Any company conducting business in Nigeria is required to register with the corporate affairs commission (CAC). A Foreign company wishing to set up business operations in Nigeria must take steps in obtaining local incorporation of the Nigerian branch or subsidiary which has a separate entity in Nigeria. Another alternative option is for the foreign company to set up a representative office in Nigeria.

Foreign companies must adhere to the strict rule has provided under Section 54 of the Companies and Allied Matters Act which dictates that “to do business in Nigeria, a foreign investor must incorporate a foreign entity in Nigeria and until it is incorporated, it shall have no place or business or address of service of documents or processes in Nigeria for any purpose other than receipt of notice or other documents as matters preliminary to incorporation under CAMA”.

In some of our write-ups, we discussed the procedure to register a foreign-owned company in Nigeria and how to set up a business in Nigeria.

Often times, investors are faced with the growing need of their products or services entering into a new market. Investors rely on the direct or indirect presence of entry into the market space. One of the direct presences is the use of representative offices through agents to supervise business activities.

Generally, Foreign companies who are interested in doing business in Nigeria can incorporate a wholly foreign company in Nigeria. Also, foreign companies may set up a representative office in Nigeria, which must be registered with the CAC. However, the representative office cannot engage in business, negotiate or conclude contracts. The representative office only serves as a liaison or promotional office. The expenses run in the representative office must be an inflow from the foreign company.

The key features of a Representative Office are;

  • The representative office has no legal status and as such cannot be sued or sue in itself; it is oftentimes a temporary administrative arrangement.
  • The liabilities of a representative office extend to the parent company which is a foreign company.
  • The only allowed activities of a representative office are for conducting market research, act as storage of goods, or serves as a promotional office. It is restricted from performing contracts, entering into negotiations, etc.
  • A representative office is not subject to tax payment since it cannot generate income, and provided that a proposed representative office does not include certain objectives in its MEMART, which could make it be liable for taxation.

OBJECTIVES OF REPRESENTATIVE OFFICEThe objectives of any representative company would determine whether such a company can enjoy representative status without being subjected to taxation or not. However, for a representative office to be exempted from taxes, its objectives must fall within the following categories:

  • Market research and intelligence
  • Storage and/or display of goods.
  • Obtaining information and conducting analysis
  • Serving as promotional office
  • Provision of logistics in respect of the above

REPRESENTATIVE OFFICE AND BRANCH OFFICE IN NIGERIAIf the word “branch” is construed to imply a subsidiary, then it is totally different from a representative office. Several people often use the words “branch office”, “representative office” and “subsidiary” interchangeably. The fact is that a subsidiary office is construed as an ordinary company in Nigeria, although owned by another company, either a foreign or local company. A branch or subsidiary of a foreign company is entitled to carry out any desired businesses in Nigeria and subject to corporate taxation like a local entity. Therefore, foreign companies can set up representative offices in Nigeria for the purpose of promoting the business. However such offices cannot engage in business nor conclude contracts. The above-listed features must be considered before a foreign investor decides on the option suitable for the exposure of its business.

Finally, it is also worthy of note to state that the representative can only be incorporated just the way an ordinary new or subsidiary company is incorporated, which implies that a representative office must be registered with the CAC.

By Corporate & Commercial Law Team at Resolution Law Firm. Resolution Law Firm frequently assists and offers legal advisory in setting up a representative office in Nigeria.