Executive Summary

Businesses operating in Nigeria face increasing challenges that call for creative approaches to cost reduction and operational optimization in an era of shifting regulatory frameworks and economic uncertainties. This guide examines the various ways that businesses can reduce costs and improve their competitiveness. By securing building plots for manufacturing facilities and situating their operations within a designated area sanctioned by the Lagos State Government, companies can reduce their operational costs by an average of 30%.

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Alaro City offers a lot to companies looking to establish, run, or grow their business in Nigeria, including tax breaks and exemptions from customs duties and expatriate levy (EEL). By seizing these chances, businesses can save up to 30% of their annual profit and set themselves up for long-term success in the biggest economy in Africa.

 

Navigating Regulations and Boosting Profits Checklist

  • Have you freed your business from the Expatriate Employment Levy (EEL)?
  • Have you streamlined your import and export process?
  • Have you capitalized on Value Added Tax (VAT) exemption?
  • Have you minimized customs and excise duties?
  • Have you alleviated Foreign Exchange (FX) controls?
  • Bonus: How do you repatriate your profit as an international company?

Navigating Nigeria’s Economy: High Yield, High Rewards

Nigeria offers businesses a plethora of prospects. Its population of 200 million people makes it the largest market in Africa and an increasingly important manufacturing center.  Nigeria accounts for 82% of Africa’s ICT market and 29% of internet usage in Africa. Moreover, it is currently home to a growing and highly consuming middle class, estimated to be around 50 million people.

However, navigating Nigeria’s regulatory environment and volatile economy may be extremely difficult. Investigating cost-cutting and operational-optimization techniques becomes essential as the nation implements reforms and companies deal with increasing pressures such as the Expatriate Employment Levy (EEL) and exchange rate fluctuations.

Let’s look at five ways to cut the cost of doing business in Nigeria, highlighting the benefits of the global-proved concept of the free zones as the business catalyst.

Have you freed your business from the Expatriate Employment Levy (EEL)?

The financial burden experienced by companies hiring foreign workers in Nigeria has increased with the implementation of the Expatriate Employment Levy (EEL). The EEL places a heavy burden on businesses, with annual costs per expat ranging from $10,000 to $15,000.

 

“The EEL may potentially impact many organisations negatively, especially as it is already challenging to sustain the payment of the $2,000 statutory fee to obtain residence permits (CERPAC forms) for non-ECOWAS nationals annually, given the current foreign exchange challenges in the country. It is interesting to note that payment for a residence permit is made in its naira equivalent. As of the time of this publication, a CERPAC form costs ₦3,196,000 (exclusive of bank commission. of N5,000). The annual naira equivalents of the EEL are ₦16,000,000 and ₦23,000,000 per non-director and director level expatriate respectively, based on the prevailing exchange rate.”

Adewale Ajayi, partner & head of the tax, regulatory and people services, KPMG

However, businesses situated within Alaro City Free Zone are not subject to this charge, which results in significant cost savings and relieves the administrative burden of complying with regulations.

Have you streamlined your import and export process?

Traditional import and export customs procedures take time and are very costly. Customs policies in Nigeria can eat into business profits by up to 30%, with delays at the customs control being a major contributor.

Being an international business, we had to ensure import and export seamless processing at customs. Our customers’ satisfaction depends on the speed and timeliness of the shipments supply. As we moved to Alaro City, our import and export clearance on average is two times faster comparing to the set up outside of the Free Zone, noted Dhiren Chandaria, Chief Executive Officer at Ariel Foods FZE. 

Besides that, businesses in Alaro City enjoy exemptions from the withholding tax (WHT) on dividends. These tax incentives contribute to a more favourable financial environment, allowing companies to retain more of their earnings and reinvest in growth initiatives.

Have you capitalized on Value Added Tax (VAT) exemption?

Value Added Tax (VAT) can significantly inflate the cost of goods and services by more than 7.5%, impacting businesses’ bottom line. In some scenarios, companies and individuals can be exempted from the VAT:

  • Land and building, lease, outright sale, or interest in land
  • Hire, rent, or lease of tractors, ploughs, and other agricultural equipment for agricultural purposes

At the same time, businesses operating within Alaro City Free Zone are exempt from VAT on all purchases made within the free zone, providing a competitive advantage, and reducing overall expenditure.

Have you minimized customs and excise duties?

Customs and excise duties currently peak at 48.49% in Nigeria, adding substantial costs to imported goods and hindering international trade and competitiveness.

“As a leading provider of industry-grade power and equipment solutions for construction, utilities, mining, agriculture, and many other industries, we’re genuinely interested in minimizing our excise duties, up to the point where our clients finish the purchase. Alaro City allowed us to save duties on $1.8 mln of the goods we imported in Q3 2023,” commented Emad Adeeb, Mantrac Managing Director.  

Alaro City Free Zone offers relief from customs and excise duties, allowing businesses to import goods without incurring additional financial burdens until the point of sale. This relieves the financial strain associated with upfront duty payments, providing greater flexibility in managing capital.

Alaro City Free Zone offers relief from customs and excise duties, allowing businesses to import goods without incurring additional financial burdens until the point of sale. This relieves the financial strain associated with upfront duty payments, providing greater flexibility in managing capital.

Have you alleviated Foreign Exchange (FX) controls?

The volatility of foreign exchange rates in Nigeria can disrupt supply chains and inflate costs for businesses engaged in international trade. This issue is highlighted by the depreciation of the naira against the US dollar, reaching up to 69.47% in March 2024, as reported by Business Day.

By operating within Alaro City, companies are insulated from FX controls, enabling smoother transactions, and reducing the risk of currency-related losses.

How do you repatriate your profit as an international company?

Profits repatriation proved to be a tough case for an international business in Nigeria. Failure to comply with the taxation nuances leads to ever-growing risks to the company’s bottom line. In 2018, the company paid $53 million to settle a CBN case in which it was accused of illegally repatriating $8.1 billion. Another South African company filed several suits against the FIRS in 2021 after the tax authority demanded $4.7 billion in back taxes and sought to freeze the company’s bank accounts. The tax dispute was resolved in an out-of-court settlement in 2022.

Hiring a tax advisory firm could be one way to deal with the nuances of the complex regulations. The average annual tax compliance can start from $2000 a year, with growing turnovers contributing to cost escalation.

However, Alaro City Free Zone residents enjoy the funds repatriation freedom given the special economic zone regime supported by the Lagos State Government.

 

Alaro City – Your Strategic Business Partner

Alaro City, as a development of Rendeavour, Africa’s largest private city builder, offers a unique proposition for businesses seeking to establish or expand their operations in Nigeria. With a focus on de-risking business operations and providing world-class infrastructure, Alaro City creates an environment conducive to growth and prosperity. By leveraging the exemptions and incentives available within the free zone, businesses can significantly reduce their operating costs and enhance their competitiveness in the Nigerian market.

Reduce Your Cost of Doing Business in Nigeria Today

For inquiries about establishing your business in Alaro City and harnessing the benefits of our unique ecosystem, please contact us at +234 81 7234 56 77 or .

Let us empower your business to thrive in Nigeria’s dynamic marketplace!

Reduce Your Cost of Doing Business in Nigeria Today

For inquiries about establishing your business in Alaro City and harnessing the benefits of our unique ecosystem, please contact us at +234 81 7234 56 77 or .

Let us empower your business to thrive in Nigeria’s dynamic marketplace!