FREE TRADE ENTERPRISES AND FREE TRADE ZONES

Business

FREE TRADE ENTERPRISES

A Free Trade Enterprise is an individual business or company that operatesunder the principles of Free Trade, meaning they engage in international Trade with minimal government restrictions, tariffs, or quotas. These enterprises are not tied to specific geographical areas, and they benefit from Free Trade agreements or policies that facilitate cross-border trade. Many investors are currently moving into the Free Trade Enterprises EspeciallyReal Estate Investors where they acquire a building and get a license of operation for the relevant authority which in turn facilitates economic benefits to the investor.

 

FREE TRADE ZONE (FTZs)

The World Bank defines Free Trade Zone as “small, fenced-in, duty-free areas, offering warehousing, storage, and distribution facilities for trade, transshipment, and re-export operations”. A Free Trade Zone is a designated geographical area within a country where goods can be imported, exported, manufactured, or stored without being subjected to the usual customs duties or regulatory constraints. These Zones are created by the government to promote trade, attract foreign investment and boost economic development. This area is a physical area or region, typically near ports, airports or border areas. It is established and regulated by the government. At their best, the FTZs facilitate frictionless trade, creating jobs, and economic growth of local communities. At their worst, they enable illicit trade and the laundering of criminal proceeds. Generally, FTZs are set up in underdeveloped parts of the host country with the rationale that the FTZ will attract employers and thus reduce poverty and unemployment and stimulate the country’s economy.

 

ADMINISTRATION OF FREE TRADE ZONES IN NIGERIA
In Nigeria, there are two types of Free Trade Zones (FTZs): specialized and general-purpose trade zones. The Nigerian Export Processing Zone Authority (NEPZA) is the administrative authority responsible for the effective management of general-purpose FTZs, whereas specialized zones are regulated by sector-specific authorities, such as the Oil and Gas Export Free Zone Authority (OGEFZA) for the oil and gas sector and the Central Bank of Nigeria for the banking sector. In Nigeria, the Calabar Free Trade Zone established in 1991 was the pioneer free zone, which led to the enactment of the Export Processing Act. Due to the economic programs of the Federal Government, there are now 42 FTZ and over 500 licensed Free Zone enterprises in different economic sectors ranging from Oil and gas, petrochemicals, manufacturing, banking, port operations, pharmaceutical, steel rolling mills, food processing, warehousing and logistics, shipbuilding and maritime services, across Nigeria which are operated by public, private individuals, or a combination of both.

LAWS REGULATING FREE TRADE ZONES IN NIGERIA

1. NIGERIAN EXPORT PROCESSING ZONE ACT (NEPZ ACT) 1992

The NEPZ Act established the Nigeria Export Processing Zone and the Nigerian Export Processing Zone Authority (NEPZA) to oversee and regulate FTZs in the country. NEPZA has the power to issue licenses, manage and supervise FTZs, and create regulations that govern their operations. However, the authority shall not grant approval to a person or company to carry on sector-specific businesses of banking or insurance unless the company is registered and licensed under the Banking Act or the Insurance Act respectively.

The law provides that approved enterprises operating within a zone are to be exempted from all Federal, state and local government taxes, levies and rates. An approved enterprise is required to operate a domiciliary account with a bank within the zone or in the customs territory. The enterprise is not permitted to move funds related to its activities into and out of a zone without permission from the Central Bank of Nigeria. Transactions between enterprises in the zones and others within the customs territory are to be settled in foreign currency. Enterprise operating within any zone shall import, free of customs duties any capital goods, consumer goods, raw materials, components, or articles intended to be used for the purpose of and in connection with an approved activity, including any article for construction, alteration, reconstruction, extension or repair of premises in a zone.

The Act also provides against the importation or storing of prohibited goods, like firearms and ammunition into the zone except by authorized persons.

2. OIL AND GAS FREE ZONEACT (OGFZ ACT) 1996

The OGFZ Act established the Oil and Gas Free Zone Authority (OGFZA), with the power to license oil and gas free trade zones and manage and supervise the Onne Oil and Gas Free Trade Zone. OGFZA also has guidelines as contained in the Oil and Gas Export Free Zones Regulation 2003.

 

INCENTIVES AVAILABLE TO BUSINESSES IN FREE TRADE ZONE

There are primary benefits of locating a business in an FTZ. Some of these benefits are:

• Duty Deferral – Import duties for imports shipped to an FTZ are deferred until the time those products leave the FTZ and enter the countries’ commerce.
• Duty Exemption – Import duties are exempted for imports entering an FTZ and later exported without ever entering countries’ commerce or destroyed within the FTZ.
• Duty Reduction (Inverted Tariff) – Importers who import raw materials and conduct manufacturing operations in an FTZ may elect to pay duties for imported raw material based on the duty rate of the manufactured item (when the duty rate for the item is lower than the raw material duty rate) at the time the manufactured product leaves the zone and enters countries’ commerce.
• No Value Added Tax (VAT): is charged on purchases by Approved Enterprises in FTZs from companies in the customs territory. However, enterprises in the Oil and Gas Free Zones are mandated to submit tax returns to the Free Zones Tax Administration Unit.
• There is the opportunity for interested businesses to have one-stop approvals for permits, operating licenses, and incorporation papers.
• Rent free land during the first 6 months of construction (for government-owned zones).
 

THE REQUIREMENTS FOR COMPANIES OPERATING IN THE FREE TRADE ZONE

APPLICATION AND REGISTRATION:  Any enterprise proposing to undertake an activity within an FTZ in Nigeria must first apply in writing to Nigeria Export Processing Zones Authority (“NEPZA”) for permission. NEPZA may grant a license for any approved activity in an FTZ to an individual or business, whether the business is incorporated in Nigeria. The granting of a license by NEPZA shall constitute registration for the purpose of company registration within an FTZ.

A licensed enterprise does not need to comply with the rules of local incorporation in Nigeria, which are governed by the provisions of the CAMA. This is because the granting of a license by NEPZA is evidence of a company’s registration in an FTZ.

In view of this, if a foreign investor chooses to register as a Free Zone Enterprise (“FZE”), the license issued by NEPZA is only valid within the FTZ and, as a result, a holder of such license that wish to carry on business outside the FTZ is required to comply with the applicable laws outside the FTZ.

The process for registration and application is as follows:

• Application Form: Obtain and complete the application form from the Nigeria Export Processing Zones Authority (NEPZA) or the specific Free Zone Administration. This form can often be downloaded online or collected from NEPZA's headquarters in Abuja.
• Application Fee: Pay a non-refundable application fee, which is generally around US$500 or its Naira equivalent.
• Submission: Submit the completed application form along with a detailed project plan or feasibility study to the Zone Administration or NEPZA office. The application is typically reviewed within five working days.
• Required Documentation
• Corporate Documents:
• Introduction letter from the promoters.
• Copies of official identification (e.g., passports) of promoters and proposed officers.
• Certificate of Incorporation (for corporate promoters).
• Board resolution approving the registration (for corporate promoters).
• Draft Memorandum and Articles of Association of the proposed Free Zone Enterprise (FZE).
• Business Plan: A comprehensive plan detailing the business description, market analysis, funding proposals, and a five-year financial projection.
• Health, Safety, and Environmental (HSE) Plan: Outline the measures to be implemented to ensure compliance with HSE standards.
 
• Capital Requirements:

Minimum Share Capital: The required minimum share capital varies by FTZ but is usually not less than US$100,000, with the enterprise's value not less than US$500,000.

 

REGULATORY REQUIREMENTS OF FIRMS IN A FREE TRADE ZONE

For a firm to operate in a FREE TRADE ZONE (FTZ) under the Nigerian Export Processing Zones Authority (NEPZA), it must comply with specific regulatory requirements to maintain its status and enjoy the incentives offered by the FTZ framework. Below are key requirements:

• Registration as a Free Zone Enterprise: The firm must register with NEPZA as a free Zone Enterprise
• Licensing: The firm must obtain a license from NEPZA which permits the activities of the firm to be carried out in the Free Trade Zone.
• Customs and Immigration Compliance: All goods imported into the FTZ must comply with Nigeria Customs Service (NCS) regulations. The firm must also comply with immigration laws for expatriates by obtaining work permits for foreign employees.
• Submission of operational plans: The firm must submit detailed operational plans, including production schedules, inventory handling, and export strategies.
• Environmental, Health and Safety Compliance: The firm must comply with Nigeria’s Environmental Impact Assessment (EIA) requirements, approved by the Federal Ministry of Environment.
• Adherence to Zone-Specific Regulations: The firm must follow the rules and policies set by the zone’s management, including security protocols, infrastructure usage and movement of goods and personnel in and out of the zone.
• Export/Import Reporting: The firm must submit documentation for goods imported into or exported from the zone, including Invoices, Bills of Lading, and certificates of origin.