian Consumer Protection Council is by law required to protect the interest of all consumers in all areas of products and services by providing speedy redress to consumer complaints, etc. See the web site – www.cpcnigeria.org - of this Council for more details. Unfortunately, institutional regulation in Nigeria remains weak and would only be enthroned when pressure groups and more consumers file petitions to the Consumer Protection Council.
In the United Kingdom, the Office of Fair Trading – www.oft.gov.uk – has successfully won a high court decision which authorises the Office of Fair Trading to assess for fairness the standard form contracts between banks and their customers in relation to the charges that are imposed on customers of banks. Other private customers have equally succeeded in this regard and obtained compensation in the form of refunds for unauthorised charges.
Conclusion
Continuing distrust between banks and their customers over bank charges and interest rates are inimical to the development of the banking culture in Nigeria. Full disclosure and good faith would in the long run be more profitable to the banks, their customers and the country. Banks disclosing the full components of special or extraneous charges could be a beginning.
Consumer protection laws in Nigeria require further improvements in the areas of empowering the Nigerian Consumer Protection Council in the discharge of its statutory functions as its contemporary in the United Kingdom, the Office for Fair Trading, is doing.
Consumer protection pressure groups need to develop in Nigeria with the sole responsibility of protecting all consumers of goods and services.
The Nigerian consumer needs to pay closer attention to his or her business activities. Many Nigerians do not receive bank statements and when they do, they do not read it closely and raise objections to charges that do not form part of their contract with their bank. Failure to raise any objections to any disputed entry to your bank statement is an implied consent to abide by the entry.
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This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally permitted to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Legal Alert April 2008 Shares Private Placements As Public Offers
 
In this Issue:
1. Legal News
2. Legal Alert for April, 2008 – Shares Private Placements as Public Offers.
3. Subscribe & Unsubscribe to Legal Alerts.
4. Disclaimer Notice.
Legal News
The Lagos State Government has published a notice reminding Applicants of the "New Procedure for obtaining Governor's consent" to real estate transactions in Lagos State. A cumulative rate of 15% is applicable to all subleases, assignments and power of attorney; this consist of:- (a) consent fee – 8% of assessment; (b) capital gains tax – 2% of assessment; (c) stamp duty – 2% of assessment and (d) registration fee – 3% of assessment.
Assignment of state land within ten years of the issuance of the right of occupancy attracts 16% as consent fee (as against 8% stated above). A deed of gift attracts 5% as consent fee. For further information, you can contact the Lands Bureau, Block 13, Room 54, Lagos State Government Secretariat, Alausa, Ikeja, Lagos.
The Nigerian Securities & Exchange Commission (SEC) has issued a public warning to the effect that the shares of private companies been offered by way of private placements to members of the public are not registered or regulated by SEC, neither are these shares listed on the floor of the Nigerian Stock Exchange. SEC's notice also reminds members of the public that where a company has more than 50 members/shareholders, it is by Law a public company required to comply with the reporting and regulatory requirements of a public company. Purchasers of shares in a private placement are therefore required to undertake all due diligence as the shares bought from private placements are bought at their own risk and peril.
Legal Alert for April 2008 – Shares Private Placements as Public Offers – Legality.
The increase in the number of persons, both corporate and individuals, who subscribe to the various investment vehicles especially the buying and the selling of the shares of publicly quoted companies in Nigeria, is commendable. Private companies desirous of raising fresh capital have also benefited from this new drive and enthusiasm sometime to the peril of the investing members of the public who may be under the impression that they are purchasing the shares of a public company quoted on the Nigerian Stock Exchange.
To protect members of the public, SEC has issued a public notice warning members of the public that while they can invest in private placements, such private placements are not regulated by SEC neither are the shares listed on the floor of the Nigerian Stock Exchange.
This paper however seeks to briefly explore what distinguishes a private company from a public company? This paper would also explore whether the caveat emptor warning from SEC is sufficient in the discharge of its statutory duty of protecting members of the investing public.
Private and Public Companies compared
Section 22 (1) to (5) of the Companies and Allied Matters Act, 1990 describes a private company to be one which by its Memorandum of Association states that it is a private company, and by its Articles of Association restricts the transfer of its shares, limits the number of its members to not more than 50 persons (excluding bona fide employees and ex-employees of the company), and does not unless authorised by Nigerian Law to do so, invite members of the public to subscribe for its shares or debentures or to deposit money for fixed periods whether or not such money bears interest.
A public company in comparison has more than 50 members and is allowed by Law to invite members of the public to subscribe for its shares.
Meaning of Public Invitation
The Investment and Securities Act, 1999 describes an invitation to the public to include any publication, advertising or dissemination by newspaper, broadcasting, cinematography or by any other public means whatsoever, of the activities of a company.
Restriction to Public Invitation By Private Companies
Section 44 of the Investment and Securities Act, 1999 bars any company, which is not a duly registered public company, from inviting members of the public to subscribe or trade in the securities of such a company.
Section 23 of the Companies and Allied Matters Act, 1990 provides that a private company shall cease to be entitled to the privileges and exemptions from public regulations conferred on private companies in Nigeria and would be treated "... as if it were a public company" where it has the characteristics of a public company; e.g. more than 50 members and invitation to the public to subscribe for its shares.
Consequence of Default
A key privilege of a private company is that it is not bound by the reporting and regulatory rules that govern the affairs of a public company.
Section 44(2) of the Investment and Securities Act, 1999 provides that any individual or body corporate that is not a duly registered corporate body that invites members of the public to subscribe for its shares is liable on conviction to a fine of not less than One Hundred Thousand Naira (N100,000) and or to a term of imprisonment of not less than two years.
Conclusion
The number of private companies that are publicly inviting members of the public to participate in their private placement offerings would continue to be on the increase without regulation by SEC.
Allegations that some private companies that have benefited from private placements before going public and have refused to issue share certificates to the subscribers under their private placements need to be investigated by the regulators.
It is recommended that the Securities and Exchange Commission must apply the Laws of Nigeria by prosecuting in criminal courts the offending private companies. This is particularly so for private companies that have now gone public but refused to issue share certificates to subscribers who paid for shares offered during the private placement. This strategy would further bring some sanity to the securities market.
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This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally permitted to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Legal Alert March 2008 VAT & Foreign Non Resident Companies In Nigeria
 
In this Issue:
1. Legal News
2. Legal Alert for March, 2008 – Value Added Tax & Foreign Non Resident Companies In Nigeria.
3. Subscribe & Unsubscribe to Legal Alerts.
4. Disclaimer Notice.
Legal News
The Stamp Duties rates in Nigeria have been reverted downwards to the rates prescribed in the Stamp Duties Act, Cap S8, Laws of the Federal Republic of Nigeria, 2004. This is in compliance with a ministerial directive that the rates should be reverted.
Legal Alert for March 2008 – Value Added Tax & Foreign Non Resident Companies In Nigeria
What is VAT?
In brief, Value Added Tax (VAT) is a consumption tax levied at each stage of the consumption chain and borne by the final consumer of the product or service.
Each person in the consumption chain, known as the taxable person, is required to charge and collect VAT at a flat rate of 5% on all invoiced amounts, on all goods and services not exempted from paying VAT, under the Value Added Tax Act (as amended).
Where the VAT collected on behalf of the government (output VAT) in a particular month is more than the VAT paid to other persons (input VAT) in the same month, the difference is required to be remitted to the government, on a monthly basis, by the taxable person. Where the reverse is the case, the taxpayer is entitled to a refund of the excess VAT paid or more practically, to receive a tax credit of the excess VAT from the government.
All exports are zero rated for VAT, i.e. no VAT is payable on exports. Also, VAT is payable in the currency of the transaction under which goods or services are exchanged.
Registration For VAT – Resident & Non Resident Persons
Every person, whether resident in Nigeria or non resident in Nigeria, who buys or sells goods and services in Nigeria that are not exempted from paying VAT under the VAT Act (as amended) is compulsorily required to register for VAT within six months of its commencement of business in Nigeria. Registration is with the Federal Board of Inland Revenue (FBIR).
Registration for VAT in Nigeria is relatively very easy with minimum registration requirements demanded.
VAT Registration of Foreign Non Resident Persons
The VAT Act (as amended) provides that a foreign non-resident person or company that carries on economic activity in Nigeria must register for VAT, using the address of the person with whom it has a subsisting economic activity for purposes of correspondence with FBIR and for compliance with the VAT Law.
The foreign non resident person or company is required upon registration for VAT to include in its invoice VAT at 5% with instructions to the receiver of the goods or services to remit the 5% VAT in the currency of the transaction to the Nigerian government on behalf of the foreign non resident person.
Penalties for Non VAT Registration
A taxable person, whether Nigerian or resident outside Nigeria, who fails or refuses to register for VAT administration within six months of engaging in any economic activity in the territory of Nigeria is liable to pay a penalty of N10,000 for the first month that the failure occurs and a further penalty of N5,000 for each subsequent month in which the failure continues.
In addition to the fines for non registration, Section 32 of the VAT Act (as amended) authorises the FBIR to seal up the premises from where the economic activity in question is being carried on within the territory of Nigeria.
Penalties For Non Remittance & Other VAT Offences
To ensure that all VAT collected are remitted to the government in a timely manner, the VAT Act (as amended) provides that where a taxpayer does not remit the VAT collected within time, he or she shall be liable to (a) the value of the VAT that ought to have been remitted in the first place (b) to a penalty sum equal to 5% per annum of such sum (c) plus a further interest at commercial rates on the VAT not remitted with 5% per annum interest charge.
Other offences under the VAT Act (as amended) include:
• Failure to issue a VAT invoice is an offence that on conviction attracts a fine of 50% the costs of the goods or services for which the invoice was not issued.
• Failure to collect VAT is an offence that attracts a penalty of 150% of the amount not collected in addition to a 5% interest charge above the Central Bank of Nigeria rediscount rate.
• Evasion or participation in the evasion of this tax attracts a fine of N30,000.00 or two times the amount of the tax being evaded, whichever is greater, or to imprisonment for a term not exceeding three years.
• Production of a false document or the making of a false statement to FBIR is an offence and the offender is liable on conviction to a fine twice the amount of the VAT that is under-declared.
• Failure to notify FBIR of a change of address within one month of such change attracts a penalty of N5,000.
Administration of VAT in Nigeria
VAT was introduced under the military unitary system of government. Whilst the 1999 Constitution has incorporated VAT as a subsisting Law in Nigeria, its implementation remains unitary in nature. 15% of the revenue accruing from VAT is retained by the Federal Government whilst the States and the Federal Capital Territory share 50% of VAT revenues and the balance 35% is distributed among all the local government areas in Nigeria.
Conclusion
VAT remains the easiest and cheapest form of tax to collect and administer in a country like Nigeria with a very high informal sector. This has led to many practitioners recommending that the rate of VAT charged in Nigeria should be increased while the rate of Personal Income Tax and Companies Income Tax charged should be reduced.
However, the equitable distribution of the proceeds of VAT remains questionable. Because of this, the Lagos State Government is currently challenging the constitutionality of the VAT Act (as amended) on the primary ground that sales tax or VAT is a residual matter in which only the States can legislate. It is expected that the popular case of Attorney General of Ogun State v. Aberuagba decided by the Nigerian Supreme Court in 1997 would be revisited in the determination of this matter at the Supreme Court of Nigeria.
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This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally permitted to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Legal Alert January 2008 Collecting Societies In Nigeria
 
In this Issue:
1. Legal Alert for January, 2008 – Collecting Societies In Nigeria; the Law & Regulations.
2. Subscribe & Unsubscribe to Legal Alerts.
3. Disclaimer Notice.
Legal Alert for January 2008 – Collecting Societies In Nigeria; the Law & Regulation
An Artiste or Entertainer expends considerable time, talent and expense in producing the entertainment product that we all so love to listen to or to watch or to use in such appropriate medium as it is produced to suit the consumer of the product. The Artiste or Entertainer receives no other compensation for his or her industry other than for his or her audience to purchase the entertainment product or "lease" it at a fair price.
Most Artistes or copyright owners however do not have the national or global network, managerial and administrative expertise and resources of ensuring that their products/works are maximally distributed without the problems of (a) piracy, (b) none payment of royalty, and (c) where there is payment of royalty, the royalty payment does not get to the Artiste or copyright owner.
The negative aspect of technological advancement and trade globalisation is also not making the function of protecting the intellectual property rights of Artistes and entertainers any easier. An Artiste or copyright owner would find it a colossal and exhorbitant task to individually and independently monitor his or her intellectual property work in the many countries of the world where such intellectual work is available for use.
To solve the above multi-jurisdictional protection problems for copyright owners and many other owners of intellectual proprietary rights, associations usually called Collecting Societies are formed to assist the copyright owners in administering these intellectual property rights in accordance with the laws of each country where such Collecting Society is licenced to administer third party copyrights.
What is a Collecting Society?
A Collecting Society is a representative association consisting of various copyright owners who have authorised the Collecting Society to maximally administer their intellectual proprietary rights in accordance with the statutes and authority of the country where the Collecting Society resides, for an agreed fee.
Licensing & Regulation of Collecting Societies In Nigeria
Collecting Societies hold a very important fiduciary position vis-à-vis the property right owners they represent. Because of this, a Collecting Society is required to show, before been granted a licence under the Nigerian Copyright Law, that (a) it is registered as a company limited by guarantee - as opposed to a company limited by shares - with its primary objectives including:-
(i) The negotiating and granting of copyright licences on behalf of the copyright owners, who are its members, to third party users at an agreed consideration; and
(ii) Collecting royalties on behalf of its members and repatriating these royalties after deducting the Society's approved administrative fee;
(b) it represents a substantial number of the members of the society in the class that it seeks to administer their rights; and (c) it complies with the Copyright (Collecting Societies) Regulations, 1993.
It is however unlawful for any person, corporate or personal, who is neither registered under the Companies and Allied Matters Act as a company limited by guarantee nor licenced by the Nigerian Copyright Commission (NCC), to carry on any business with the objective of negotiating or granting licences for valuable consideration on behalf of its copyright owners/members, and distributing the consideration to its members.
Criminal Liability for Non Licenced Collecting Societies
Any association or society of copyright owners that carry on the functions or duties of a collecting society without licence from NCC contravene the provisions of the above stated Nigerian Law on copyright.
Where found guilty by a Court of Law for not possessing a Collecting Society's licence, such an association or society with its principal executives are liable on conviction, if first offenders, to a fine of N1,000 (One Thousand Naira) for individuals and N10,000 for corporate associations. For second and subsequent offenders, the fine is N2,000.00 (Two Thousand Naira) for individuals and for corporate associations, the punishment is N2,000.00 for each day in which the offence continues.
In addition to the fine for the breach of carrying on business as a collecting society without licence granted in accordance with the provisions of the Nigerian Copyright Act (as amended), this Law gives to the Courts the option to impose with the fine above stated, a term of imprisonment on the offending person or association provided that the term of imprisonment does not exceed 6 months.
A novel provision, at the time of the enactment of the Nigerian Copyright Act, is the removal of the corporate veil that was in the past enjoyed by corporate executives who used to argue that they were only acting for their company which ironically is an artificial entity with no flesh and blood of its own.
Civil Rights & Liability of Collective Administration of Copyrights
Section 15 of the Nigerian Copyright Act confers the right to protect and bring an action for the infringement of a copyright on the owner, assignee or exclusive licensee of the copyright. This right of action is however not absolute as Section 15A provides that a collecting society shall not have such right of action or protection until it applies for and is granted a collecting society's license or, is granted an exemption from applying for and having such a licence by NCC.
Case Law On Collecting Societies
The efforts by the two major associations in Nigeria to have exclusivity to the collective administration of copyright in musical works have resulted in disputes and litigations. There is however no final substantive decision by the highest Court in Nigeria on this subject. Also, the few interlocutory decisions that this writer is aware of, are presently on appeal awaiting final decision by the appellate courts.
Let us however consider some of the interlocutory decisions on collecting societies in Nigeria. In the matter of Musical Copyright Society of Nigeria Limited v. Adeokin Records, Suit No. FHC/L/CS/216/96 (unreported) decision delivered on July 9, 1997 by Ukeje J. (as she then was) and in the matter of Musical Copyright Society of Nigeria v. Details Nigeria Limited FHC/L/CS/434/95 decision delivered on 31st July 1996 by Odunowo J., the Federal High Court of Nigeria held that any association without a collecting society's license is in breach of the provision of Section 32B(2) of the Nigerian Copyright Act and as a result lacks the locus standi to maintain a court action.
The arguments of the Musical Copyright Society of Nigeria in the above matter that it was an owner, assignee and exclusive licensee of copyright was held to be untenable as a party can only sue if it has the legal competence/license to do so. The decisions in Re Adetona (1994) NWLR (part 333) 481; Thomas v. Olufosoye (1981) 3 NWLR (part 13) 523 were relied on by the Court.
The matter of the Musical Copyright Society of Nigeria Limited v. Adeokin Records however went on appeal to the Court of Appeal in suit CA/L/498/97. The Court of Appeal held that, although the Respondent did not file any Respondent's brief in its defence to the appeal, based on the Appellant's brief alone, the 1988 Copyright Act, upon which the originating proceedings in this matter was filed, confers locus standi on the Appellant as owner, assignee and exclusive licensee authorised to prosecute the claims in this matter. The Federal High Court's retrospective application of the amendments to the 1988 Copyright Act was held by the Court of Appeal to be wrong in law as no retrospective effect was clearly intended in the Copyright (Amendment) Act, 1999. The Court of Appeal accordingly remitted this matter to the Federal High Court for re-assignment by the Chief Judge for hearing before another trial Judge.
In another matter, the Nigerian Copyright Council v. Musical Copyright Society of Nigeria Suit No. FHC/L/43c/99 (unreported) the latter collecting society was criminally charged with infringing the provisions of the Nigerian Copyright Act which bars any person or society from carrying on business as a collecting society without obtaining a collecting society's licence from the copyright regulator, NCC. The Court held, on the interlocutory application of the accused association contending that the Complainant Prosecution lacked the legal authority to sustain the charge, that the right to feely associate is not an absolute right but a restrictive one. The Court further held that the Copyright Commission is granted statutory powers similar to those of the Nigerian Police to prosecute offenders of statutory offences provided for under the Nigerian Copyright Act.
For the details of the Federal High Court judgements and other judgements on intellectual property law in Nigeria, see the book "Nigerian Copyright Law & Practice" By John O. Asein, Esq.
Regulator's Notice
In October 2007, following claims and counter claims by the two principal collecting rights associations in the Nigerian music industry, the Nigerian Copyright Commission issued a widely circulated public notice warning members of the public that there is presently no approved or authorised or licenced collecting society in Nigeria. Members of the public were reminded that it is a criminal offence under Section 32B(4) of the Nigerian Copyright Act (as amended) for any body or corporate association or group to perform or purport to perform the duties of a collecting society without a valid licence issued to it/them by NCC.
Conclusion
The essence of the Copyright Act (as amended) and collecting societies in their entirety is the protection of the rights of the owners of the copyright to an intellectual property work or works. The Nigerian copyright regulator and the various associations laying claim to copyright protection would do well to close ranks and work together in the interest of the rights owners. Without such harmonised cooperation, unauthorised users and pirates would continue to enjoy where they have not sown.
Subscribe & Unsubscribe to Legal Alerts
This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally permitted to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Legal Alert Tax Benefits Pioneer Status
 
In this Issue:
1. Legal Alert for November, 2009 – Tax Benefits of Pioneer Status in Nigeria
2. Subscribe & Unsubscribe to Legal Alerts.
3. Disclaimer Notice.
Legal Alert for November, 2009 – Tax Benefits of Pioneer Status in Nigeria
TAX BENEFITS OF PIONEER STATUS APPROVAL IN NIGERIA
The number of Nigerian companies applying for and obtaining pioneer status approval has dwindled considerably in the last decade with the attendant decrease in the benefits inherent in the possession of a pioneer's status certificate.
This is despite the subsisting applicable legislation in the Nigerian Statute book, namely the Industrial Development Income Tax Relief Act ("the industrial Development Act").
The Industrial Development Act provides that where the Nigerian government is of the opinion that any sector or industry in her economy is not being undertaken on a scale suitable to the economic advancement of Nigeria, or that it is in the public interest to encourage the further development or establishment or advancement of trade in such a sector or industry, the President of Nigeria is authorised to publish in a Gazette, a list of such industry or industries to whom pioneer status Certificate may be issued upon their successful application.
Any industry that is not listed in the schedule of industries, to which pioneer status could be granted, is at liberty to apply for the inclusion of such an industry in the pioneer status list. The Nigerian government is also at liberty to, from time to time, amend its list of pioneer industries, enterprises and products.
APPLICATION FOR PIONEER STATUS
To qualify to apply for pioneer status, a joint venture company or a foreign wholly-owned company must show that it will incur capital expenditure in excess of N5,000,000 (Five Million Naira). In addition, an application for pioneer status must be submitted within one year of the applicant company commencing commercial production otherwise the application will time-barred.
Every application for pioneer status must be addressed to the Federal Minister for Industries stating the ground or grounds on which the applicant relies for making the application for the issuance of a pioneer certificate to such an Applicant company. The application should indicate:
(a) Whether the Applicant Company is an indigenously controlled or foreign controlled company?
(b) Particulars of the assets on which qualifying capital expenditure will be incurred by the company, including their source and estimated costs.
(c) The probable date of commencement of the production by the company.
(d) The location of the assets in respect of which qualifying expenditure will be incurred by the applicant company.
(e) The product and any by-product proposed to be or that is being produced by the company.
(f) Provide particulars of the loan and share capital, or the proposed loan and share capital of the applicant company or the proposed applicant company.
(g) Provide the names, addresses and nationalities of each Director, and the number of shares held by each such Director in the applicant company.
(h) Give the name(s), addresses and nationalities of each promoter in the case of a company that is yet to be incorporated.
A pioneer certificate could be amended by including an additional product or products. The particulars of all pioneer Certificates must be published in the Federal Government Gazette.
INCOME TAX RELIEF FOR PIONEER COMPANIES
The tax relief period for all pioneer companies is three years commencing on the first production day of the company. The tax relief period may be extended subject to some conditions, for a further period of two years or one extra year after which a further extra one year may be allowed.
However, a company which acquires or proposes to acquire the assets of a company that has pioneer status or has been taken over or is been taken over by such other company remains only entitled to continue to enjoy a pioneer approval that must not exceed five years cumulatively from the date of its original grant or the date of the first production under the original grant.
A Pioneer Company is not allowed, for tax relief purposes, during the period of the tenure of its grant, to engage in other form of enterprise different from those for which pioneer approval has been granted. Where however a pioneer company engages in such other trade or business, the profit accruing to it from such other trade or business shall be liable to Nigerian Income tax statutes and regulations.
Subject to the above condition, all the profits of a pioneer company from an approved pioneer enterprise or product are not subject to the payment of Income tax on their assessable or total profits.
Also, the Dividend Income of a pioneer company is exempted from tax in the hands of the shareholders of such a company provided such dividends are paid from an account of the company approved by the Federal Board of Internal Revenue (FBIR). FBIR is also authorised to retract these benefits within a period of six years should the pioneer certificate of the pioneer company be cancelled or such other contrary directive is issued by the Nigerian government for good reason.
FALSE INFORMATION
Any applicant who makes or presents a false declaration or statement, or who produces a false invoice or undertaking is guilty of an offence and is liable on conviction to a fine not exceeding N1,000 or to a term of imprisonment of five years or to both the fine and the term of imprisonment. Where the offence is committed by a body corporate, every director, manager, secretary or other principal officer of the company, if found severally guilty with the body corporate, will also be liable in the same manner as if he or she had committed the offence in his or her individual capacity.
CONCLUSION
In the last decade, pioneer certificates have been issued to industries in the manufacturing, solid minerals, telecommunications, food production, processing and agriculture, scientific instruments, construction services, gas and industrial power, utility services, real estate development, tourism, information and communication technology, and other related pioneer sectors of the Nigerian economy. More recently however, there appears to be a paucity of fresh applications or consciousness of the business benefits and effectiveness of pioneer approvals in Nigeria.
Multiple taxation and infrastructural challenges continue to overwhelm existing and new businesses. Investment promotion agencies of government with independent chambers of commerce and other business stakeholders should enlighten their members through institutionalised pressure groups to bring certainty to establishing enduring businesses in Nigeria while taking advantage of the existing statutes like the one on pioneer companies and the tax relief that they enjoy.
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