Investing in the West African Oil and Gas Sector: Legal and tax considerations.

West Africa Oil and Gas Roundtable MISI ONI 15 September 2015Singapore

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Overview

A. Mayer Brown JSM and our Africa Oil and Gas Experience

B. The Legal Regime

C. Establishing a local entity in West Africa

D. The Fiscal Regime

E. Currency Exchange Restrictions

F. Governing Law and Dispute Resolution

G. Doing business across West Africa: Central Location?

H. Recommendations to prospective investors

Misi Oni

Associate

Mayer Brown JSM

T: +65 6327 0246

E: misi.oni@

mayerbrownjsm.com

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1. Legal Regime

Common law system based on English law

Civil law system largely influenced by French law. Organisation for Harmonisation of Business Law in Africa (OHADA)

Civil law based. Modelled after Portuguese law

Nigeria,

Ghana

Ivory

Coast

Angola

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2. Establishing a local entity in West Africa (1)

Nigeria

• Authorised mode of investment by foreigners is through a local subsidiary limited liability company

• Petroleum Industry Bill awaiting passage

Singapore

Shareholder

Singapore

Shareholder

Subsidiary company

Singapore

Shareholder

Other jurisdiction

Subsidiary company

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3. Establishing a local entity in West Africa (2)

Nigeria

• Nigeria Oil and Gas Industry Local Content Development Act enacted in 2010 (“Local Content Act”)

• No mandatory local equity participation, but Local Content Act gives Nigerian companies preferential (and in some cases exclusive) consideration in bids for the award of contracts and licences in the Nigerian oil and gas industry

• A “Nigerian Company” is one incorporated in Nigeria, and which has not less than 51% shares held by Nigerians

• Local Content Act has encouraged foreign investors to partner with Nigerians, in order to establish companies that will have a competitive advantage when bidding for contracts

• Nigerian Content Monitoring Board

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4. Establishing a local entity in West Africa (3)

Ghana

• Can be branch of foreign company or local subsidiary

• Local Content: Petroleum (Local Content and Local Participation Regulations) 2013

• Must incorporate a joint venture company with indigenous Ghanaian company which must have a 10% minimum equity ownership in the JV

• Monitoring by Petroleum Commission

• Must submit local content plan showing consideration for services produced locally, employing and training Ghanaians

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5. Establishing a local entity in West Africa (4)

Ivory Coast

• Law no 96-669 1996 as amended by Ordinance no 2012-369 of 18 April 2012

• Can set up as branch of foreign company during exploration but local subsidiary during exploitation ( see however, OHADA reform)

• Local content measures apply:

- Priority in hiring of local workforce

- Training programmes for local employees and public officials

- Products must first be sold to local markets with terms and conditions specified in relevant contract

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6. Establishing a local entity in West Africa (5)

Angola

• Subject to Governmental approval and the signature of an investment contract between the foreign investor and the State

• Investments above USD 1 Million (in cash or imported equipment) may benefit from income tax incentives – tax incentives are periodical and pre-determined based on a chart and granted based on investment amount and job creation

• Investments above USD 50 million may benefit from tailor -made tax incentives packages to be negotiated with Ministry of Finance

• Foreign investors are granted the right to repatriate dividends/profits

• Foreign investors are granted with legal protection against nationalization (to be properly compensated, if strictly necessary) and given legal/tax stability in similar terms to those usually seen on bi-lateral investment protection treaties

• Investment approval process may take a few months, depending on the transaction complexity (3 to 6 months)

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7. Establishing a local entity in West Africa (6)

Angola

• In the oil & gas industry, certain service activities can only be provided by Angolan entities or by foreign entities in cooperation with local entities

• Compliance with the 70/30 % ratio of national/expat employees

• If difficult to comply with due to unavailability of skilled employees in the market, investor should implement an “Angolanization” program for the training of local employees and progress substitution of expats by Angolans – this is very common in the oil sector

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8. Fiscal regime (1)

Nigeria

• Companies Income Tax – 30%

• Education Tax – 2%

• Capital Gains tax – 10% (not payable on disposal of shares)

• Withholding tax -5%-10%

• VAT - 5% (downstream gas is exempt)

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9. Fiscal regime (2)

Ghana

• Income Tax - 25%

• Withholding Tax – 5%

• Branch Profit Remittance Tax – 10%

• VAT – 15%

• National Health Insurance Levy – 2.5%

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10. Fiscal regime (3)

Cote d’Ivoire

• Simplified Tax Regime (STR) for service providers

• Combined total rate of 5.786% covering Corporate Income Tax, WHT on dividends, payroll and insurance.

• Eligibility criteria:

- provider is foreign entity

- signed service contract with an E&P entity or direct contractor of E&P entity

- uses expensive equipment e.g. drilling rig

- registered with the Trade Register of Cote d’Ivoire as agency or branch

- files request with head of tax office within three months of starting operations in Cote d’Ivoire and office approves

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11. Fiscal regime (4)

Angola

• Profits – 30%

• Dividends – 10%

• Interest – 15%

• Royalties – 10%

• Oil industry equipment mostly exempt from custom duty.

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12. Double Tax Agreement Network

Nigeria

• Belgium

• Canada

• China

• Czech Republic

• France

• Netherlands

• Pakistan

• Romania

• Slovak Republic

• South Africa

• United Kingdom

• Bulgaria*

• Mauritius*

• The Philippines*

• Poland*

Ghana

• Belgium

• Denmark

• France

• Gambia

• Germany

• Italy

• Netherlands

• Nigeria

• Sierra Leone

• South Africa

• Sweden

• United Kingdom

Angola

• NIL

Ivory Coast

• Belgium

• Benin

• Burkina Faso

• Cameroon

• Central African Republic

• Chad

• Congo

• France

• Gabon

• Germany

• Italy

• Madagascar

• Mali

• Mauritania

• Niger

• Norway

• Rwanda

• Senegal

• Switzerland

• Togo

• United Kingdom

*signed but has not yet been ratified

Treaties in Force

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13. Currency exchange restrictions (1)

Nigeria

• Certificate of Capital importation required for inflow of funds, to enable repatriation of proceeds.

• Oil and gas sector largely exempt from the recent wave of currency exchange controls by the Central Bank of Nigeria.

Ghana

• Foreign companies registered with the Ghana Investment Promotion Commission can transfer:

- dividends or net profits attributable to the investment made in the enterprise

- payments to service foreign loans

- fees and services in respect of a registered technology transfer agreement

- the remittance of e proceeds, net of taxes and interest.

Angola

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14. Currency exchange restrictions (2)

Cote d’Ivoire

• Controlled by West African Economic and Monetary Union (UEMOA) Regulations

• Current account transactions and payments of dividends etc from a UEMOA member to a Non UEMOA member are unrestricted

• Payments which may qualify as “investments” from a Non UEMOA country will require ministerial consent

Angola

• Payments from local bank accounts to offshore beneficiaries must obtain foreign exchange clearance based on the filing of transaction

contracts/invoices/other documents for review by the relevant bank;

• All payments pertaining to contracts worth more than USD 1 million (USD 3 million if pertaining to oilfield services) are subject to special

review by the Central Bank.

• Payments by oil companies to Angola-based entities/suppliers must be made in local currency.

Angola

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15. Governing Law and Dispute Resolution

•

• With private contracts, parties free to adopt a foreign governing law, confer jurisdiction on courts of another country

• Parties are free to resolve disputes by arbitration. Wide range of arbitral rules possible – UNCITRAL, LCIA, ICC. Some are based on UNCITRAL model law e.g. Nigerian Arbitration Act

• Foreign awards can be recognised and enforced in Nigeria, Ghana and Ivory Coast as signatories to the New York Convention

• Parties have flexibility in relation to venue

and language of arbitration, as well as the

number of arbitrators

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16. Doing business across West Africa: Central location?

•

• ECOWAS continually improving ease of doing business across West Africa

• Free movement of goods, services and capital

• Custom duties reduced or sometimes eliminated between member states

• Visa requirements abolished amongst citizens of member states

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17. Recommendations to prospective investors

• Use of offshore structures and treaty benefits

• Optimal debt vs. equity but beware of thin capitalisation rules

• Attracting suitable partners

• Carry out due diligence

• Role of local counsel

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Question Time