FREE TRADE ZONES REGULATIONS
A free-trade zone is a class of special economic zone. It is a geographic area where goods may be landed, stored, handled, manufactured, or reconfigured and re-exported under specific customs regulation and generally such goods are not subject to customs duty. Free trade zones are usually organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade.
The body in charge of overseeing the activities in the free trade zones in Nigeria is called the Nigeria Export Processing Zones Authority and it is established under the Nigeria Export Processing Zone Act Cap N107 Laws of the Federation of Nigeria 2004.
TYPES OF FREE TRADE ZONES LICENSES
Essentially, there are three major grants of Free Trade Zones in Nigeria. The Authority/Zone Management may grant approval for one or more of the following Licences:
Free Zone Developers Licence
Free Zone Enterprise Licence
Export Processing Factory/Export Processing Farm Licence
Free Zone Developers License
This is a License granted by the Authority to either a public, private entity or a combination of the two for the establishment, operation and management of a Free Zone in Nigeria under the supervision, monitoring and regulation by the Nigeria Export Processing Zones Authority.
Free Zone Enterprise License
This type of License is granted by the Authority/Zone Management for an enterprise to undertake an approved activity within a Free Zone. These activities could be:
Manufacturing
Trading
Service Provision
Export Processing Factory/Export Processing Farm License
This License is granted by the Authority to an export-oriented manufacturing enterprise of farm located in the customs territory which has the capacity to export over 75% of its production.
ELIGIBILITY FOR A LICENCE
In determining eligibility for a Free Trade Zone Licence, the Authority/Zone Management may consider the following factors:
the activities which the applicant proposes to engage shall be in consonance with the free zone approved activities;
the proposed activities to be carried out will add value to and be consistent with, the development programme for the Free Zone;
the applicant shall comply with the provisions of the Act and applicable Rules and Regulations that may be put in place by the Authority/Zone management from time to time; d. the technical, financial and managerial capabilities of the applicant; and
the applicant’s experience and track record;
the level of foreign direct investment proposed by the applicant, and
for free zone developers, evidence of title to a suitable land area free of encumbrances for the intended purpose.
A Licence shall only be issued to an Applicant who has satisfied the Authority/Zone management in all respects.
REGISTRATION
In line with the provisions of the Free Zones Registration Procedures and Regulations, upon a Licence being granted to an approved entity by the Authority/Zone Management, the Authority shall cause all relevant details concerning such enterprise to be entered in the FZ Register and for a Certificate of Registration, duly executed by or on behalf of the Authority/Zone Management, to be issued.
NAME OF A FREE TRADE ZONE ENTERPRISE
The Regulations also provide that the name of a Free Zone Enterprise must end with the acronym of the within which it is located. A Free Zone Enterprise shall not be registered in the FZE Register with a name, which is not approved by the Authority.
A Free Zone Enterprise may change its name by Owner’s Declaration subject to the proposed new name being approved by the Authority. The new name of the Free Zone Enterprise shall be entered in the FZE Register and a Certificate of Change of Name issued by the FZ Registry. Each Certificate of Change of Name shall specify, among other things, the date of registration of the new name in the FZE Register, being the date on which such new name shall take effect.
REGISTERED ADDRESS
Each Free Zone Enterprise shall at all times have an address, either in the Free Zone, in the State or in any other State, to which all communications and notices may be addressed. Details of such address, which shall be its registered address, and of any change of address, shall be notified within 14 days to the FZ Registry and details thereof promptly entered in the FZE Register.
OBJECT OF FREE ZONE ENTERPRISES
The objects of each Free Zone Enterprise shall be to carry on all such business within the area of the Free Zone as the Authority may permit under the terms of the Licence issued in respect of the Free Zone Enterprise (as the same may be amended from time to time by the Authority) and elsewhere in accordance with all applicable laws and regulations, and all business and other matters ancillary, conducive or related thereto. Such matters will include power for each Free Zone Enterprise to borrow, grant security, guarantee any obligation of any person or indemnify any person, to enter into all types of banking and financial transactions, to issue, make endorse or draw any negotiable instruments (such as cheques, bills of exchange, promissory notes or bills of lading) in relation to its business and power for each Free Zone Enterprise to make, alter or dispose of any investments (whether or not within Nigeria) in relation to its business.
The Regulations further provide that a Free Trade Zone Licence shall be considered personal to the Licensee who shall not transfer, assign, or purport to transfer or assign the Licence in whole or in part without the prior written consent of Authority/Zone Management.
RENEWAL OF LICENCE
A Free Trade Zone License usually last for one year, and it can be renewed upon expiration.
Requirements For Renewal:
payment of the Licence renewal Fee;
production of any other documents, returns or information which the Authority;
payment of all outstanding amounts (if any) due to the Authority.
OPERATIONS OUTSIDE THE FREE ZONE
In accordance with the Licensing of Free Zones and Business Enterprises Regulations, a License issued by the Authority/Zone Management shall only be valid within the Free Zone. A Licensee wishing to carry on business outside the Free Zone must comply with the applicable laws in force for the time being outside the Free Zone.
DEREGISTRATION
The circumstances by which licensed free trade zones can be deregistered are encapsulated in Free Zones Registration Procedures and Regulations. It provides as follows:
A Free Zone Enterprise shall be deregistered from the FZ Register upon and in accordance with any order, therefore, being issued by any Court in Nigeria.
Upon deregistration of a Free Zone Enterprise, all trading and other business operations of such Free Zone Enterprise must cease and the Owner must ensure that the Free Zone Enterprise’s affairs are wound up under the supervision of an accountant licensed to conduct business as such in Nigeria as liquidator/receiver so as to:
ensure that such winding up is conducted in a timely and organised way, taking account of all assets of the Free Zone Enterprise and the claims of all creditors and employees thereof and ensuring the payment, or provision for payment of, or to discharge, all claims, debts, liabilities and obligations of the Free Zone Enterprise subject to the limitation of liability of the owner specified in paragraph 7 above;
distribute any surplus assets of the Free Zone Enterprise to the Owner; iii. cause to be prepared by the liquidator a statement of account in respect of his actions and transactions; and iv. ensure that a copy of such report is delivered to the FZE Registrar within 7 days of such report being made. Details of such report shall be promptly entered in the FZE Register.
REVOCATION OF LICENCES
The Free Zones Registration Procedures and Regulations also provide that Licence of a user may be revoked if the existence of any of the following circumstances are confirmed by an investigation and assessment conducted under Article
INCENTIVES AVAILABLE TO BUSINESSES IN THE FREE TRADE ZONE
If a business commences in any of the free trade zones, they are exempt from the normal laws and rules of the government which are applicable all over the country of Nigeria, especially in the field of taxes and customs duties. In return, the government anticipates that the company will help the economic growth of the country. There are several benefits that can be utilized by an enterprise when it is set up in an EPZ in Nigeria. These benefits are:
Any legislative provision related to taxes, levies, duties, and any foreign exchange regulations which are applicable in the country will not apply to the companies’ set up in EPZs. Section 8 of the NEPZA provides that:
“Approved enterprises operating within a Zone shall be exempted from all Federal, State and Government taxes, levies and rates.”
Also, Section 18(1) (a) of the NEPZA provides that
“legislative provisions pertaining to taxes, levies, duties and foreign exchange regulations shall not apply within the Zones”
Additionally, a company set up in the Export Processing Zone is allowed to send back all the foreign capital investment with capital appreciation of the investment. If any profits and dividends earned by foreign investors, they can be remitted back to the home country. Section 18 (1) (b) and (c) NEPZA
A company established in the free zones can employ foreign managers and qualified personnel. The regulations of the NEPZ provide that all the companies which are licensed companies established in EPZ will be exempted from the expatriate quota requirement. This implies that companies operating within the zone do not require to obtain expatriate quotas before it can bring the expatriates to work in the free trade zones.
SETTING UP A COMPANY IN THE FREE TRADE ZONES IN NIGERIA
The procedure for the registration of the free trade zone enterprise is completely different from the registration of ordinary business in Nigeria. In our previous write-up, we explained the procedure for ordinary business registration and how to register a foreign subsidiary in Nigeria.
To set up a company in the free trade zone, the investor needs to take specific steps which are standard for all the free zones of the country. These steps are as follows:
Obtain and complete the application form.
Submit the completed application form in the Zone Administration office or NEPZA Office in with the required Project Plan/Feasibility Study.
The application will be reviewed and at the end of this process, the application may be accepted by the administration or may be rejected.
If the application is approved, an Operating License (OPL) will be issued by the Administration of the Free Zone.
It is worthy of note to state that there are prohibitions on the kind of trade done within the EPZ. Companies that are licensed to trade within the EPZ are prohibited from carrying out retail trade. Section 14 of the NEPZA provides that
“No retail trade shall be conducted within a Zone 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”
Section 16 of the NEPZA also prohibits the sale of ammunition and dangerous explosives. Section 16 states as follows;
firearms and ammunition, other than by members of the Nigeria Police Force or the armed forces of the Federation or by security agencies employed to work in a Zone in the course of their duties or by such other persons as may be authorized by the Authority;
dangerous explosives, without prior approval of the Authority;
petrol, inflammable materials, hazardous cargoes or oil fuels, other than in such quantities and on such terms and conditions as may be prescribed by the Authority;
goods which the Authority by order has imposed specific or absolute prohibition on their importation into a Zone.
Dispute Resolution in the Free Trade Zone
The Nigeria Export Processing Zone Regulations also provide the following in respect of any dispute resolution;
Where any dispute arises between a Licensee and another Licence Holder in the Free Zone which cannot be amicably settled between the parties, the matter shall be referred by either of the parties to the Free Zone Authority for settlement and the decision of the Authority shall be communicated to both parties accordingly.
Also, where any dispute arises between a Licensee and any other Government Agency or Department in the Free Zone, the matter shall be referred to the Authority by either of the parties concerned and the Authority shall represent the Licensee in all negotiations, arbitration, settlement and reconciliation of the same. In this respect, the Arbitration and Conciliation Act Cap 19 Laws of the Federation shall apply.
Where any dispute arises between any Licensee and their employees, which cannot be amicably settled between the parties, the matter shall be referred to the Authority, which shall take all necessary, steps to reach Settlement between the parties.
In all the above cases, the Authority or the Zone Management reserves the right to intervene at any stage of any dispute in order to maintain industrial peace in the Zone. In all cases involving litigation in the Free Zone, the appropriate law in the customs territory shall apply.
In closing, Free zones in Nigeria act as important and rewarding areas which not only attract foreign investors but also provide employment opportunities to the native people. The benefits mentioned above offered by the various free zones make setting up a business in EPZ in Nigeria a very lucrative option for both domestic and foreign businesses.
Finally, once an enterprise or business has been registered within a trade zone, such business is exempted from registration with the Corporate Affairs Commission.
By Corporate & Commercial Law Team at Resolution Law Firm, Email:info@resolutionlawng.com visit www.resolutionlawng.com