Extracts from the CBN Foreign Exchange Manual

INPUT OF THE NATIONAL OFFICE FOR TECHNOLOGY ACQUISITION AND PROMOTION (NOTAP) INTO THE CENTRAL BANK OF NIGERIA (CBN) FOREIGN EXCHANGE MANUAL

Payment for Technology Transfer Fees

General Requirements

All applicants for Technology Transfer Agreements should be governed by the following rules:
(a) Technology contracts should include a provision whereby the recipient enterprises in Nigeria acquires explicit rights for the use and exploitation of the technology in question, and the period covering these rights should be clearly specified in the contract.
(b) In cases where the Nigerian enterprise is acquiring the right to practice a process, the concept of know-how should be clearly expressed and defined in the contract. In this connection, concepts such as “technical information” or “technical services” should only be treated as complementary to the know-how.
(c) All contracts should make provision for deduction of appropriate local taxes, such as withholding tax, etc.
(d) All agreements should incorporate research activities carried out in house or in collaboration with the Nigerian national innovation system such as universities, research institutes, private laboratories etc.
(e) Companies which sell imported products should separate the net sales of the imported products from the net sales of the locally manufactured products and this should be reflected in their Audited Accounts. Payment of technology fees should be based only on the locally manufactured products.
(f) All Nigeria Government Projects must be governed by Nigerian Laws of Arbitration and the seat of arbitration should be in Nigeria.
(g) There would be no approval for agreement based on assembling of Completely Knocked Down (CKD) parts brought into the country, except payment for short term technical services relating to such project.
(h) The scope of services in technology transfer agreements should clearly state the services to be rendered by the transferor/licensor.
(i) The technology content of the agreement should state the methods for the domestication of technology, local raw materials development, skills acquisition, etc.
(j) A detailed plan for the local development and production of raw materials used in manufacture, as substitute for imported raw materials.
(k) Technology transfer agreements relating to food items such as bread, noodles, sausage, etc will no longer be approved because there is little technology content. Payment will only be approved where the agreement is for short technical services for installation, commissioning of plants, training, etc to enable the recipient company commence operation. However, 1-2% of net sales may be approved for a start-up company involved in this type of business.
(l) All fees for technology transfer agreements relating to packaging should be tied to profit before tax. However where the company’s equity is wholly foreign owned, evidence of capital importation should be provided to enable transferors repatriate their earnings through Personal home Remittance (PHR).

Specific Requirements

(i) Information Technology (IT) Agreements
All applicants for IT Agreements must provide concrete evidence of end-users of the
products or third parties. The applicant should also submit a copy of certificate of installation for jobs done. All IT Agreements must complete Technology Transfer Agreement (TTA) Pre-Qualification Form, in addition to the Application Form and NOTAP Questionnaire

• Applicants must submit invoices from the licensor for the payment software license fees. The invoice(s) must cover the total remittable fees on the software license agreements and must also contain the names of the licensor, the licensee, types of software products and the end-users.
• Detailed information on the licensor including the website, postal address etc should be provided.

The documentation requirements are:
a) Duly completed Form “A”
b) License Agreement as approved by NOTAP or NCC
c) Demand Note
d) Confirmation of Reasonableness of fees by NOTAP or NCC.

(ii) Software License Agreement
Three difference types of fees are usually approved for Software License Agreements depending on the components of the agreement and the request from the parties. The fees are:
• Software License fee – A lump-sum depending on the type of software product, the number of end-users and the prevailing rates of fees for similar products by the same licensor in the industry where the software is to be used.

• Implementation fee – A lump-sum depending on the obligations to be rendered by the licensor i.e. whether the implementation involves any/all of customization, upgrading, training, etc.

• Annual Technical Support (ATS) fee - A fee between 15% and 23% of the Software License fee. The payment of the fee should commence after the first year of implementation of the agreement and shall not last for more than 3 years.

Other conditions that apply to software License Agreements are as follows:

• Evidence of training the local personnel on the software should be provided.

• Local Vendors must be involved in the Maintenance or Annual Technical Support for Software Agreements or updates and the local vendor should be paid a minimum of 40% of the ATS fee in Naira, and evidence of payments to the local vendor must be submitted.

• All agreements involving software should contain full details of the licensor, including website, postal address, etc.

• Projects related to communication, petroleum products and broadcasting should be accompanied by Registration Certificates or Approval Letters from supervising Agencies or Authorities.

The documentation requirements are:
a) Duly completed Form “A”
b) License Agreement as approved by NOTAP or NCC
c) Demand Note
d) Confirmation of Reasonableness of fees by NOTAP or NCC.

(iii) Technical Service Agreement
• Technical Service fees shall be settled on per diem rate or man-hour, man-day or man-month basis and not tied to net sales/turnover.
• Detailed information about the technical experts coming to tender the services in Nigeria i.e. the qualification, duration of stay, per diem/monthly rate must be submitted. Evidence of entry of the experts into the country such as copy of the visa page of the expert’s international passport must also be submitted.
• If the duration of stay of the experts is more than six months, they should be paid salaries in local currency, which they can remit abroad through Personal Home Remittance (PHR).

The documentation requirements are:
a) Duly completed Form “A”
b) Technical Service Agreement as approved by NOTAP.
c) Evidence that the services were rendered locally (e.g. hotel bills and relevant pages of passport and air-tickets of the technical experts).
d) Certificate of satisfactory completion issued by the Nigerian employer.
e) Evidence of tax paid on the amount to be remitted.
f) Demand note from the beneficiary.
g) Confirmation of the reasonableness of the fees by NOTAP.

(iv) License (Patent, Trademark, Know-How) Agreements
Approval for License Agreements in respect of Trademarks, Patents, Know-how and other Industrial Property Rights shall range between 0.5% and 5% of net sales value or profit before tax where net sales value is not applicable. Such patents, trademarks, industrial designs, etc. must be registered in Nigeria, with proof of the registration.

Technology transfer fees should be based on locally manufactured goods and not imported goods. Companies with several product lines should separate the net sales of each product in their audited account so as to pay royalty for specific products covered by the industrial property rights and not on the entire/total sales of the company.
Payment for Trademark License Agreement will only be allowed where:
a) the trademark is internationally recognized
b) the trademark is accompanied with licensed know-how
c) the product involved in the agreement is locally manufactured and also is meant for export
d) the trademark owner does not have up to 75% of the equity in the local company.
e) remittable fee for Trademark License Agreement incorporating Know-How is a maximum of 1% of net sales.
The documentation requirements for license agreements are:
a) Duly completed Form “A”
b) License Agreement as approved by NOTAP.
c) Evidence of tax payment based on the audited account
d) Audited Account for the relevant period
e) Confirmation of Reasonableness of fees by NOTAP.

(v) Outright purchase of Trade Marks, Patent, Know-how and other industrial
Properties:
License Agreement which involves outright purchase of Trademark, Know-how, etc. will be granted in exceptional cases. The documentation requirements are:
a) Duly completed Form “A”
b) Purchase Agreement as approved by NOTAP
c) Demand note
d) Confirmation of the reasonableness of the fees by NOTAP.

(vi) Management Services Agreements
Management Services Agreements must specify details of the services to be rendered including personnel, cost implications and other details. A management fee ranging between 2.0 to 5.0 per cent of profit before tax should apply to management services, except for the management of Hotels by International Hotel chains. However, management services project where profit is not anticipated during the early years will attract a fee ranging from 1.0 to 2.0 per cent of net sales during the first three to five years only.

Hotel Services – A basic fee or lump-sum not exceeding 5.0 per cent of turnover plus an incentive fee not exceeding 12.0 per cent of Gross Operating Profit (GOP) shall be applicable. Other payments which are internationally accepted within the applicable Hotel chains may also be allowed. Only hotels initially located in the disadvantaged areas will attract the upper limits of the basic and the incentive fees.

Banking Sector
• No fees, whether for Management or Technical Support Services should be tied to the profit or sales of any Bank. Fees should be tied to the cost of services rendered.
• Expatriate staff of banks should be paid salaries in local currency, which they can remit abroad through Personal Home Remittance (PHR).

Other Management Agreements – Details of services to be rendered including personnel, cost implication and other associated cost details must be specified.

The documentation requirements for management services payments are:
a) Duly completed Form “A”
b) Copy of Management Service Agreement
c) Certificate issued by NOTAP after approving the management service agreement
d) Demand note/invoice from the organization rendering the service
e) Certificate of satisfactory completion of the job issued by the Nigerian employer
f) Evidence of tax paid on the amount to be remitted

(vii) Consultancy Services Agreement
Applicants must submit evidence of contract award status, the total project cost and evidence of previous job done by the consultant.

Remittable consultancy fees shall be a maximum of 5.0 per cent of total project cost and limited to projects of very high technology content for which indigenous expertise is not available. Service agreement for such high technology joint ventures shall continue to include a schedule for the training of Nigerian personnel for eventual takeover. In addition, Nigerian professionals shall be involved in the project implementation from the inception.

The documentation requirements are as follows:
a) Duly completed Form “A”
b) Certificate issued by NOTAP approving the consultancy service agreement
c) Evidence that the services were rendered locally (hotel bills and relevant pages of passport and air-tickets of the consultants)
d) Certificate of satisfactory completion of the job issued by the Nigerian employer
e) Demand note from the beneficiary
f) Evidence of tax paid on the amount to be remitted

Authorized Dealers are to note the following:
• Payments for renewal Agreements in respect of Technical Service Fee, Royalties, Management Services and Consultancy Services shall attract lower remuneration. Generally, renewals shall not exceed a total period of 10 years unless a new technology is being introduced.
• Once remittance of fees is completed with NOTAP Certificate, evidence of the total amount remitted must be forwarded to NOTAP with relevant documents within forty-eight (48) hours of the remittance.

(viii) Service Charge for Repairs of Machinery and Equipment in Nigeria
The documentation requirements are:
a) Duly completed Form “A”
b) Service Agreement
c) Evidence that the services were rendered locally (hotel bills, copies of relevant pages of passport and air-tickets of the foreign experts)
d) Certificate of satisfactory completion of the job
e) Demand note from the beneficiary

(ix) Service Charge for Repairs of Machinery and Equipment Overseas
The documentation requirements are:
a) Duly completed Form “A”
b) Service Agreement/letter of authority to carry out repairs
c) Completed Form NCX duly endorsed by Nigeria Customs Service
d) Certificate of re-importation issued by NCS
e) Certificate of satisfactory completion of repairs issued by the Nigerian company.

(x) Telecommunication Charges
Authorized Dealers are to note the following telecommunication charges for determination
• Software License fee relating to Telecommunications
• Software upgrades
• Outright purchase of software relating to Telecommunications
• Satellite Bandwidth Charges
• Marketing/Publicity (Overseas) Charges
• Workshops, Trade (Exhibition) fare/charges
• Roaming (Bills Settlement) charges
• International Traffic (Bill Settlement) charges
• Internet Hosting Charges

The documentation requirements are:
a) Duly completed Form “A”
b) Service/License Agreement with off-shore Telecommunication Company as approved by NOTAP or NCC
c) Invoice, bill or demand note for services rendered
d) Current Certificate of Registration/License with the NCC
e) Confirmation of reasonableness of fees by NOTAP or NCC.