29 Mar Registration of Technology Transfer Agreements in Nigeria
Technology Transfer is the flow of applicable knowledge, skill, capability, expertise, equipment or facilities from one location to another within a specific time frame.
A Technology Transfer Agreement (TTA) is a contract between a transferor and a transferee, with the transferor selling, assigning, licensing, or otherwise transferring a particular process or product, often patented, to the transferee.
National Office for Technology Acquisition and Promotion (NOTAP) is primarily responsible for the registration of Technology Transfer Agreements signed by Nigerian Entrepreneurs and their Foreign Technical Partners who are also called Transferors/Licensors.
In pursuance of this mandate NOTAP carries out detailed analysis of TTAs’ submitted by Transferors/Licensors prior to the registration, to ensure that the technologies involved suit the local environment and that they are adaptable, equitable, fair and commensurate in prices and are well aligned to the capacities/capabilities of the Nigerian National Innovation System. These agreements are evaluated in order to achieve equity, fair play and to be in conformity with the national socio-economic objectives.
Registration of the TTA with NOTAP is also required for the payment of foreign currency royalty or technical fees to a non-resident service provider or license owner. Thus, a Nigerian entity may not be able to procure foreign currency to pay technical fees through authorized banking channels without obtaining NOTAP registration.
REQUIREMENTS FOR THE REGISTRATION OF TECHNOLOGY TRANSFER AGREEMENT WITH NOTAP
NOTAP registers TTAs’ in the following sectors: Manufacturing, Information and Communication Technology (ICT), Finance & Insurance, Hotels and Restaurant, Oil and Gas, Civil Construction, Agriculture/Forestry, Transport & Logistics, Franchising, Power and Energy, Mining & Quarry, etc.
The key agreements registered by the NOTAP include but are not limited to: :
- Technical Know-How Agreement – This agreement is usually required in the manufacturing sector for the provision of skills, knowledge, and information, raw materials sourcing and processing for manufacturing of products.
- Management ServicesAgreement– This type of agreement involves services that are related to the day-to-day management of the factory by the expatriates to ensure that the business is profitable and that the products meet the international standards of the transferor.
- Technical Services Agreement – This is an agreement for short-time services (maximum of 6 months) within which the expatriate comes to render specific services in a project/contract for a short period.
- Consultancy Services Agreement – This is a type of agreement entered into when a certain part of a contract/project is handled by a consultant whose payment will also be a certain portion of the contract sum. Software License Agreement- This type of agreement involves the deployment and/or resale of software products in any desired sector of the economy. It can be entered into between an end-user and an Original Equipment Manufacturer (OEM) or between end-user and local representative of the OEM.
- Trademark License Agreement – This is a type of agreement to protect and pay royalty on the trade name, Trademark and good will of a mark deployed in the sales of manufactured goods in Nigeria. It is strictly allowed in locally manufactured goods.
- Franchise Agreement – Franchise agreement is a technology transfer agreement in which tested business model operations of a company is licensed. A franchise agreement is usually accompanied by different types of proprietary rights including know -how, Training, Operating Manuals, etc. A franchise agreement can be approved in departmental stores, manufacturing and Hotel business
- Hotel Management Agreement – This is the agreement registered for the management and running of hotels. It normally has duration of 5 years in the first instance and subject to renewal. It registers the Intellectual Property Rights of the management including trade name.
To aid the analysis and registration of the TTAs’, NOTAP requires some vital documents to be provided which must accompany the draft agreement that are usually submitted for registration. Such documents can be found in the NOTAP Guidelines published on the NOTAP website.
These documents however vary/differ depending on the type of agreement being registered.
APPLICABLE LICENSE FEES
- Management Service Fee: Management Services fees are based on a percentage of profit before tax (PBT) and the fees range from 1-5% of PBT. Where profit is not anticipated in the early years of implementation of the project, 1-2% of net sales may be approved by the NOTAP for the first 3-5 years only.
- Technical Service Fee: Technical service fee is based on man hour, per diem or monthly rates of the experts coming to render short term services in Nigeria. It is not tied to net sales but is based on international standards. For technical service agreements with a duration exceeding 6 months, payment based on per diem/monthly rate is not allowed as the regulations require the technical service fee and salaries for expatriates should be remitted through Personal Home Remittance (PHR) as regulated by the CBN.
- Software License Fee/Implementation Fee: This is a lump sum depending on the type of software product, the number of end users and the market rates of fees for similar products in the industry where the software is to be used. The implementation fee is approved as a lump sum fee dependent on the obligations to be rendered by the licensor.
- Annual Technical Support/Upgrade/Maintenance fee: The NOTAP Guidelines prescribe a maintenance fee not exceeding 23% of the Software License fee payable to the Licensor.The Guidelines also mandate the engagement of a local vendor/partner to undertake the implementation of any maintenance and installation services. The local vendor must be paid a minimum of 40% of the Annual Technical Support fee in Naira. Evidence of the payment made to the local vendor/partner is required to be submitted to NOTAP.
- Franchise Fee: There are three main types of fees usually approved by the NOTAP subject to the request of the applicant company. The fees are: Initial/Basic Fee – a lump sum (to be reasonably fixed), Franchise/Continuing Fee – 0.5%-2%of net sales or revenue, Marketing/Advertising Fee – 1% of net sales or revenue.
- Trademark License: The Trademark License fee is based on a maximum of 1% of net sales.
- Technical Know-How Fee: This is based on a percentage of net sales of the company’s products ranging from 1-5% of net sales.
- Consultancy Fee: This is based on a percentage of the total project cost in line with international technology market prices. The maximum payment allowed is 5% of the total project cost.
REMITANCE OF FEES TO FOREIGN PARTNER
The Foreign Exchange Manual (the “Manual”) issued by the CBN, contains documentation requirements for remittance of foreign currency technology transfer/license/technical service fees. The Manual states that NOTAP registration is a documentary requirement for such remittances and the banks are mandated to request all such documentation prior to implementing remittances of technical service fees or royalty on foreign technology.
There are some challenges associated with remittances to foreign companies, obtaining approval for deductible cost and appropriate pricing of technology transfer in the Nigeria.The major challenge that companies face is the lack of information and understanding of the rules and provisions of NOTAP, this delays the registration process and prevents them from paying or remitting fees to the foreign technical partners.
Some merits of registering Technology Transfer Agreements with NOTAP are:
- NOTAP ensures execution of favorable contractual terms and conditions for the transfer of foreign technology.
- Assurance of for easy access to foreign exchange from the official foreign exchange market in Nigeria to service obligations arising out of TTA.
- There is a certainty of remittance of fees to the foreign partner.
- There is certainty of the chargeable fees under the TTA.
- Approval for deductible cost and appropriate pricing is made easy.
The transfer of technology indeed is an important process that should be encouraged globally as it boosts the technological standing of an economy.
Adoption of an automated mode of registration of technology transfer agreement will make it easier for the public to comply with the regulations and requirements of NOTAP and this will be in line with the ease of doing business initiatives currently being adopted in Nigeria.
Nigerian entrepreneurs and foreign companies looking to partner with Nigerian Companies are advised to seek legal counsel from experienced practitioners or NOTAP with drafting and review of Technology Transfer Agreements before execution. This practice will allow such practitioner or NOTAP time to review the document and then advise on the sufficiency or otherwise. Where sufficient information and appropriate clauses which are not contrary to the provisions in Nigerian law have been included in the TTA, then such agreement is not likely to be delayed for queries before approval.
Note: For more information, you can consult us.