The Central Bank of Nigeria (CBN) has issued a circular (“the Clarification Circular”) to clarify the meaning of the term ‘ultimate supplier’, which was used in a recent circular (“the Circular) directing Authorised Banks to discontinue the process of opening Forms M for Nigerian importers if payments are routed through buying companies. Please refer to our earlier alert.
In the Clarification circular dated 18 November 2020, the CBN noted that due to the differing interpretations of ‘ultimate supplier’, it had become important to clarify the meaning of the term. On this basis, the CBN clarified the term ‘ultimate supplier’ to mean “the direct party selling the goods to the importer irrespective of whether that party is the manufacturer or internationally recognized buying company/supplier/agent”.
The CBN also noted that when preparing the documentation for an import transaction, the name of the ‘ultimate supplier’ of the products must be the same as the name of the payment beneficiary and must indeed be the party receiving payment. Furthermore, where it is imperative that an importer uses a buying company, the importer shall obtain the approval of CBN. An application for approval should include the following documents:
- Detailed “Know Your Customer” and profile of the buying company
- Three-year financial statement of the buying company
- Letter of reference from the buying company’s banker, stating relationship and capacity
- Transfer pricing policy arrangement in the home country
- Registration with its home country Chamber of Commerce
- Evidence of tax payments in the home country
- Evidence of authorisation to act as agents and/or distributor to the original equipment manufacturer
Authorised Dealers are also required to authenticate the information in the documents above.
The Clarification Circular is a welcome development for the business environment, as it aligns with the business models of many offshore manufacturers who only sell to Nigerian consumers through agents. It will also address the concerns of some Importers who are more efficient purchasing products through buying companies. This notwithstanding, the Circular and Clarification Circular still introduces a new administrative burden of complying with an additional (new) pricing framework, different from those already being administered by the Federal Inland Revenue Service and Nigeria Customs Service.