Recent Changes to the Operation of Domiciliary Accounts in Nigeria

As part of efforts to unify the foreign exchange market in Nigeria, the Nigerian Central Bank recently announced changes to the operation of domiciliary accounts in Nigeria. This legal update provides the most recent changes to the operation of domiciliary accounts in Nigeria and provides a primer on the operation of domiciliary accounts.

What is a Foreign Currency Domiciliary Account?

A foreign currency domiciliary account is a special type of bank account available to bank customers in Nigeria. A domiciliary account is a special type of bank account because it allows the deposit and withdrawal of foreign currencies, notwithstanding that the legal tender in Nigeria is the Nigerian Naira.

This means that customers can receive foreign payments in their respective domiciliary accounts by way of cash deposits and electronically. Customers can also generally withdraw cash physically or transfer to other domiciliary accounts or to other offshore accounts.

Foreign currency domiciliary accounts can be operated as a savings account, a deposit account, or a combination of the two. Customers can open multiple accounts denominated in the same or in different currencies, although each account has to relate to a specific currency.

 Types of Domiciliary Accounts

There are generally two types of domiciliary accounts, namely: Export Proceed Domiciliary Account and Ordinary Domiciliary Account. Both types of domiciliary accounts are distinguishable in that only export proceeds can be deposited into the Export Proceeds Domiciliary Account. All other types of foreign income proceeds can only be paid into an Ordinary Domiciliary Account.

General Restrictions on Domiciliary Accounts

1. Proceeds from the sale of crude oil and foreign exchange approvals for visible and invisible trade transactions cannot be lodged into a domiciliary account.

2. Where a person imports foreign currency in excess of $10,000.00 or its equivalent in cash and deposits the same into a domiciliary account, withdrawal from the domiciliary account can only be in cash.

3. Where the holder of a domiciliary account converts part of the funds in a domiciliary account into Naira, a sale of foreign currency is deemed to have taken place.

4. Owners of domiciliary accounts need not file a Form A to access their funds and have a right of unfettered access to the funds in a domiciliary account, irrespective of payment mode.

5. The owner of a domiciliary account can negotiate interest on domiciliary account deposits with its bankers

6. Funds deposited in foreign currency domiciliary accounts and interest earned thereon are exempted from Nigerian tax, except for airfares collected in foreign currency by airlines.

7. Bank charges on domiciliary accounts shall be in foreign exchange at rates to be determined by the Central Bank of Nigeria from time to time. However, when a foreign currency account holder converts part of his deposits into Naira, the bank charges for such a transaction shall be in Naira.

8. The deposits in a domiciliary account must be managed by overseas banks on behalf of Nigerian banks

9. Nigerian Banks are to invest the funds in domiciliary accounts in overseas securities and ensure that an investment portfolio mix, which satisfies the criteria of profitability, liquidity, and security, is maintained.

10. Authorized Dealers are allowed to lend funds in domiciliary accounts to their needy customers, provided that funds for repayment are sourced from the interbank.

What are the new rules for operating Foreign Currency Domiciliary Accounts

By virtue of a press statement issued by the Nigerian Central Bank on June 18, 2023, the following updates were made to the rules around the operation of domiciliary accounts in Nigeria.

1. Banks must provide holders of ordinary domiciliary accounts with unfettered and unrestricted access to the funds in their respective domiciliary accounts

2. There are no restrictions on the amount of cash deposits into a domiciliary account, although banks are required to conduct standard AML/CFT checks

3. Ordinary Domiciliary account holders are permitted to withdraw or transfer cash deposits not exceeding USD$10,000 per day. It is useful to note that, prior to now, cash withdrawals from domiciliary accounts were restricted to USD$10,000 per week.

This legal update is not intended to be taken as legal advice. Please seek professional legal advice specific to your situation. For more information or specific inquiries, please reach out to your usual Balogun Harold or contact our team via support@balogunharold.com