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According to recent findings, businesses with less than 200 employees lose an average of $2.5 million each due to cyber threats and Nigerian SMEs are currently highly subjected to cyber-attack. This necessitates an understanding of the most serious cyber security threats facing businesses in Nigeria, as well as strategies for mitigating them.

Most Nigerian businesses have less severe technical defenses, are less aware of risks, and have fewer time and resources to dedicate to cybersecurity. Certain industries, such as banking and the financial organizations, are frequently targeted by cyber attackers, necessitating high security standards. Cybercriminals frequently target small businesses in Nigeria because they are always unprepared for the threat even when they are aware of their vulnerabilities.

Less than a quarter of Nigerian businesses have a dedicated IT security staff member or provider, and despite facing as many threats as the larger companies, do not have the resources or training to address and mitigate the risks adequately. However, these businesses are not any less lucrative targets for cybercriminals. Even the smallest businesses in Nigeria might deal with huge sums of money or have access to massive amounts of customer data that they must safeguard. Small businesses in Nigeria frequently collaborate with larger companies, thus they may be exploited by hackers to target such companies.

Nigeria SMEs, perhaps, stand to lose the most if they are subjected to a severe cyber-attack. Losing so much money in a cyber-breach is catastrophic for small businesses, not to mention the reputational harm caused by a cyber-attack. For these reasons, Nigerian businesses must be aware of the dangers and know how to counteract them.

What is Cyber Threat?

A cyber security threat is any harmful attack that attempts to gain unauthorized access to data, disrupt digital activities, or damage data. Corporate spies, hacktivists, terrorist groups, hostile nation-states, criminal organizations, lone hackers, and disgruntled employees are all examples of cyber threats.

Several high-profile cyber-attacks have resulted in the exposure of sensitive data in recent years. The 2017 Equifax data breach, for example, exposed the personal information of around 143 million people, including birth dates, addresses, and Social Security numbers. Marriott International revealed in 2018 that hackers gained access to its servers and stole the personal information of nearly 500 million clients. The inability to develop, test, and retest technical measures such as encryption, authentication, and firewalls facilitated the cyber security threat in both cases.

Cyber attackers can utilize sensitive data to steal information or get access to a person’s or company’s bank accounts, among other potentially devastating acts, which is why cyber security professionals are so important for keeping private data safe.

What is Cybersecurity?

Cybersecurity ensures that your company’s data is protected from both internal and external threats. It can refer to a collection of technologies, processes, structures, and procedures for safeguarding networks, computers, programs, and data against unwanted access or damage. Any cybersecurity strategy should aim to secure data confidentiality, integrity, and availability.

There are a number of ways that cybersecurity vulnerabilities can harm (or even destroy) an organization’s reputation. A hacker could potentially get sensitive information such as bank account or credit card numbers. On the “dark web,” there are open markets for such information. If outsiders have access to such sensitive information, the organization’s banking or credit card services may be revoked, or it may be found in violation of privacy regulations. Every month, high-profile data breaches affecting individual data are revealed around the world.

A second, but related risk is that if a hacker acquires sensitive information about the company, the company’s reputation could be harmed. Only few Nigeria businesses can afford the reputational damage that losing data can create. The harm to one’s reputation and goodwill may be more devastating than the data loss itself. The loss of client data could result in legal or regulatory action being taken against the company.

Ransomware is the most recent and worrying part of cybersecurity that is causing significant problems for businesses. Reports of ransomware attacks using commercially driven business strategies date back to 2012.

In many circumstances, malware is disguised and inserted within another sort of document, waiting for the target user to execute it. Upon execution, the virus may encrypt the data of the organization with a secret 2,048-bit encryption key or interact with a centralized command and control server to await the adversary’s instructions.

Once attacked, the data of the organization is encrypted using the attacker’s encryption key, making it unavailable. Once all accessible data has been encrypted, including backup data and systems in many cases, the business will be given instructions on how to pay a ransom within days, otherwise the adversary will remove the encryption key and the data will be lost. The enemy literally holds the data hostage—hence, ransomware. The encryption key is so strong that cracking it rather than paying the ransom is uneconomic—some estimate that decrypting the data without the key would take five quadrillion years on an average desktop computer.

In other circumstances, the target business may be able to hope that some researchers have identified a means to decrypt the data via a design defect. Otherwise, the firm will have to restore the systems and data from a secure backup or pay the ransom. Keep in mind that even restoring data does not preclude the possibility that the ransomware will not be re-enabled or returned due to the compromised environment’s integrity.

The Top Cyber Security Threats Facing Nigerian Businesses and How to Stop Them

1. Phishing Attacks

Phishing attacks are the most dangerous, damaging, and prevalent threat to small businesses. Phishing is responsible for 90 percent of all data breaches, has increased by 65 percent in the last year, and has cost businesses more than $12 billion. Phishing attacks occur when an attacker poses as a trusted contact and persuades a victim to click on a malicious link, download a malicious file, or provide sensitive information, account details, or credentials.

In recent years, phishing attacks have become much more sophisticated, with attackers becoming more convincing in their impersonation of actual business contacts. There has also been an increase in Corporate Email Compromise, which involves bad actors utilizing phishing campaigns to acquire business email account passwords from high-ranking executives, then falsely requesting money from staff using these accounts.

Part of what makes phishing assaults so dangerous is how difficult they are to stop. Rather than addressing technological flaws, they utilize social engineering to target humans within a company. There are, however, technological countermeasures against phishing assaults.

Phishing emails cannot reach your employees’ inboxes if you have a powerful Email Security Gateway in place, such as Proofpoint Essentials or Mimecast. Post-delivery protection, such as IRONSCALES, is also critical for phishing attacks to be avoided. Users can report phishing emails, and administrators can then erase them from all users’ inboxes.

Security Awareness Training is the final layer of defense against phishing attacks in emails. These solutions enable you to protect your staff by testing and teaching them to recognize and report phishing attempts.

2. Malware Attacks

Malware is the second most significant hazard to small businesses. It covers a wide range of cyber threats, including trojans and viruses. It’s a catch-all phrase for malicious malware written by hackers to gain access to networks, steal data, or destroy data from computers. Malware is usually spread by malicious website downloads, spam emails, or connecting to infected computers or gadgets.

Small businesses are particularly vulnerable to these attacks because they can cripple gadgets, necessitating costly repairs or replacements. They can also provide attackers with a backdoor into data, putting customers and employees at danger. Small businesses are more inclined to hire people who work from home since it saves them time and money. This, on the other hand, raises their chances of being the victim of a malware assault, as personal devices are far more vulnerable to harmful downloads.

Having robust technology defenses in place can help businesses avoid malware attacks in Nigeria. Endpoint Protection systems safeguard devices from malware downloads and provide administrators with a central control panel via which they can manage devices and guarantee that all users’ security is up to date. Web security is also crucial, as it prevents people from accessing harmful websites and downloading hazardous software.

3. Ransomware

Every year, hundreds of businesses are affected by ransomware, which is one of the most popular cyber-attacks. They’ve become more popular in recent years because they’re one of the most profitable types of attacks. Ransomware encrypts company data, preventing it from being used or accessed, and then demands that the organization pay a ransom to unlock the data. Businesses are faced with a difficult decision: pay the ransom and risk losing a large sum of money, or risk having their services crippled due to data loss.

Small businesses are particularly vulnerable to such attacks. Ransomware attacks targeted small firms 71% of the time in 2018, with an average ransom demand of $116,000 in 2018. Smaller businesses are more likely to pay a ransom since their data is frequently not backed up and they need to get back up and running as quickly as possible. Locking patient medical information and appointment times can damage a business to the point where it has no choice but to close unless a ransom is paid, and the healthcare sector is particularly hard struck by this type of attack.

Businesses must have effective Endpoint Protection in place across all corporate devices to prevent these threats. These will aid in preventing ransomware attacks from successfully encrypting data. SentinelOne, an endpoint protection solution, even has a ‘ransomware rollback’ feature that helps businesses to quickly detect and neutralize ransomware attacks.

Businesses should also consider implementing a reliable cloud backup solution. These systems securely back up company data on the cloud, reducing the risk of data loss. Organizations can use a variety of data backup strategies, so it’s crucial to figure out which one will work best for you.

The advantage of instituting data backup and recovery is that in the case of a ransomware attack, businesses may quickly recover their data without paying ransoms or losing productivity. This is a significant step forward in enhancing cyber-resilience.

4. Insecure Passwords

Employees that use weak or readily guessed passwords are another major hazard to small businesses. Many small businesses use a variety of cloud-based services, each of which requires a separate account. Sensitive data and financial information are frequently stored in these platforms. This data can be compromised if you use passwords that are easily guessed or the same password for many accounts.

Due to a general lack of awareness about the damage that weak passwords can cause, small businesses are frequently vulnerable to hacks caused by employees using them. According to a recent study, 19 percent of industry professionals utilize readily guessed passwords or share passwords across accounts.

Users should investigate Business Password Management systems to ensure that staff utilize strong passwords. These services assist employees in managing passwords for all of their accounts by recommending strong passwords that are difficult to decipher. Multi-factor authentication systems should also be considered by businesses. These ensure that access to corporate accounts requires more than just a password. Multiple verification procedures, such as a passcode delivered to a mobile device, are part of this. Even if an attacker guesses a password properly, these security rules help to prevent them from accessing corporate accounts.

5. Insider Threats

The insider threat is the final big issue that small businesses face. An insider threat is a risk to a company that is brought about by the actions of current or former employees, business contractors, or associates. These actors have access to sensitive information about your organization and can cause harm through greed, malice, or just ignorance and negligence. According to a Verizon analysis from 2017, insider threats were responsible for 25% of all breaches in 2017.

This is a rising issue that can endanger employees and customers, as well as bring financial harm to the organization. Insider attacks are becoming more prevalent in small businesses as more employees have access to multiple accounts containing more data. According to research, 62 percent of employees have access to accounts they don’t require.

Small businesses must ensure that they have a strong culture of security awareness within their organization to prevent insider threats. This will assist employees in detecting early on whether an attacker has penetrated, or is attempting to breach, business data, and will help to prevent insider threats caused by ignorance.

The impact of a Cyber-Attack on Your Company

A successful cyber-attack can be devastating to your company. It can have an impact on your financial line, as well as your company’s reputation and consumer trust.

A security breach can be classified into three types of consequences: financial, reputational, and legal.

1. The Financial Loss:

Cyber-attacks often result in substantial financial loss arising from:

• theft of corporate information
• theft of financial information (eg bank details or payment card details)
• theft of money
• disruption to trading (eg inability to carry out transactions online)
• loss of business or contract

Businesses that have faced a cyber-breach will always have to pay to fix the compromised systems, networks, and devices.

2. Reputational Damage

Customer relationships require a high level of trust. Cyber attacks can harm your company’s brand and diminish your clients’ trust in you. As a result, potentially leading to:

• loss of customers
• loss of sales
• reduction in profits

Reputational harm can have an influence on your suppliers, as well as your relationships with partners, investors, and other stakeholders in your company.

3. Legal Consequences Due to Data Leak

Data protection and privacy laws require you to keep track of the security of any personal data you have on your employees or customers. You could face fines and regulatory sanctions if sensitive data is unintentionally or intentionally compromised, and you failed to implement proper security measures.

Legal Protections Against Cyber Security Threats in Nigeria

Government and industry have recently pushed to develop policies and regulatory standards that ensure a baseline of security across the Nigerian business landscape. Cyber Laws in Nigeria arose as a result of the need to combat these cyber threats.

Cyber law serves as a shield over cyberspace, preventing cybercrime. The government is committed to developing and enforcing laws to combat illegal online activity. The “Cybercrimes (Prohibition and Prevention) Act, 2015” has had a significant impact on Nigerian cyber law. This Act establishes a comprehensive legal, regulatory, and institutional framework for prohibiting, preventing, detecting, prosecuting, and punishing cybercrimes in Nigeria.

The Act also promotes cybersecurity and the protection of computer systems and networks, electronic communications, data and computer programs, intellectual property and privacy rights, and critical national information infrastructure.

To read the Legal Actions against Cyber threats in Nigeria, please visit Our Article on, “Cyber Crimes and Cyber Laws in Nigeria”.>>

Tips To Prepare Your Organization for Cyber-Threats in Nigeria

Even the most resilient businesses can be destroyed by a security breach. It is critical to manage the risks appropriately.

• Create a security strategy to evaluate and categorize the data you handle, as well as the types of security your organization requires. Conduct security audits on a regular basis.
• Make cybersecurity awareness a top priority. Inform and educate your employees about the importance of data security and security protocols.
• Create encryption for critical data as well as two-factor authentication for system access.
• Invest in, install, and update cybersecurity tools such as antivirus software, firewalls, and additional privacy tools on a regular basis.
• Have a backup for sensitive data to save yourself from ransomware.
• Hire cybersecurity engineers who can identify and manage vulnerabilities in your system.

In Conclusion:

Digitization and globalization have given rise to cybercriminals who are constantly on the lookout for new ways to defraud and harm organizations and institutions in Nigeria. Businesses must be cautious and aware of the risks posed by these cybersecurity threats.

The best method for businesses to protect themselves against these threats is to have a comprehensive set of security measures in place, as well as to use Security Awareness Training to ensure that people are aware of security threats and how to avoid them. Proactive measures will inform you of potential hazards and strategies to limit their impact.

At Olisa Agbakoba Legal (OAL), we have skilled and experienced cyber lawyers that can support and provide legal and advisory cybersecurity services. Our Cyber lawyers handle cybercrime matters against individuals, businesses, and the government, as well as cases involving e-commerce, e-contracts and digital signatures, intellectual property rights, cybersecurity, and other topics.

Feel free to Contact OAL’s Cyber Lawyers to discuss issues relating to internet technologies and cybercrime in Nigeria.

 

Written By:

Josephine Uba

Lead Digital Strategist, OAL.

Due diligence is the level of care or judgment exercised prior to establishing a commercial relationship. It is a process that involves collecting, understanding and assessing all legal risk, associated with a target company.

The main purpose of due diligence is to investigate all the possible financial and legal risks in relation to a company’s assets, corporate status, intellectual property, contracts, land transactions, and company’s employment. This is done to ensure that any investment or purchase is beneficial to the investors.

It is important for investors to conduct legal due diligence on a company before engaging in any mergers, acquisitions, takeovers or other transactions with any company.

Why Conduct Due Diligence

Due diligence is a necessary step for an investor to take because if  issues or risks are found to be associated with the target company, then depending on the number and kind of risk involved, it could result in one of the following:

1. A substantial decrease in the consideration involved in the transaction, or
2. An increase in representations and warranties taken by the acquirer, or
3. It can dissuade the acquirer from going ahead with the transaction.

Investors need to carry out:

• Financial due diligence
• Legal due diligence

Financial due diligence is managed by the Investor’s accountants and management team, and is expected to reveal the following;

1. The accounting and financial control system of the company;
2. The value of assets and liabilities to be acquired;
3. The product’s development and competitors; and
4. The company’s ability to raise short and long-term capital and the cost of such capital in relation to general industrial indications.

Legal due diligence is conducted by the investor’s solicitor and identifies the potential legal issues that may impede transactions, such as Intellectual Property (IP) and technological problems and those relating to transactional documents and agreements, business profiles or employees.

Legal Due Diligence involves but is not limited to the following steps:

• Reviewing documents of a target company.
• Carrying out interviews of individuals with knowledge of the company.
• Carrying out necessary searches at the appropriate venues. For instance corporate search at the Corporate Affairs Commission.
• Direct visitation
• Scrutinizing public records of the targeted entity
• Conducting media and internet search on the targeted entity
• Evaluating any ongoing lawsuit against the company etc.

It is important for investors to undertake both financial and legal due diligence before any scheme arrangement or investment in a target company.

How to Conduct Due Diligence

The method of due diligence requires investors to thoroughly examine the target company’s financial and legal records. Financial statements, Audit Reports, Annual or Quarterly Tax Returns are the key documents often scrutinized by most investors. Having an expert can greatly help with assessing the legal and financial picture of a company.

Once the investor has chosen the company it wants to conduct due diligence on, he should hire the services of experts to conduct due diligence on the target company. Hiring the right person for this job is an integral step and the expert would know what questions are to be asked and what information is to be sought from the target company for a holistic assessment.

Planning sets the basis for a successful due diligence transaction. The expert would plan and strategize the whole due diligence process.

The investor must engage in Industry Research. This entails the type of information that needs to be sought from the target company. Industry research however varies from one company to the other, depending (among other factors) upon the nature of the industry that the target company belongs to, as the rules, regulations, licenses and approvals required for every industry differs. However, the documents generally in focus for due diligence include and are not limited to company registration, shareholding pattern, financial statements, income tax returns, tax payment receipts, bank statements, operational records, employee records, statutory registers, property documents, IP registrations etc.

The next step would be to prepare a questionnaire or a checklist pertaining to all the documents and information you would require in the exercise of due diligence process. This checklist or questionnaire is given to the representatives of the target company so that they can provide the necessary documents and information.

Once the documents and information asked for in the checklist or questionnaire is received by the team conducting the due diligence, the next step is noting all the relevant information from the documents, in the form of separate annexures to the main Due Diligence Report.

It might be possible that all the information and documents sought in the checklist or the questionnaire is not given by the representatives of the target company in the last step. Furthermore, it might so happen that the documents provided by the representatives of the target company in the last step might include mention of certain other documents or information.

Such pending or additional documents or information is sought from the target company by the team conducting the due diligence, in the form of a requisition list, so as to aid the representatives of the target company in providing the same.

Elements of a Due Diligence Report

Once the process of reviewing the documents received from the representatives of the target company and noting of information in the form of annexures is completed (as mentioned in the last step), the process of writing the chapters of the Due Diligence Report begins.

Chapters that usually form part of the Due Diligence Report are: Executive Summary, Corporate Matters, Loans & Finances, Consents and Approvals, Material Contracts, Litigations, Human Resource (HR), Insurance, Intellectual Property Rights (IPR).

Once all the chapters of the Due Diligence Report have been drafted, the final step in preparing the Due Diligence Report involves preparing an Executive Summary.

An executive summary is usually presented in the beginning of the Due Diligence Report, and it contains the gist of the entire key findings of Due Diligence transaction, presented in a very concise manner. It also lists the impact of the risk (if any) on the proposed investor transaction, and its possible way-out.

Benefits of Due Diligence for Investors

Due diligence is important because it can lower risk later on in the investment process, including structural risks to the company’s capitalization and its early-stage investors. It can also ensure a strong, sustainable relationship between an investor and a company or entrepreneur, one established on transparency, trust and respect.

Therefore, some of the primary reasons for conducting due diligence is outlined below:

1. Better Understanding of the Organization: Due diligence is necessary to give the buyer/investor the information that they need to know about their target company in order to structure its purchase.
2. Helps to Value the Target Company: Due diligence will inform the investor of some of the following: contingent liabilities, restriction on businesses, pending litigations, insurance policies, employee benefits, intellectual property rights etc.
3. Informs the drafting of Relevant Documentation:The information obtained during a legal due diligence process will be helpful for both parties to a transaction in drafting and negotiating any agreement. The information is particularly helpful in allocating risk when drafting representations and warranties, pre-closing and post-closing indemnification rights of both parties.
4. Identify Impediments to Closing a Transaction: During the due diligence process, parties are able to identify and sometimes address impediments that might delay or hinder the success of the transaction. Some of the actions a legal due diligence expert will focus on are:

• The Company’s corporate documents, to determine the shareholders/Board of Directors of the company;
• The requisite corporate approvals required to complete the transaction;
• Contract documents, including assignment clauses, permits and licenses, to determine whether the transaction is contractually prohibited or whether specific consents are required etc.

5. Legal due diligence provides alternatives or solutions to reduce the legal risks identified during the due diligence process.

Conclusion:

The importance of due diligence cannot be over-emphasized. Properly conducted due diligence by experts in the jurisdiction of the acquired entity with particular knowledge of and insight into the business environment of the jurisdiction can minimize the various risks associated with investing in an existing business.

 

Written By:

Yvonne Ezekiel

Yvonne is the Managing Partner of OAL, setting the strategic goals and objectives of the firm, managing the operations and driving business growth. She is leading the International Trade Practice group focusing on Trade control matters..

View Yvonne’s Profile >>

For far too long, you’ve already heard of people forming foreign companies in Nigeria to take advantage of tax benefits. The process of setting up an offshore company in Nigeria is much less complicated than most people believe. It is actually simple and straightforward, and can be completed in a matter of weeks.

This post will walk you through the process of forming an offshore company in Nigeria, from selection to incorporation to Tax Identification to bank account opening & setting up an office, in order to dispel the myth that company formation is a complex and difficult process.

Below are few questions that you must ask yourself when you decide to form your offshore company in Nigeria, the type of company to set up and how you would go about it.

What is an Offshore Company?

An offshore company is one that is formed in a jurisdiction other than the one where the beneficial owner resides. To put it another way, an offshore company is one that is formed in a foreign country.

The concept of an offshore corporation, on the other hand, is not set in stone and will differ depending on the circumstances. Many people are perplexed by the word “offshore,” which is used in contrast to conventional “onshore” businesses.

An onshore business is one that is organized and operates within the boundaries of a country, while an offshore company is one that performs all of its operations outside the borders of the country where it is incorporated. It is not subject to municipal taxes since it is owned and operates as a non-resident corporation, with all of its financial activities taking place outside of the jurisdiction’s borders.

Why Would Anyone Want to Set Up a Company That is Based Anywhere Other Than Their Home?

Most people establish an offshore company in a foreign jurisdiction to take advantage of local laws that provide low or no tax benefits to non-resident businesses.

Offshore jurisdictions tend to draw foreign capital by providing low-tax and pro-business laws to foreign companies and individuals that profit from asset security, anonymity, legal protections, and simple corporate policies, in addition to tax advantages.

How Do Offshore Companies Operate?

An offshore company is a legal entity that is permitted to trade, retain properties, and engage in normal business practices outside of the jurisdiction in which it was formed.

Companies that migrate to or are established in an offshore jurisdiction can avoid paying taxes if their transactions and dealings are limited to outside the country’s borders.

Non-resident companies are incorporated in such jurisdictions because they do not perform financial transactions within its boundaries and are operated by non-residents.

What’s The Intent of an Offshore Company?

Forming an offshore company outside of one’s home country provides extra-security that can only be found when a company is formed under a different legal framework. Malicious people would have a much tougher time breaking into your accounts and properties if you have a separate legal and judicial system.

Offshore corporations act as a separate legal entity from their shareholders or directors and they are regarded as such. The shareholders and the corporation are separated by this division of powers. The company’s activities, debts, and liabilities are not passed on to its directors or members.

All of the company’s debts and financial obligations are separated from its owners, which protects the assets of the company’s owners and directors. Although there is no single standard by which all offshore jurisdictions can be judged, there are a range of characteristics and distinctions that are unique to particular financial centers that are considered offshore.

What Would I Do with an Offshore Company?

An offshore company can be used for the same things as a domestic company, such as opening and managing bank accounts, entering into legal agreements, holding digital or physical assets, conducting transactions, and starting and operating a corporation. Because offshore company differs from a conventional domestic company, such businesses are also known as International Business Companies (IBCs), non-resident companies or foreign entities, since they all refer to the same form of organization.

If you’re looking for asset security, anonymity, or tax avoidance, forming an offshore company offers numerous benefits. Using an offshore framework, you can relocate your company from a high-tax, high-regulation jurisdiction to a place where you can take advantage of local corporate laws and regulations.

Benefits of Setting Up an Offshore Company

Individuals and businesses choose to establish an offshore company for a variety of reasons. Although each offshore jurisdiction has its own unique characteristics, they all share the following characteristics:

• Privacy:

One of the most compelling reasons to use an offshore corporate structure is that it allows you to isolate yourself from your company, properties, and liabilities. It acquires a distinct legal identity from those who own it as an individual.

Financial transactions and corporate deals will then be conducted under the company’s name rather than under the name of a single person.

• High Confidentiality:

The majority of offshore financial centers have closed company registries, which ensures that directors and shareholders remain anonymous.

When there is a criminal investigation, no information about the organization or its finances is available to the media. While each nation has its own degree of accountability, keeping your assets and company structure at arm’s length allows you to remain anonymous (depending on the country and your tax responsibilities with the country where you live).

• Tax Reductions

Most countries that operate as offshore financial centers grant non-resident companies that incorporate in the country a special tax status.

These offshore business structures have a special status that exempts them from paying taxes on their worldwide revenue, capital gains, or income tax in their home country. Depending on the country where you live and its CFC rules, the offshore creation structure, and the country where you incorporate, the tax obligations can be more complicated.

Since tax obligations differ significantly from country to country, it’s crucial to know what you owe before deciding on a jurisdiction. Tax responsibilities are typically determined by the country in which you have permanent residency, and as a beneficial owner of a corporation, you will be subject to taxation in your home country. Although foreign corporations are tax-free, you, as a beneficial owner, will be subject to taxation.

• Asset Protection

Separating your properties from yourself as a person adds an extra layer of defense in the event of a lawsuit. It’s much more difficult to link you to your assets when you use an offshore structure, whether it’s an LLC, Trust, or Foundation.

When you have an investment or properties, it’s important that they stay separate from you; this means that they won’t be held responsible for any debts you incur as an entity. This is made possible by the structure’s legal right to incur debts/liabilities in the same way as a legal individual does.

• Legal Protection

Since the offshore structure is situated in a foreign jurisdiction, there is a different legal framework and set of laws that cover the company if it is targeted in any asset search or litigation.

In order to break into properties of an offshore structure, most international offshore countries do not obey local court orders unless there is a criminal investigation with significant proof of wrongdoing. Countries with an offshore financial centre erect major barriers to entry, allowing only the most determined creditors to break into the system.

Are Offshore Companies Right for Me?

Offshore incorporation has a range of benefits that enable companies to gain global values while taking advantage of local conditions.

As borders expand and people’s access to different countries and their markets becomes more open due to the reduction of barriers brought about by increased global connectivity, offshore incorporation is becoming easier and more profitable.

So, the question is: Are You Prepared to Take Advantage of Global Opportunities? If Yes, then learn how to set up an offshore company…

How Do I Set Up an Offshore Company in Nigeria?

As a foreign entrepreneur, you can set up a limited liability company in Nigeria. You have to follow the corporate rules of the new jurisdiction to ensure a smooth and easy launch of the business in Nigeria, including the setup of a foreign-owned corporation in Nigeria.

Before we get into the procedures, it’s important to note that the Nigerian National Parliament has passed many laws governing business in Nigeria, as well as laws governing a fully owned foreign company with foreign shareholders; a few examples are the Company & Allied Matters Act, Immigration Act, Foreign Exchange Laws, and Capital Import Law of the Central Bank of Nigeria.

The Best Steps to Start a New Offshore Company in Nigeria Are as Follows:

1st Step: Company Registration & Getting Your Tax ID Number

The first legal prerequisite for an aspiring foreign business owner or organisation is to hire a competent business lawyer to form a Registered Limited Liability Company (LLC)).

Be informed that an offshore company must have a minimum share capital of ₦10,000,000 and above in order to secure Business Permits and Expatriate Quota permissions from the Ministry of Interior and the Nigeria Investment Promotion Commission.

Actually, you are not paying ten million naira for the registration; they are only figures that reflect the size of the company and also imply that the company’s obligations are limited to the share capital.

For a new company registration in Nigeria, you’ll need the following information and documents:

• Proposed name of the company to be reserved at the Corporate Affairs Commission.
• Share Capital of the Company.
• Division of the Share Capital in percentage ratio.
• Name of the Directors, minimum of 2 and maximum of 50 for a Private company including shareholding.
• Nigeria office address.
• Directors & shareholders’ residential addresses overseas.
• Data page of shareholders and Directors international passport or Government issued means of Identification, or a valid Driver’s License.
• Signing of all the incorporation documents by the directors and shareholders. (Electronic Signatures are submitted for this purpose)

As soon as you supply these information, the lawyer proceeds with document filing & its CAC registration process. Your company registered certificate of incorporation could be ready within 14days except there are queries on the Application by the Corporate Affairs Commission (CAC).

Tax Registration:

It is mandatory to receive a Tax Identification Number (TIN) from the Federal Inland Revenue Service, also known as Value Added Tax Registration (VAT). The good news is that the Nigeria Corporate Commission, in cooperation with the Federal Inland Revenue Service, now instantly issues Tax Numbers automatically along with your Registered Company (RC) number on your Certificate of Incorporation.

2nd Step: Bank Account Opening

With the Tax Identification Number (TIN) in hand, you should open a corporate account for Capital Importation to kick-start the venture. Also ensure that you comply with the laws about the importation of capital or funds into Nigeria as stipulated by the Central Bank of Nigeria Circulars and Regulations.

3rd Step: Company Office Address

It would be critical for you to establish a physical office or at the very least a contact office address in Nigeria at this stage, as it would be needed for Business Permit and Expatriate Quota approvals at the Ministry of Interior.

4th Step: Application for A Business Permit And Expatriate Quota, As Well As NIPC Registration

As part of the Federal Government’s recent Ease of Doing Business in Nigeria initiative, the commercial law firm managing your applications will now route the three applications for a Business Permit, Expatriate Quota, and NIPC registration of your offshore company via the NIPC Desk office in the Ministry of Interior directly to the Minister through the Citizenship and Business Department.

Required Documents:

1. Certificate of Incorporation
2. Memorandum and Articles of Association
3. Current Tax Clearance Certificate;
4. Evidence of Acquisition of Business/Factory Building;
5. Receipt to Operate in the Oil Industry i.e. DPR Permit (for Oil Service Companies)
6. Evidence of Capital Importation e.g. a Certificate of Capital Importation, if Available;
7. Partnership/Joint Venture Agreement, the Responsibility Structure;
8. Feasibility Study Report (for joint venture companies)
9. Evidence of Acquisition of Operating Equipment and Machinery, such as Equipment, Vehicles, Business Machines, etc
10. Project Implementation Programme
11. Profile of Expatriate Personnel Detailing their Qualifications and Experience, Positions to be held by them in the Company and the duration of each Quota Position.
12. For construction companies and Letter awarding construction contract.

If all the relevant documents and statutory fees are paid, the Approvals could be secured within 2 months except there are queries.

Last Step: Residence Permit

This is the final stage of the processes needed for establishing a company in Nigeria; the Directors and Expatriates Employees, including their family members, must obtain a Resident Permit to live and work in Nigeria. The application will be processed by the Controller General of Immigration Service and released under the authority of the Minister of Interior, as specified in the Immigration Act of 2015 and the Immigration Regulations of 2017.

Often, the Nigeria Immigration Service will grant a Resident Permit, also known as a CERPAC passport, to an employee of a foreign-owned firm (Combined Expatriate Resident Permit and Alien Card). Take note that this Resident Permit is only valid for two years and can be renewed after that, and it can only be issued after the overseas owned corporation has obtained a Business Permit and Expatriate Quota Approvals. For CERPAC approval, a statutory fee in the sum of US dollars prescribed by the government must be charged.

We may specify that the law requires special approvals and licenses for a foreign or overseas owned company to operate in certain significant sectors of the Nigerian economy, such as the oil and gas industry, telecom, pharmaceuticals, banking and insurance, and the stock market, which will be authorised by other relevant Government controlled agencies.

As a result, if you want to learn more about the simple and effective ways to establish a foreign-owned company in Nigeria, we always aim to work with business owners to decide the right company to fit their business goals and needs in Nigeria.

Taxation of an Offshore Company in Nigeria

The Companies Income Tax Act (CITA) is the primary law that regulates the taxation of companies in Nigeria, with the Federal Inland Revenue Services (FIRS) in charge of its administration (FIRS). A Nigerian corporation is taxed on its worldwide revenue, while a foreign company is only taxed in Nigeria on profits due to its Nigerian operations. There are legal concerns about what a foreign company can and cannot do in Nigeria without first forming a Nigerian corporation.

Some scholars believe that there is a conflict between Section 54 of the Companies and Allied Matters Act, which states that any foreign company (except those exempted by Section 56 of the CAMA) intending to carry on business in Nigeria must register a company in Nigeria, and the provision of the CITA, which states that it is not necessary to register a company in Nigeria.

Non-resident entities, also known as foreign companies, can earn income in Nigeria in two ways, which will be briefly discussed below.

1. Passive/Investment Income

This strategy allows international companies to raise money from dividends, interest, royalties, and rent, among other things. The CITA imposes tax in this case by withholding tax deducted at source by the Nigerian payer as the final tax. Foreign companies that make money through this channel do not need to have a physical presence in Nigeria and therefore do not have to worry about tax filing requirements. However, they must file and receive a Tax Identification Number (TIN), without which the Nigerian payer would be unable to remit the withholding tax deducted.

2. Active/Business Income

Foreign companies that receive money through this method must register for tax and file full tax returns in the same way that Nigerian companies do. Because of the difficulties associated with the legal obligation of filing full tax returns, offshore companies doing business in Nigeria used the considered benefit basis to prepare and pay their income taxes before July 2014.

International companies were only expected to apply the deemed profit tax calculations along with a statement of the turnover generated from Nigeria when filing returns under the deemed profit regime. Section 30 of the CITA requires that a schedule of withholding tax withheld on income, be given to support a claim for tax credit.

In 2014, the Federal Inland Revenue Service (FIRS)’s Transfer Pricing Division released a regulation requiring foreign companies with income from Nigeria to provide audited financial statements, tax computations, and other related details in their tax returns beginning January 1, 2015, in accordance with Section 55 of the Companies Income Tax Act (CITA).

Finally, the legal obligation of filing full tax returns is not without its difficulties, the most significant of which is determining actual expenses incurred abroad and capital allowances related to the Nigerian activity in order to determine the actual profit to be charged.

This latest guideline from the Federal Inland Revenue Service has posed a slew of concerns, including questions about feasibility, and has left a lot of questions unanswered. In light of the above, it has become important for the Federal Inland Revenue Service to resolve certain issues concerning foreign company taxation in order to avoid ambiguity and uncertainty, especially on the part of foreign companies.

In Conclusion:

Offshore refers to the management, registration, conduct, or operation of a business in a foreign country, often with financial, legal, and tax advantages.

For clients who choose to participate in international financial exchange and investment activities, an offshore company has a range of benefits, depending on the offshore jurisdiction: Ease of incorporation, low fees, no foreign exchange controls, high confidentiality, and tax advantages are all advantages.

As a business owner, one of your greatest fears is that since you are not present at all times, your offshore company will get into serious trouble and you may not be able to save it on time. So if you want to start & securely manage an offshore company in Nigeria, you’ll need to find a law firm who can assist you.

At Olisa Agbakoba Legal (OAL), we will walk you through the whole process and show you how to set up your own offshore company while keeping it fully secure. We can assure you that if you take your offshore company seriously and devote enough time to it while taking advantage of our legal assistance, you will be able to grow your company, increase your sales, and become a true tycoon in Nigeria.

OAL Firm assists international companies and individuals with company registration and business setup in Nigeria on a regular basis. In addition, the firm provides capital importation and bank account opening guidance.

 

Written By:

Josephine Uba

Lead Digital Strategist, Olisa Agbakoba Legal