Generally, under Nigerian law, there are specific restrictions and limitations over direct ownership of real estate assets by foreigners such as the grant of a reduced term of years under a state right of occupancy by the Governor for a period not exceeding 25 years and acquisition by an alien of a real estate asset must be subject to the consent of the Governor where the real estate asset is located .
However, a foreign investor may acquire real property in Nigeria through any company or entity registered in Nigeria. A company duly registered in Nigeria may acquire land in Nigeria like a Nigerian citizen, whether wholly owned by foreigners or not.
Furthermore, a foreign investor may also acquire real property in Nigeria by ensuring that it has obtained the prior approval of the State Governor and followed the required procedure for the application for approval to acquire any interest or right in land by a foreigner. Section 6 of the Acquisition of Land by Alien Law empowers State Governors to lay down individual procedures for the acquisition of land by aliens in their States. It is important to note that there are certain restrictions to the above. For example, in the oil and gas sector, the government retains ownership of the mineral resources found in any land purchased in Nigeria.
Last modified 13 Mar 2025
In Nigeria, the concept of permanent establishment relates to companies that are registered outside Nigeria but have a fixed base of business in Nigeria and are considered non-resident companies. Under these rules, non-resident companies may be liable to Nigerian tax on profits that are attributable to activities carried out from a ‘fixed base’ in Nigeria or where a foreign entity has dependent agents who habitually conduct business on their behalf in Nigeria. The rules are not applicable to direct foreign investment in real estate in Nigeria, as any foreign investment in real estate in Nigeria needs to be effected through a Nigerian-registered corporate vehicle.
The set-up costs and corporate governance requirements of Nigerian corporate vehicles are detailed elsewhere in this section.
Last modified 13 Mar 2025
Real estate investments are commonly made using limited liability companies, in spite of their tax inefficiencies. This vehicle is tax transparent, and the company income tax rate payable by the company is usually dependent on the income of the company. Collective Investment Schemes in Nigeria, however, appear to be an attractive form of investment due to the grant of tax concessions by the Government.
Investment in real estate may be made through the following structures:
Last modified 13 Mar 2025
A private limited liability company is the most common type of company in Nigeria. It is a legal entity registered and governed by the Nigerian Companies and Allied Matters Act with a separate and distinct legal personality from its shareholders. A Private Company cannot have more than 50 shareholders and cannot seek public subscriptions for its shares or raise capital from the public. There is no local ownership requirement, and the shares can be wholly foreign owned. Private Companies can have a single director and a single shareholder subject to certain conditions.
The Companies & Allied Matters Act and the Securities and Exchange Commission regulate Public Limited Liability Companies in Nigeria. There is no restriction on the number of its members and it can raise capital and offer its shares to the public. A public company is required to have a minimum share capital of NGN2,000,000 and may be listed on the stock exchange subject to listing requirements. There is no limitation on the number of shareholders under this structure.
REITs and REICOs are collective investment schemes that pool funds from the public to invest in and manage real estate assets and portfolio and are regulated by the Nigerian Securities and Exchange Commission (SEC). They may be privately owned or traded publicly on the Nigerian Stock Exchange. They must pay dividends annually on at least 75% of its rental or dividend income and must be approved by the Federal Inland Revenue Services (FIRS) and SEC to enjoy tax exemptions. They can also be structured as equity, mortgage, or hybrid vehicles. A REIT must make a distribution, at least, annually otherwise, it shall cease to be registered as a REIT by the Commission.
A Limited Liability Partnership is a corporate body formed and incorporated under the Companies & Allied Matters Act by at least two persons, separate from its partners and has perpetual succession. There is no limit to the number of partners allowed, and the Partnership is not taxed as a separate entity, but the partners are taxed individually on their share of the profits or losses.
Limited Partnership is formed with not more than 20 persons consisting of one or more persons called general partners who will be liable for all debts and obligations of the firm and one or more persons as limited partner(s) who agree to contribute to the capital or property of the partnership. The liability of the partner is usually limited to their contribution to the partnership.
Other notable differences between the two forms of investment vehicles are as follows:
Real Estate Investment Trust: A REIT is established under a trust deed between a fund manager and the trustees and may offer units to the public only after the trust deed is registered with the SEC. At least 75% of a close-ended REIT’s total assets must be in real estate, while at least 70% of an open-ended REIT’s total assets must be in real estate.
Real Estate Investment Company: A REICO is a corporate entity registered under CAMA with a capital and reserve as prescribed by SEC. It carries on business as a collective investment scheme solely in real property and must comply with rules and regulations issued by SEC. Its shareholders are therefore entitled to voting rights in the company. At least 75% of a listed REICO’s total assets must be in real estate, while at least 70% of an unlisted REICO’s total assets must be in real estate.
Both structures require a minimum of 90% of the revenue to be obtained from rental income.
Last modified 13 Mar 2025
A private limited liability company is required to have a minimum issued share capital of NGN100,000, with all of its share capital allotted to its subscribers at incorporation. However worth noting that in practice the minimum issued share capital for Nigerian companies with foreign participation is NGN10 million.
A public limited liability company is required to have a minimum issued share capital of NGN2,000,000 with a 100% of its share capital allotted to its subscribers.
The minimum paid up capital for a Fund Manager is NGN150 million, while the minimum paid up capital for the Trustees is NGN300 million. An initial public offer for units of the investment scheme must be a minimum of NGN1 billion, while subsequent offers cannot be less than NGN500 million.
A private limited company is required to have a minimum issued share capital of NGN100,000, while a public company is required to have a minimum issued share capital of NGN2,000,000. An initial public offer for units of the investment scheme must be a minimum of NGN1 Billion, while subsequent offers cannot be less than NGN500,000.
Last modified 13 Mar 2025
The statutory fees for setting up a company are dependent on the share capital. A company with a share capital of NGN1 million will cost approximately NGN50,000 and will increase by between 1.25-1.75% of the share capital in filing fees and stamp duties. Legal fees may range from NGN100,000 – 350,000.
The costs associated with an offering from a Collective Investment Scheme will vary with the complexity of the structure of the scheme adopted and whether it is publicly traded. These will include registration fees with the SEC, exchange listing costs, filing fees and a range of professional fees.
Last modified 13 Mar 2025
The registration process for a company limited by shares at the CAC typically takes between five to seven working days. A collective investment scheme may be established within 14 to 21 days of application to the Securities and Exchange Commission. It is, however, worthy to note that a Public REICO or a REIT requires a license from the Securities and Exchange Commission prior to operation.
Last modified 13 Mar 2025
Nigeria’s company law and the Nigerian Code of Corporate Governance 2018 provides guidance on the corporate governance structure for all corporate entities in Nigeria and sets out policies regulating the rights and duties of the shareholders, directors, and the company. However, under the recently enacted Companies and Allied Matters Act 2020, one person may form and incorporate a private company, and small companies can have a single director. The concept of single directorship is subject to certain conditions, including that such companies must be private companies and their annual turnover and net assets value are not more than NGN120 million and NGN60 million, respectively. In addition, foreign-owned companies cannot be single director companies except for small companies, which may have just one shareholder and/or one Director. Directors owe a fiduciary duty to the company and are accountable for the performance and management of the company.
In addition to the requirements of the Companies Act, the Nigerian Code of Corporate Governance 2018 issued by the Financial Reporting Council of Nigeria (the Code), promotes higher standards of accountability, transparency, and good governance, and is applicable to all public companies or regulated companies. The Code requires public companies and private regulated companies to comply or demonstrate sufficient compliance with rules relating to the composition and structure of the board, decision-making processes and controls, risk management, reporting, communication, and ethics. Where the company is listed, it would also be expected to comply with the Nigerian Stock Exchange Listing Rules.
Real Estate Trust Schemes are required to register with SEC and must comply with the SEC rules and regulations. Where a scheme is listed, continuing obligations imposed by the Stock Exchange Listing Rules must also be complied with, as public offers are extensively regulated. In addition, REICOs are subject to the governance rules provided under Nigerian company law and the Corporate Governance Code; and the trustees of REITS are usually Trust Companies which are held to the same standard. For REITs, the Trust Deed will be expected to provide wide-ranging investor protection provisions.
Last modified 13 Mar 2025
Compliance costs will include mandatory requirements to file annual returns, audited accounts, tax returns and general changes at the company registry from time to time and to maintain a company secretary and external auditor. Small companies are not required to have a company secretary.
Compliance costs will include mandatory requirements to file annual returns, audited accounts, tax returns and general changes at the company registry from time to time, and to maintain a company secretary. In addition to this, public companies will incur costs relating to corporate governance reports, annual reports, and quarterly reporting of financial statements to the SEC. Public Limited Companies may also be required to pay underwriting fees to increase share capital and annual listing fees where their stocks are listed on the stock exchange.
Compliance costs will include mandatory requirements to file annual returns, audited accounts, tax returns and general changes at the company registry from time to time, and to maintain a company secretary. Compliance costs will also depend on the size of the fund, the level of activity and whether the fund is listed. Compliance costs for REICOs will include mandatory SEC requirements to file a valuation report every two years and quarterly reports on the performance of the scheme. In addition to this, compliance costs for REITS will include filing a mandatory rating report every two years, and a half-year trustees’ report to SEC. Costs relating to compliance with any applicable listing rules is also considered.
Last modified 13 Mar 2025
Companies Limited by Shares are subject to Companies Income Tax (CIT). The profits of a Nigerian company are taxed on its worldwide income, assessed on a preceding year basis according to the formula in the table below based on the provisions of Section 40 of the Companies Income Tax Act and Section 16(c) of the Finance Act, 2020:
|
Type of Company |
Turnover |
Income Tax Rate |
|
Small Company |
Less than N25 million |
0% |
|
Medium Company |
Greater than N25 million but less than N100 million |
20% |
|
Large Company |
Greater than N100 million |
30% |
Companies Limited by shares are required to charge and remit Value Added Tax (VAT) on their goods and services at 7.5%. Additionally, any investment income that is paid to a foreign shareholder is subject to 10% withholding tax and is deemed as a final tax paid by the foreign shareholder. However, the rate is 7.5% for foreign shareholders that are located in countries that have entered into a double tax treaty (DTT) with Nigeria.
Under the Companies Income Tax Act, REITs are treated as companies and unit holders as shareholders. While the profits earned by Collective Investments Schemes are subject to company income tax as indicated in the table above, the government has issued Value Added Tax (VAT) and withholding tax waivers which apply to asset and mortgage-backed securities. Accordingly, dividends of publicly traded REIT securities are exempt from withholding tax in the hands of the investors, and VAT and Capital Gains Tax are not applicable on the sale of the securities.
On the other hand, by virtue of the Finance Act, dividend and rental income received by a REICO on behalf of its shareholders is exempt from company income tax (CIT), provided that a minimum of 75% of the dividend or rent earned is distributed within 12 months of the end of the financial year in which the income was earned. However, where a REICO fails to distribute the dividend or rental income within the stipulated 12-month period, the income would be subject to CIT.
Dividends and distributions received by a REICO are also exempt from withholding tax (WHT). Accordingly, where a REICO has an equity stake in a company, the company will be required to pay gross dividends to the REICO without deducting WHT. However, the REICO shall upon distribution to its shareholders deduct tax at 10% and remit same to the relevant tax authority.
In addition, qualifying REITs and REICOs may be eligible for the Government’s grant of Pioneer Status Incentives which are company tax holidays of 3–5 years, under the recent Pioneer Status guidelines.
In addition, qualifying REITs and REICOs may be eligible for the Government’s grant of Pioneer Status Incentives which are company tax holidays of 3–5 years, under the recent Pioneer Status guidelines.
Last modified 13 Mar 2025
Does the concept of a 'permanent establishment' apply when a foreign person invests in real estate and, if so, how much does it cost to set up such a permanent establishment, how long does it take and what corporate governance requirements apply?
In Nigeria, the concept of permanent establishment relates to companies that are registered outside Nigeria but have a fixed base of business in Nigeria and are considered non-resident companies. Under these rules, non-resident companies may be liable to Nigerian tax on profits that are attributable to activities carried out from a ‘fixed base’ in Nigeria or where a foreign entity has dependent agents who habitually conduct business on their behalf in Nigeria. The rules are not applicable to direct foreign investment in real estate in Nigeria, as any foreign investment in real estate in Nigeria needs to be effected through a Nigerian-registered corporate vehicle.
The set-up costs and corporate governance requirements of Nigerian corporate vehicles are detailed elsewhere in this section.
Last modified 13 Mar 2025