Aviation Finance & Leasing 2020

April 6, 2020



1 To which major air law treaties is your state a party? 

Nigeria is a signatory to the following significant air law treaties: • Convention on International Interests in Mobile Equipment  and the Protocol to the Convention on International Interests in  Mobile Equipment on Matters specific to Aircraft Equipment (Cape  Town, 2001); 

  • Convention on International Civil Aviation (Chicago, 1944) and  the Protocol relating to an amendment to the Convention on  International Civil Aviation (article 83-bis (Montreal, 1980)); and 
  • Convention on the International Recognition of Rights in Aircraft  (Geneva, 1948). 

These multilateral treaties are in effect by virtue of their respective domestication into law in the Civil Aviation Act, 2006 (CAA). Nigeria has  not acceded to nor ratified the Rome Convention (1952). 

Domestic legislation 

2 What is the principal domestic legislation applicable to  aviation finance and leasing? 

There is no specific domestic legislation applicable to aviation finance  and leasing in Nigeria. The CAA, which ratifies the provisions of the  Cape Town Convention and Aircraft Protocol (Cape Town, 2011) applies  to aviation finance and leasing in Nigeria. In addition, other legislation  that generally applies to financial transactions in Nigeria will apply to  aviation finance and leasing transactions. 

Governing law 

3 Are there any restrictions on choice-of-law clauses in  contracts to the transfer of interests in or creation of security  over aircraft? If parties are not free to specify the applicable  law, is the law of the place where the aircraft is located or  where it is registered the relevant applicable law? 

The parties are free to choose either the laws of Nigeria or the laws of  a foreign country to govern their contracts relating to transfer of interests in, or creation of security over, an aircraft. Nigerian courts uphold  foreign governing law clauses in contracts. 


Transfer of aircraft 

4 How is title in an aircraft transferred? 

Title in an aircraft is transferred by a written contract, usually a contract  of sale. The parties can, in the contract, agree in precise terms when  title is deemed to pass to the purchaser. A bill of sale is also effective to  transfer title in an aircraft. 

Transfer document requirements 

5 What are the formalities for creating an enforceable transfer  document for an aircraft? 

A transfer document for an aircraft must be in writing, duly stamped  and registered at the Nigeria Civil Aviation Authority (NCAA) for it to be  enforceable. There is no legal requirement for notarisation and legalisation of a transfer document for an aircraft under Nigerian law. Translation of a transfer document is necessary if it is not in  English. The translated document should be certified by the Nigerian  Embassy. However, where there is no Nigerian embassy in a country, a  copy certified by the British Embassy or High Commission or by a notary  public may be accepted. 


Aircraft registry 

6 Identify and describe the aircraft registry. 

The Civil Aviation Act, 2006 (CAA) provides that the Nigeria Civil Aviation  Authority (NCAA) shall establish and maintain a system or register for  recording the title to or any interest in any aircraft registered in Nigeria.  Furthermore, the Nigerian Civil Aviation Regulations 2015 (NCAR) stipulate that the NCAA shall maintain an aircraft registry showing for each  aircraft registered in Nigeria the information recorded on the certificate  of aircraft registration and any other registration. The NCAA, however,  has not created any distinct aircraft registry specifically for registration  of aircraft in Nigeria. What typically occurs is that the NCAA records  the registration of an aircraft or any interests in aircraft in specific  and distinct files opened and maintained for owners and operators  of aircrafts. The owner, operator or anyone who has an interest in an  aircraft may apply to register its interest at the NCAA. 

Currently, there are no existing article 83-bis arrangements in place  between Nigeria and other jurisdictions. Previously, the NCAA and the  Civil Aviation Authority of San Marino executed the International Civil  Aviation Organization article 83-bis Agreement. The arrangement was  not made for any commercial aircraft and has ceased to be operational. 

There is no specific engine register in Nigeria. 

Registrability of ownership of aircraft and lease interests 7 Can an ownership or lease interest in, or lease agreement over, aircraft be registered with the aircraft registry? Are  there limitations on who can be recorded as owner? Can an  ownership interest be registered with any other registry? Can  owners’, operators’ and lessees’ interests in aircraft engines  be registered? 

The NCAR provide that the NCAA shall establish and maintain a Legal  Interests in Aircraft Registry showing for each aircraft registered in  Nigeria proprietary rights, interests, liens and other dealings thereon.  This registry has also not been established by the NCAA. An ownership  interest, lease interest in, or lease agreement over an aircraft must be  registered with the NCAA. 

The NCAR defines an ‘owner’ for the purpose of aircraft registration  as follows: 

  • a citizen of Nigeria; 
  • an individual citizen of another state who is lawfully admitted for  permanent residence in Nigeria; 
  • a corporation lawfully organised and doing business under the  laws of Nigeria, where the aircraft is based and primarily used  in Nigeria; 
  • a government entity of Nigeria or political subdivision thereof; or • a foreign person who has leased the aircraft to one of the persons  described in the points above, provided that: 
  • the aircraft may remain on the Nigerian registry only for as  long as the lease remains in effect; and 
  • the certificate of registration includes the names and  addresses of the lessee and, if different, the operator of  the aircraft. 

In addition, any interest that constitutes a charge over the assets of  a limited liability company must be filed at the Corporate Affairs  Commission (CAC), the body that regulates corporate entities in Nigeria.  The NCAA also registers interests in aircraft engines. 

Registration of ownership interests 

8 Summarise the process to register an ownership interest. 

The NCAA does not have a process for registering an ownership interest  distinct from the process of registering an aircraft. It is at the point of  an aircraft registration that the NCAA requires evidence of ownership  interest (ie, bill of sale or other documents). The process and supporting  documents for an aircraft registration are as follows: 

  • a duly completed prescribed application Form: AC-AWS 001A; • a certificate or notice of deregistration from the previous state of  registry (received by the NCAA directly from the state of registry)  or a letter from the state of manufacture, if the aircraft is new  and has never been registered in any other state, confirming  non-registration; 
  • documents to prove the aircraft ownership (eg, bill of sale);
  • a copy of a government-issued identification or passport if owned  by an individual or any other identification card approved by NCAA  or a certified copy of the certificate of incorporation if owned by  a company; 
  • names of the directors of the company owning or leasing the  aircraft and their specimen signatures giving authority to register  or operate the aircraft in Nigeria and indicating who among them  has the mandate to transact on their behalf on matters relating to  the aircraft registration or operation; 
  • a certified copy of the lease agreement if the aircraft is on lease  with stamp duties paid; 
  • a certified copy of the power of attorney from the owner or lessor  and the lessee (both) (if applicable); 
  • a certified copy of a current aircraft insurance certificate; • proof of payment of the prescribed fees; and 
  • a certified copy of the air transport licence, air operating permit or  permit for non-commercial flight. 

There is no legal requirement for notarisation and legalisation of a  document required for registration of ownership interest in an aircraft  under Nigerian law. The cost of registering ownership interest is not  distinct from the cost of registering an aircraft. The cost of registering  an aircraft depends on the weight of the aircraft in question. The fees  are assessed as follows: 

  • under 3,000kg – 10,000 naira; 
  • more than 3,000kg but not exceeding 6,000kg – 20,000 naira;
  • more than 6,000kg but not exceeding 15,000kg – 30,000 naira;
  • more than 15,000kg but not exceeding 50,000kg – 50,000 naira; and
  • 50,000kg and above – 100,000 naira. 

An additional fee of 50,000 naira is payable if an applicant requests a  special registration mark that is out of sequence. 

Title over aircraft assets are as determined in contractual documents between the parties and the NCAA does not provide distinct registration for engines in host aircraft. 

Title and third parties 

9 What is the effect of registration of an ownership interest as  to proof of title and third parties? 

The NCAA does not register ownership interests distinct from aircraft  registration. An important notice on the certificate of aircraft registra tion states that the certificate is issued for registration purposes only  and is not a certificate of title and that the NCAA does not determine  rights of ownership between persons. It is therefore advisable to verify  any aircraft registration with the NCAA via a search. 

The NCAR provides that the NCAA shall not be liable for any  damages, claims and actions arising from any defects in documents,  records and depositions submitted to it in support of any application for registration or deregistration of an aircraft. It also stipulates  that an applicant for registration or deregistration of aircraft shall  indemnify the NCAA against any damages, cost liabilities arising from  third-party claims and actions based on misrepresentation and defective documents submitted in support of an application for registration  or deregistration. This provision presupposes that the registration of an  aircraft with the NCAA is not effective against a third party who is able  to show better title. 

Registration of lease interests 

10 Summarise the process to register a lease interest. 

A lease agreement for an aircraft must be in writing. The executed lease  agreement is assessed, and the applicable stamp duties paid to the  Federal Inland Revenue Service (FIRS). The stamped lease agreement is  subsequently submitted to the NCAA to be placed in the file opened and  maintained for the particular operator by the NCAA. There is no legal  requirement for notarisation and legalisation of the document creating  the lease interest under Nigerian law. However, if the document is not in  English, it would be necessary to translate it into English. Typically, the  translated document would be certified by the Nigerian Embassy or in  the absence of the Nigerian Embassy, the British Embassy. 

At the NCAA, depending on the type of aircraft, the minimum charge  for registration of a lease interest under the fee arrangement is 10,000  naira, while the maximum charge is 150,000 naira. 


Certificate of registration 

11 What is the regime for certification of registered aviation  interests in your jurisdiction? 

There are no certificates issued for registered aviation interests, as there  is no formal registry of legal interest. However, the NCAA confirms by  letter when an interest has been registered. There is no separate engine  certification issued as the NCAA does not register engines distinct from  the aircraft. 

Deregistration and export 

12 Is an owner or mortgagee required to consent to any  deregistration or export of the aircraft? Must the aviation  authority give notice? Can the operator block any proposed  deregistration or export by an owner or mortgagee? 

A person who registers an aircraft can deregister and export it. If a  mortgage interest in an aircraft is registered with the NCAA, the NCAA  is under the obligation to give notice to the mortgagee if there is any  application to deregister, export or change ownership of the aircraft. 

By virtue of the Cape Town Convention (2001) (CTC), the NCAA  must honour an irrevocable deregistration and export request authori sation (IDERA). Most parties to recent mortgage agreements executed in  Nigeria will have an IDERA signed and deposited with the NCAA. 

A borrower may stop a proposed deregistration or export where  it can prove that there has been no default or breach of agreed  contract terms. 

Powers of attorney 

13 What are the principal characteristics of deregistration and  export powers of attorney? 

A deregistration power of attorney (DPoA) enables the donee to freely  deregister and export the aircraft. It is normally irrevocable under  Nigerian law where valuable consideration has passed, or an interest is  being secured until the exhaustion of such consideration or discharge  of the security. An irrevocable DPoA is usually granted to one attorney. 

An irrevocable DPoA is stamped ad valorem with the FIRS at the  rate of 1.5 per cent, while a revocable DPoA is stamped at the flat rate  of five hundred naira. A DPoA is usually registered at the NCAA along  with other documents required for registration of a security interest in  an aircraft. 

Cape Town Convention and IDERA 

14 If the Cape Town Convention is in effect in the jurisdiction,  describe any notable features of the irrevocable deregistration and export request authorisation (IDERA)  process. 

The form of an IDERA used in Nigeria is largely in the same form as that  set out in the Aircraft Protocol to the CTC. The features include the statement that the creditor is the sole person to procure the deregistration  of the aircraft from the registry authority and the export and physical  transfer of the aircraft from Nigeria. 

A DPoA or an IDERA is required to be filed with the NCAA. The  former is used when the mortgagee is a Nigerian entity, while the latter  is used when the mortgagee is a non-Nigerian entity. The form of IDERA  is usually countersigned by the NCAA. 


Security document (mortgage) form and content 

15 What is the typical form of a security document over the  aircraft and what must it contain? 

Typically, security is created over aircraft and engines by way of legal  mortgages. These are usually documented in English, it being the  language of Nigerian courts. There is no special form that such a mort gage must take but such agreements would usually contain a granting  clause setting out the specifics of the aircraft and the security interest  created over it as well as clauses relating to the registration, mainte nance and operation of the aircraft, replacement of parts, substitution  of engines, events of loss, insurance, defaults and remedies, term of  the mortgage, terms of release of the mortgage, filings to be completed  for the perfection of the mortgage, applicable law, dispute resolution  and so on. 

Whether or not the secured amount or the economic terms of the  transaction would be stated in the mortgage agreement or in a separate  loan document is entirely up to the parties. However, upon stamping  of the mortgage agreement, registration with the Nigeria Civil Aviation  Authority (NCAA) and filing of same at the Corporate Affairs Commission  (CAC), the secured amount is required for assessing the applicable  stamp duties, registration and filing fees. 

Security documentary requirements and costs 

16 What are the documentary formalities for creation of  an enforceable security over an aircraft? What are the  documentary costs? 

A legal mortgage is required to be executed as a deed and subsequently  stamped. Thereafter, the document is required to be noted by the NCAA.  Where the mortgagee is empowered under the mortgage to deregister  and export the mortgaged asset, a deregistration power of attorney  (DPoA) or an export request authorisation (IDERA) is also required to  be filed with the NCAA. 

If the mortgagor is a company registered in Nigeria, the charge  created over the aircraft or engine, or both, being one of the assets of  the company would also be registered at the CAC by filing a Form CAC  8 (Particulars of Charge) with additional information setting out a high level description of the asset being charged, including such details as  the manufacturer’s serial number and NCAA registration number of the  charged asset. 

In compliance with the Cape Town Convention (2001) (CTC), most  mortgages creating an international interest must also be registered at  the International Registry. 

The costs associated with the foregoing are calculated as follows:

  • stamping – 0.375 per cent of the mortgage value; and
  • registration with the NCAA: 
  • on the first 100,000 naira of the secured sum, for each  complete 10,000 – 500 naira; 
  • on the next 900,000 naira, for each 100,000 naira or part  thereof – 500 naira; 
  • thereafter, for each 1 million naira or part thereof – 200 naira.  However, the maximum charge for registration is capped at  150,000 naira; 
  • registration at the CAC: 
  • if the mortgagor is a private company – 10,000 naira for every  1 million naira or part thereof; and 
  • if the mortgagor is a public company – 20,000 naira for every 1  million naira or part thereof; and 
  • registration of an international interest with the International  Registry – US$100.

Security registration requirements 

17 Must the security document be filed with the aviation authority or any other registry as a condition to its effective  creation or perfection against the debtor and third parties?  Summarise the process to register a mortgagee interest. 

Yes, to effectively perfect the security against the debtor and third parties,  the security document must be filed with the NCAA, the Corporate Affairs  Commission (CAC) and the International Registry. 

To register the security document at the NCAA, a cover letter  requesting that the mortgage be registered as well as a copy of the  deed of mortgage will be submitted to the NCAA. Thereafter, the appli cable registration cost will be assessed and paid. Once the registration  is complete, the NCAA will issue a letter stating that the interest has  been noted in the Nigerian Civil Aircraft Register and the date on which  it was entered. 

At the CAC, the original stamped security document is required to  be filed with a Form CAC 8 (Particulars of Charge). Once the filing fee has  been assessed and paid, the CAC will issue a Certificate of Registration  of a Charge setting out the secured sum, the date of creation of the  charge and the person in whose favour the charge is created. 

The registration of an international interest at the International  Registry is completed on their dedicated website. Prior to the registra tion, the mortgagor and mortgagee must be registered as Transacting  User Entities. The International Registry website provides a step-by-step  guide on how an international interest can be registered. 

Registration of security 

18 How is registration of a security interest certified? 

The certification of a security interest in a mobile asset depends on the  authority with which it is registered. If the registration is done in accord ance with the CTC at the International Registry, no certificate is issued.  However, the status of the interests in the asset can be confirmed by  conducting a confirmatory search on the asset at the International  Registry. The International Registry will then issue a Priority Search  Certificate setting out all the registrations completed in respect of the  asset. This will state the type of each registration completed up to the  date of the search, whether or not each interest created is fractional or  partial and the person in whose favour each registration is made. 

With respect to registrations at the NCAA, the NCAA will issue  a letter stating that the interest has been noted in the Nigerian Civil  Aircraft Register and the date on which same was entered. The issued  letter does not state the rank or priority of the security interest registered. Subsequently, a search may be conducted on the Nigerian Civil  Aircraft Register following which the NCAA will issue a Report of Search  setting out the details of the asset, its registered owner and all interest  holders in respect of the asset. 

The CAC issues a Certificate of Registration of a Charge setting out  the type of security document registered, the secured sum, the date of  creation of the charge and the person in whose favour the charge is  created. Subsequently, a search can be conducted on the file of the mortgagor at the CAC to confirm the status of the charge as well as to obtain  certified copies of the security document. 

All the foregoing can be accessed upon completion of the registra tion process at each registry. 

Effect of registration of a security interest 

19 What is the effect of registration as to third parties? 

Registration at the International Registry confers priority over subse quent security interests in line with the terms of the CTC. Registration  with the NCAA and the CAC serves as notice to third parties that a security interest has been created over the asset and stamping and  registering the security document is the best way to establish priority  under Nigerian law. 

There is no priority notice system in place, but the effect of the  various registrations is to put all third parties on notice as to the security  interest created over the secured asset. Any subsequent charge created  over the same asset would be subject to and rank second to the interest  already created and registered. 

Records kept of registrations by the NCAA, CAC and International  Registry are largely reliable in confirming the status of assets sought  to be secured. 

Security structure and alteration 

20 How is security over aircraft and leases typically structured?  What are the consequences of changes to the security or its  beneficiaries? 

Syndicated aviation financing may utilise substantially the same struc ture as other types of syndicated financing. The concept of trust is  recognised under Nigerian law and may be used in granting security  over an aircraft by the appointment of a security trustee for the lenders  in a transaction. How the trust will be managed, whether or not the secu rity or the beneficiaries of same can be substituted or modified is largely  dependent on the terms of the facility documents. Where the facility or  security documents permit substitution of lenders or the inclusion of  additional lenders, the security trustee may also be empowered to hold the security on behalf of the substituted or additional lenders. Where a security trustee is appointed in syndicated financing, the  registrations in respect of the security documents may be completed  in the name of the security trustee. If this is the case, there would be  no requirement to make changes where there are additional lenders  or lender substitutions. However, when a loan is to be transferred to  a new lender, filings of the change with the relevant authorities would  be required. 

Security over spare engines 

21 What form does security over spare engines typically take  and how does it operate? 

Security over spare engines can also be created by legal mortgage  whether or not any such engine is installed on an aircraft. The creation  of security over an aircraft does not create an independent security over  the installed engine except when expressly stated in the security document. Where a security interest is to be created over an aircraft and its  installed engines, each of the aircraft and engines are listed as a sepa rate secured asset. Where a security interest is created over an aircraft  and the installed engines, the security document may make provision  for how the installed engine may become unencumbered. The security  document may provide for the substitution of engines under security  where such engines are uninstalled and replaced or provide that the  security over an engine subsists even after it is uninstalled from the  charged aircraft. 


Repossession following lease termination 

22 Outline the basic repossession procedures following lease termination. How may the lessee lawfully impede the owner’s  rights to exercise default remedies? 

Nigeria made declarations under article 54(2) of the Cape Town  Convention (2001) (CTC) to the effect that any remedies available to  the creditor under the CTC that are not expressed under the relevant provision to require application to court may be exercised without court  action and without leave of court. Therefore, if the interest of the lessor in  the aircraft is registered as an international interest under the CTC and  Aircraft Protocol, a court order is not required to activate the remedies  stipulated in article 11 of the CTC, which allows a lessor to terminate a  lease agreement and repossess the aircraft. In practice, however, there  have been cases where a lessee has impeded the right of the lessor by  obtaining orders of injunction restraining the lessor from exercising the  self-help remedies before such remedy is activated. 

If the lease is not subject to the CTC and Aircraft Protocol, the  lessee may proceed to court to have questions surrounding the lease  determined by the court. 

Notably, one of the grounds upon which an aircraft owned by a  foreign person but leased to persons permitted to register aircraft in  Nigeria can only remain in the registry is if the lease remains in effect.  Upon the termination of such a lease, deregistration and repossession  are treated together. The lessor gives reasonable prior notice in writing  of the proposed repossession to the Nigeria Civil Aviation Authority  (NCAA) that the lease has been determined. 

If the lease is determined by default, the NCAA requires evidence  that the lessee has been given time to remedy the default but has failed  to do so and that the default persists. The NCAA ensures that the inci dent of default is within the terms agreed by the parties and that the  lessee has indeed defaulted before it proceeds to notify the lessee and  any other interest holder of the proposed deregistration and request for  repossession. 

Enforcement of security 

23 Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to  enforce? 

In line with the declaration made by Nigeria under article 54(2) of the  CTC to the effect that any remedies available to the creditor under the  CTC that are not expressed under the relevant provision to require appli cation to court may be exercised without court action and without leave  of court, a chargee can exercise the default remedies set out in article  8 of the CTC (take possession or control of the object charged; sell or  grant a lease of any such object; collect or receive any profit or income  arising from the management of or use of such object) without recourse  to court. It is usual to have terms in the mortgage agreement giving  the mortgagee the right to exercise such self-help remedies without  recourse to court. 

Yes, the aircraft can be detained by way of an ex parte application  once the conditions necessary for the grant of an injunction are present  (eg, that the mortgagee has a legal right to the asset, that the mortgagor  owes monies and is unable to pay and the security for the monies is  the aircraft asset that, if not detained, may be made unavailable by the  mortgagee). 

If the security interest is created under the CTC and Aircraft Protocol,  the procedure to be adopted in the event of an insolvency of the debtor  is as set out in Alternative A of article XI to the Aircraft Protocol. This is  line with the declaration made by Nigeria pursuant to article XXX(3) of  the Aircraft Protocol. As required, the waiting period within which the  debtor is expected to give possession of the aircraft object to the creditor  upon the occurrence of the insolvency-related event is 30 calendar days. 

For agreements made outside the CTC, the holder of a fixed charge  over an asset takes precedence in insolvency proceedings over other  creditors of the debtor. 

Again, in practice, it is possible, contrary to the terms of the contract,  for a chargor to impede the right of the chargee by obtaining orders of  injunction restraining the chargee from exercising the self-help reme dies before such remedy is activated. 

Priority liens and rights 

24 Which liens and rights will have priority over aircraft  ownership or an aircraft security interest? If an aircraft can  be taken, seized or detained, is any form of compensation  available to an owner or mortgagee? 

In line with the declarations made by Nigeria, the following categories  of non-consensual right or interest have priority under the law over an  interest in an object equivalent to that of the holder of a registered inter national interest and shall have priority over a registered international  

interest, whether in or outside insolvency proceedings:

  • liens in favour of works for unpaid wages arising since the time of  a declared default under a contract to finance or lease the subject  object for services performed relating to that object; and
  • liens in favour of repairers of an object in their possession to the  extent of services performed on and value added to that object. 

In addition, certain rights have been declared by Nigeria as registerable non-consensual rights and interests that are to be registered at  the International Registry and regulated accordingly. These inter ests include: 

  • rights of a person obtaining a court order permitting attachment of  an aircraft object in partial or full satisfaction of a legal judgment; • liens or other rights of a state entity relating to taxes or other  unpaid charges; 
  • liens of a salvor for unpaid charges in respect of salvage services  provided to an aircraft object when it is waterborne; 
  • liens of a person providing towage services to an aircraft object  when it is waterborne in respect of unpaid charges; and • liens of a bailee of an aircraft in respect of unpaid charges for the  bailment of that aircraft object. 

It is usual to find terms relating to state confiscation or requisition in  mortgage agreements executed in Nigeria. The Nigerian Constitution  provides that no movable property shall be compulsorily acquired by the  government except in the manner and for purposes provided by a law  that among other things, provide for the prompt payment of compensation and gives any person claiming such compensation a right of access  to a court of law or tribunal for the determination of his interest and the  amount of compensation to a court of law or tribunal. 

Section 44 of the Constitution is, however, without prejudice to any  general law relating to, among other things, the imposition or enforcement of any tax, rate or duty. For instance, the Federal Inland Revenue  Service (FIRS) is empowered to sell distrained goods or chattels to  satisfy a taxpayer’s assessed tax obligation if the taxpayer fails to pay  the assessed tax and any cost or charges incidental to the distrain. By  this provision, the FIRS can validly distrain and sell an aircraft or any of  its parts or equipment to satisfy the tax obligation of the owner of the  aircraft or equipment. 

Enforcement of foreign judgments and arbitral awards 25 How are judgments of foreign courts enforced? Is your  jurisdiction party to the 1958 New York Convention? 

Foreign judgments are enforced in Nigeria in accordance with the provisions of the Foreign Judgments (Reciprocal Enforcement) Act, Chapter  F35, Laws of the Federation of Nigeria 2004 (the 2004 Act) and the  Reciprocal Enforcement of Judgments Act 1922, Chapter 175, Laws of  the Federation and Lagos 1958 (the 1958 Act). Section 3 under Part 1 of  the 2004 Act (which contains provisions for the registration of foreign  judgments) provides that where the Minister of Justice of the Federation  of Nigeria is satisfied that in the event of the benefits conferred by Part  1 of the 2004 Act being extended to judgments given in the superior courts of any foreign country, substantial reciprocity of treatment will be  assured with regard to the enforcement in that foreign country of judgments made by a superior court in Nigeria, the Minister may, by order,  direct the extension of Part 1 to that foreign country. No such order  has been made by the Minister of Justice to date. Section 10(a) of the  2004 Act allows the enforcement of foreign judgments of countries to  which Part 1 of the 2004 Act has not been extended, provided that such  applications for enforcement are made within 12 months of the foreign  judgment or within such other time as the court may permit. Judgment  under the 2004 Act includes an arbitral award. Foreign arbitration  awards are thus enforced in the same manner as foreign judgments  under the 2004 Act. 

Certain foreign judgments may also be enforced under the 1958  Act. This Act deals with the registration and enforcement of judgments obtained in Nigeria and the United Kingdom and other parts  of Her Majesty’s (Queen of the United Kingdom) dominion and territories and was not repealed by the 2004 Act as was decided by the  Nigerian Supreme Court in the case of Witts & Busch Ltd v Dale Power  Systems plc

In addition to the above statutory provisions, Nigeria is also a party  to the New York Convention and arbitration awards are enforced in  accordance with the Convention. 



26 What taxes may apply to aviation-related lease payments,  loan repayments and transfers of aircraft? How may tax  liability be lawfully minimised? 

Generally, aviation transport is taxed as a special regime. Its profits  and losses are deemed to derive from carriages loaded into aircraft in  Nigeria with a minimum tax of not less than 2 percent of the full sum  receivable in respect of such carriages. 

Under aviation-related lease payments, loan repayments and  transfers of aircraft, the tax treatments depend on whether the lease is  an operating lease or a finance lease. Where the lease is an operating  lease, it would be treated as an operating expenditure (opex) for the  lessee while under finance leases, it will be treated as a capital expenditure (capex). 

Operating lease, income tax on rent 

Under the Companies’ Income Tax Act (CITA), the income derived from  a lease is a rent. Section 79(6) of CITA defines rent to include ‘payments  for the use or hire of any equipment, payments for charter of vessels,  ship or aircraft and all such other payments for the use of or hire of  movable and immovable property’. By section 79(1) and (2) of CITA,  where any rent is due from or payable to a lessor, the person paying the  rent (lessee) shall at the time of payment or credit deduct an amount  equal to 10 percent of the rent as withholding tax and remit to the tax  authority. Where the rent is paid to a recipient resident in a country that  has a double taxation agreement (DTA) with Nigeria, the rate is reduced  to 7.5 percent. The taxes withheld pursuant to section 79 above shall be  the final tax payable if the lessor is non-resident. 

Value added tax 

The lessee is liable to pay value added tax (VAT), as imposed by the  Value Added Tax Act. VAT is a consumption tax that is charged on the  supply or sale of goods or services in Nigeria. The obligation to charge  the tax is on the lessor, who should include the tax in its invoice to the  lessee and remit the tax. The VAT rate is 7.5 per cent of the value of the  rent payable to the lessor. 

Finance leases and loan repayments 

CITA places a charge on interests payable for the loan of an asset under  a finance lease in Nigeria. Under section 78 of CITA, interest payments  are liable to withholding tax. The rates are also 10 per cent and 7.5 per  cent for residents of non-DTA and DTA countries respectively. 

Under finance leases, Item 18(2) of the second Schedule to CITA,  entitles the lessee to claim for capital allowances (where the agreement  provides for the transfer of ownership, risk and reward to the lessee)  on all capital amounts repaid to the lessor for the acquisition of the  aircraft. Interest payments are also treated as allowable deductions for  the lessee while the interest earned by the lessor is a return on investment and is not subject to VAT. 

Aircraft transfers 

Tax treatments on incomes earned on aircraft transfers by resident  companies will depend on the transaction structure. For non-resident  or foreign companies, the profits from a trade of business are taxable in  Nigeria only if the profits were derived from Nigeria. Trade or business  profits are deemed to derive from Nigeria in any one of the circumstances stipulated in section 13(2) of CITA. The circumstances are:

  • where the company has a fixed base in Nigeria and derives the  income through that fixed base; 
  • where the company has a dependable agent in Nigeria; • where the trade or business involves a single contract (turnkey  projects); and 
  • where the trade or business is between the foreign company and a  related person in Nigeria. 

Thus, where a foreign company transfers an aircraft to a Nigerian  company through the former’s fixed base or dependent agent in Nigeria  the income would be taxable in Nigeria. 

In relation to VAT, it should be noted that imports of aircraft and  spare parts are zero rated. 

Nigeria is a party to DTAs with various countries. A typical DTA  either reduces or excludes taxes that would ordinarily be payable in  respect of certain incomes. In an aircraft lease transaction for instance,  if the lessor is resident in a country that has a DTA with Nigeria, Nigerian  tax may be minimised. 

Loan repayments, unlike rent payments, do not attract VAT. This  has a bearing on the overall cost of the transaction. 

Interest payments on foreign loans with certain repayment periods  above two years attract varying levels of tax exemption. In the case of aircraft transfers, there is no liability for income tax  for a foreign transferor unless the aircraft is sold through a fixed base  or dependent agent in Nigeria. 

Under the Nigerian DTAs, the business income of a foreign  company is only taxable in Nigeria if that foreign company does busi ness in Nigeria through a Nigerian permanent establishment. It follows  that if an aircraft transfer is done outside the territory of Nigeria, by a  transferor who is a resident of a treaty country, the income may not be  subject to Nigerian income tax or capital gains tax. 

(Income) tax is chargeable only if the aircraft is sold or transferred  by a Nigerian company or by a foreign company through a fixed base,  permanent establishment or dependent agent in Nigeria. The place of  transfer would only be relevant if it qualifies as a fixed base or perma 

nent establishment. 

Exchange control 

27 Are there any restrictions on international payments and  exchange controls in effect in your jurisdiction? 

Nigerian laws permit the repatriation of proceeds of valid transactions  and other international payments in any convertible currency provided the necessary documentation are duly completed and provided to an authorised dealer. Authorised dealers are banks licensed by the Central Bank of Nigeria to operate in the foreign exchange market. The documentation required will depend on the type of payment or remittance–aircraft lease payments, maintenance fees, spare parts costs, insurance premiums, etc. The authorised dealer will process the payment or remittance and make the appropriate notification or returns to the Central Bank of Nigeria. 

Default interest 

28 Are there any limitations on the amount of default interest  that can be charged on lease or loan payments? 

No. This is a matter of contract between the parties. Default interest  should, however, be reasonable as Nigerian courts, generally, do not  enforce clauses that appear to be punitive. 

Customs, import and export 

29 Are there any costs to bring the aircraft into the jurisdiction  or take it out of the jurisdiction? Does the liability attach to  the owner or mortgagee? 

Yes. Custom duties are imposed on the importer. Custom duty may  be waived if the aircraft is being imported under a temporary import  permit. Payments due on the aircraft to statutory bodies must be settled  to clear the way for export. 


Captive insurance 

30 Summarise any captive insurance regime in your jurisdiction  as applicable to aviation. 

Section 72(1) of the Insurance Act 2003, which is applicable to the  aviation industry prohibits the insurance or reinsurance of a risk of a  property in a Nigerian business except with a Nigerian insurance or  reinsurance company. This provision is interpreted and enforced by the  Nigerian Insurance Commission to bar the insurance or reinsurance of  aircraft or aircraft equipment with a foreign company. The Insurance Act  does not provide a percentage of the risk that is required to be mandatorily insured or reinsured in Nigeria. 

There are, however, situations where the National Insurance  Commission (NAICOM) may permit in writing for a risk to be insured  or reinsured with a foreign insurer or reinsurer upon an application of  a person seeking to maintain a foreign insurance or reinsurance. Such  a person must satisfy NAICOM that by reason of the exceptional nature  of risk in or emanating from Nigeria or such exceptional circumstances,  the risk cannot be placed with an insurer or reinsurer in Nigeria. 

The Insurance Act does not restrict the insurance or reinsurance  of risk in Nigeria to any particular insurance or reinsurance company or  group of insurance companies. A person is therefore at liberty to spread  the risk among different insurance or reinsurance companies. In practice, a percentage of aviation risk is retained in the Nigerian market and  is spread among insurance companies. The bulk of the risk is reinsured  with foreign reinsurance companies. 

Cut-through clauses 

31 Are cut-through clauses under the insurance and reinsurance  documentation legally effective? 

There is no prohibition of cut-through clauses under the Insurance Act,  and in the absence of such prohibition, cut-through clauses are legally  effective in Nigeria. 

Chinasa Unagebunam 

[email protected] 

Tamuno Atekebo 

[email protected] 

Omolayo Tolu-Latunji 

[email protected] 

Dan Whisky 

[email protected]

16D Akin Olugbade Street, Victoria Island Lagos
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