The Central Bank of Nigeria (CBN), in a new circular, has clarified its position on the removal of third parties from buying of foreign exchange routed through Form M, letters of credit, and other forms of payment
While reiterating its earlier directive that destination payment for all forms M, letters of credit, and other forms of payment should be made directly to the ‘Ultimate Supplier of Products’; it gave conditions that must be met by importers if they choose to use a buying company other than the primary manufacturer.
This was disclosed in a circular with Reference number TED/FEM/FPC/GEN/01/009, which was issued by the CBN to all authorized dealers and the general public on November 18, 2020, and signed by its Director for Trade and Exchange, Dr. O. S. Nnaji. The circular is a follow up to the one earlier issued by the apex bank on the same subject matter in August 2020.
According to CBN’s earlier directive, the name of the ultimate supplier of products should be the beneficiary on the Form M, Invoice, Bill of Exchange, Letter of Credit Instrument, and any other relevant document to the transaction.
The ‘Ultimate Supplier of Products’ means the direct party selling the goods to the importer, irrespective of whether the party involved is the manufacturer or internationally recognized buying company/supplier/agent.
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The circular from CBN states that the authorized dealers should ensure that payments are made only to the beneficiary whose name appears on the Form M, Invoice, Bill of Exchange, Letter of Credit Instrument, and any other relevant document.
It further states that where it is unavoidable that an importer chooses to use a buying company, other than the primary manufacturer, the importer shall make available the following documents as applicable, for consideration and approval by the CBN before opening Form M;
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- Detailed KYC and profile of the buying company.
- 3 year audited financial statement of the buying company.
- Letter of reference from the buying company’s banker, stating relationship and capacity.
- Transfer pricing policy and arrangements in the home country.
- Registration with its home country’s chamber of commerce.
- Evidence of tax payments in the home country.
- Evidence of authorization to act as agents and/or distributors to the original equipment manufacturer.
All authorized dealers are requested in the circular to ensure that the list of eligible third parties that meet the requirements above are submitted to the bank for authentication before onboarding.
This clarification and flexibility by the apex bank on this new policy comes on the heels of outcry and criticism from importers and stakeholders on the practicability of the policy, which they say will negatively impact on the business of even genuine importers.
This means that importers who wish to use third parties other than the primary manufacturers will have to undergo some scrutiny and meet certain criteria before they can be considered eligible.
This policy by the CBN is seen as part of continued efforts to ensure prudent use of the country’s foreign exchange resources and is expected to help eliminate incidences of over-invoicing, transfer pricing, double handling charges, and avoid costs that are ultimately passed to the average Nigerian consumers.