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Non-Governmental Organizations (NGOs) play a vital role in Nigerian society. They are specifically set up to achieve a goal in society or to be formed as a group to actualize their objectives. They are mostly tax-exempt and derive profits from donations, contributions, or community outreach which is channeled back to their objectives to make a greater impact in terms of their public purpose.

Although most operate simply as charity organizations without registering, they will however lack the benefits it confers on registering with the Corporate Affairs Commission (C.A.C) as it confers: credibility, corporate legal identity and access to Government and International fundings/ grants.

Registering an NGO in Nigeria with the CAC might seem challenging as to; how to get it done properly, the documents involved, the duration it will take, and the general requirements for registering one.

In this article, we will share a practical approach to how you can achieve this and guide you on this big step.

What are NGOs in Nigeria?

NGOs or simply put non-profit organizations are set up by business operators or individuals to carry out acts of charity, social clubs, associations, or for religious purposes.

In Nigeria, an NGO is a body or association of persons, registered under Section 823 Part F of the Companies and Allied Matters Act (C.A.M.A) 2020 known as Incorporated Trustees (I.T) and its best suited for:

Below are the steps you will take on how to register your NGO through an accredited solicitor of the Corporate Affairs Commission (C.A.C)

Step 1: Name Search and Availability.

In order to register any business entity or non-business entity, a public search is to be done on the Corporate Affairs Commission (C.A.C) pre-incorporation site: https://search.cac.gov.ng/ the link will appear with the site as pictured below:

The purpose of having the name search and availability is to enable you to pick out a unique name to rule out any similarity in pronunciation or spelling to any already in existence.

As a non-governmental organization registering under incorporated trustees, the name should reflect the object which it stands to do. 

Example: “Music Elder’s forum”,

“Global Resolve For Peace”, 

“Harvest Field Foundation’, 

"Youths For Democracy And Positive Change", 

"Brilliant Minds Educational Foundation", 

"Network Of Nigerian Women In Politics", 

"Mega Champions Football Club", 

"Jesus Christ Apostolic Ministries", 

"Money-Givers Trust Foundation", 

"Amalgamated Union Of Market Leaders And Traders", 

"Business Ceos Roundtable", 

"All United Sports Club", 

"Foundation Against Trafficking In Persons And Slavery", 

"Scientific Scholars And Inventors Forum", 

"Climate-Change Advocacy Roundtable", 

"International Motor-Bikers Club".

The above listed are examples of NGOs in Nigeria. Just like their name implies, they captured their objects and what they do in the name choice or style.

Step 2: Application for Consent of the Registrar General (R. G.) To Register the Proposed Name.

After the name search has been done and suitable names picked out with no similarity to any registered, proceed to apply for the availability and consent code of the R.G.on the CAC website (also noting that the R.G. has the exclusive right to approve or disapprove the names subject to his discretion). 

The Incorporated Trustee (I.T.) form is self-explanatory and asks for information like:

As a mandatory requirement, In Section 826 Of The Companies And Allied Matters Act (C.A.M.A) 2020 kindly note:

After filling out the above details, make payments for the filing fees through the remitta portal on the CAC website.

Step 3: Name Publication in The National Daily Newspapers.

Following a successful application, a notice of availability report and consent code of the R.G sent with the approved name, its approved board of trustees, aims and objectives. The next step, as part of its requirements in the Section 828 of C.A.M.A 2020, is to publish a public notice of an intention to register an NGO in two National dailies. The publication should highlight:

We see an example of a newspaper publication in the image below:

Step 4: The Registration Process after the Name Publication.

After the publication of the names in the newspapers, fill in other details on the form, namely;

Step 5: Uploading of All Relevant Documents and Downloading of the Certificate and Registration Documents.

Finally, after filling all the necessary details, upload other accompanying documents for the registration, which are:

Below, we see a sample of the upload portal for all necessary documents 

After the upload is complete and all fees paid, approval of the registration takes 1-2 weeks, subsequently, a notice sent to the accredited mail approving the registration of the NGO, thereafter, its certificate, Status report, and constitution made available for download on the portal. 

We see a sample of the CAC certificate below:

Step 6: Getting a SCUMML (A Special Control Unit against Money Laundry) Certificate.

A SCUMML certificate is proof that the bank account for the NGO is not being used for money laundering activities and it is monitored closely for money trails to assist criminal investigations. It’s a requirement under the Money Laundering (Prohibition) Act 2011 for all NGO to have when opening a bank account. 

Following a successful registration, we apply for a SCUMML Certificate to the scumml portal with the following documents:

Step 7: Bank Account Opening in The Name Of the NGO. 

This is most important because opening a bank account in the NGO's name shows credibility to the society and the organization is ready to get financial support from the public and receive donations. 

To open a bank account, you will need:

CONCLUSION: WHAT TO DO NEXT?

Registering your NGO is the right step as this confers many benefits, e.g., corporate legal identity, tax exemption being a non-profit organization, and funding from international and governmental bodies.

It is, however, strongly advised that the above guide serves as a general guide on how to register an NGO in Nigeria and it is not intended to substitute for proper client counseling. For further steps and an apt consultation, kindly consult an accredited solicitor of the CAC to formulate and address key issues related to the governance structure and internal affairs of your NGO.

In Nigeria, associations are formed by a group of people for a common goal. The Corporate Affairs Commission (CAC) registers them as Corporate societies, cultural associations, political parties, professional associations, social clubs, trade unions, or pressure groups to perform a variety of services or humanitarian activities. Upon registration, they are conferred with benefits like corporate legal identity and mostly tax-exempt, as they are set up for nonprofit, thus making them best suited from other business entities. 

They carry out charitable roles, human rights, and religious activities and also serve as political pressure groups in the society and because of this, registering an association with the CAC can be rigid, as it is the most regulated form of business entity.

In this article, we will highlight a practical approach to how you can achieve this and guide you on this big step.

How Are Associations Defined in Nigeria

In the Companies and Allied Matters Act (C.A.M.A) 2020 an association is a body of persons, registered under Section 823 of Part F of the Act known as Incorporated Trustees (I.T.) and its best suited for:

Registering an association is similar to all other forms of entities under the Incorporated Trustees as it is registered through an accredited solicitor of the CAC, but before you proceed, you should have the accurate amount of members willing to be formed with the association as a board of trustees and a chairman at the hem of affairs.

After you have decided the board and its chairman, here are the key steps to registering an association::

Step 1: Name Search and Availability.

In order to register any business entity or non-business entity, a public search is to be done on the Corporate Affairs Commission (C.A.C) pre-incorporation site: https://search.cac.gov.ng/ the link will appear with the site as pictured below:

The purpose of having the name search and availability is to enable you to pick out a unique name to rule out any similarity in pronunciation or spelling to any already in existence.

As an association registering under incorporated trustees, the name should reflect the object which it stands to do.

Example: “Association of Commodity market Women and Men of Nigeria”

“Academic Staff Union of Universities (A.S.U.U)”

“Nigerian Bar Association (N.B.A)

“Music Elder’s forum”,

"Network Of Nigerian Women In Politics",

"Amalgamated Union Of Market Leaders And Traders",

"Business Ceos Roundtable",

"Scientific Scholars And Inventors Forum",

"Climate-Change Advocacy Roundtable",

"International Motor-Bikers Club".

The above listed are examples of Associations in Nigeria. Just like their name implies, they captured their objects and what they do in the name choice or style.

Step 2: Application for Consent of the Registrar General (R. G.) To Register the Proposed Name.

After you’ve picked an acceptable name, you apply for the availability and consent code of the R.G. on the CAC website (also noting that the R.G. has the exclusive right to approve or disapprove the names subject to his discretion).

The Incorporated Trustee (I.T.) form asks for information like:

●     3 Proposed names of the Association

●     Address and LGA of the Association

●     ‌Brief description of the aims and objectives of the Association

●  Details of the board of trustees: full names, address, L.G.A, occupation, phone numbers, and valid means of identification.

As a mandatory requirement, In Section 826 Of The Companies And Allied Matters Act (C.A.M.A) 2020 kindly note:

● You should fill in a minimum of 2 trustees.

● The trustees to be registered must be 18 years of age and above; or of unsound mind; or not bankrupt; never convicted of an offence involving fraud or dishonesty within 5 years of his proposed appointment.

After you have filled out the above details, make payments for the filing fees through the remitta portal on the CAC website.

Step 3: Name Publication in The National Daily Newspapers.

If your application was successful, you will receive a notice of availability report and consent code of the R.G showing the approved name, its approved board of trustees, aims, and objectives. The next step, as part of its requirements in the Section 828 of C.A.M.A 2020, is for you to publish a public notice of an intention to register an Association in two National daily newspapers. 

The publication should highlight:

We see an example of a newspaper publication in the image below:

Step 4: The Registration Process after the Name Publication.

After the publication of the names in the newspapers, you fill in other details on the registration portal, namely;

Step 5: Uploading of All Relevant Documents and Downloading of the Certificate and Registration Documents.

Finally, after filling all necessary details in the registration portal, you upload other accompanying documents for the registration, which are:

Below, we see a sample of the upload portal for all necessary documents

After your upload is complete and you have paid the cost of N35,000 (the total cost of registering an association), you wait for the approval of the registration. This takes 1-2 weeks, subsequently, a notice will be sent to the accredited mail approving the registration of the Association, thereafter, its certificate, Status report, and constitution made available for download on the portal.

We see a sample of the CAC certificate below:

Step 6: Getting a SCUMML (A Special Control Unit against Money Laundry) Certificate.

A SCUMML certificate is proof that the bank account for the Association is not being used for money laundering activities and it is monitored closely for money trails to assist criminal investigations. It’s a requirement under the Money Laundering (Prohibition) Act 2011 for all Association to have when opening a bank account.

Following a successful registration, we apply for a SCUMML Certificate to the scumml portal with the following documents:

Step 7: Bank Account Opening in the Association's Name.

This is most important because opening a bank account in the Association's name shows credibility to the society and the organization is ready to get financial support from the public and receive donations.

To open a bank account, you will need:

CONCLUSION: WHAT TO DO NEXT?

Registering your Association is the right step as this confers many benefits, e.g., 

It is, however, strongly advised that the above guide serves as a general guide on how to register an Association in Nigeria and it is not intended to substitute for proper client counseling.

For further steps and an apt consultation, kindly consult an accredited solicitor of the CAC to formulate and address key issues related to the governance structure and internal affairs of your Association.

The Nigeria social insurance trust fund (NSITF) is an institution established by the Nigerian government to provide financial and insurance services to employees in Nigeria. 

It is a proactive and employee-dedicated government institution, committed to the welfare of employees, in the event of work-related accidents, injuries, or other employees related contingencies.

Let's take it further:

A Brief History of the Nigeria Social Insurance Trust Fund (NSITF)

The NSITF was established in 1961 as the National Provident Fund (NPF) to provide a poverty alleviation measure as required by convention No.102 of the International Labour Organization (ILO). 

The scheme is targeted at protecting private sector employees (whose employers were then mostly multinationals) from financial difficulties in the event of either old age, cessation of employment, invalidity, or death since most employers then did not have such provisions in their employment policies. In a way, the provident fund scheme was a compulsory savings scheme.

However, because of the defects of the NPF the federal government of Nigeria promulgated the NSITF to succeed the defunct NPF to reflect the objectives it seeks to accomplish. The NSITF has evolved from a Provident Fund Scheme to a Social Insurance Scheme and currently the Employees’ Compensation Scheme.

Also, in 1993, the government of the Federal Republic of Nigeria established the NSITF to cater for the welfare of employees, in the event of work-related accidents or injuries and to address its findings that some employers do not provide for a well-structured working condition, health benefits or security for their employees.

It is important for you to note that the NSITF is the only governmental institution backed up by law to ensure that all employers of labour adhere to the employees' compensation scheme.

The NSITF board regulates the scheme to ensure the protection of all employees.

What are the laws regulating NSITF?

The law which controls the enforceability and administrative activities of the NSITF is the Nigeria Social Insurance Trust Fund Act 1993.

Some of the laws which gives statutory backing to the NSITF are:

  1. The Pension Reform Act (PRA) (2014)

By the enactment of the PRA, NSITF relinquished its pension's business. In compliance with the Section 42 of the PRA 2004, NSITF incorporated a subsidiary company, Trust-fund Pensions Plc in partnership with other stakeholders viz: Mainstreet Bank (Afribank Plc), Denham Management Limited, Nigeria Employers Consultative Association, Nigeria Labour Congress and Trade Union Congress in 2004. 

Also, the NSITF owns majority shares of Trust Fund Pensions Plc which was licensed by the National Pension Commission in December 2005 and began operation in January 2006 having transferred assets over NGN54 Billion to the Trust Fund Pension Plc.

However, the Pension Reform Act 2014 (Section 84(2&3) redefined the mandate of the NSITF to provide for “Social Security Insurances services other than pension.”

  1. Employees Compensation Act (2010)

The Employees Compensation Act was passed into Law in December 2010, to give statutory backing to the mandate given by section 84(2&3) of the PRA 2014 to NSITF for the provision of Social Security Insurance Services by operating the ECS.

Furthermore, the transition between the NSITF Scheme and the commencement of the Employees Compensation Scheme in 2011 was a period that was devoted to mainly strategizing and ensuring that the Employees Compensation Scheme became a reality.

Some objectives the Act sought to achieve are:

The above objectives have been achieved as there are cases of industrial accidents, injuries and diseases being promptly treated as they are reported, in full compliance with the provisions of the ECA and to the satisfaction of stakeholders.

It is also important for you to understand that the NSITF scheme is a defined benefit scheme which enables you as a contributor to enjoy pension and grants far beyond your contributions. It is from the cumulative contribution that the cost of administering the Fund (NSITF) is funded from the resources generated and the surplus is invested in safe, liquid and profitable investment to generate income for the payment of benefits. 

It is important to note that as a registered member; you are entitled to receive pension and grants as benefits upon reaching the retirement age of 60 (or 55), invalidity or death. These benefits would be paid to you or your survivors, as the case may be.

The NSITF in order to deliver on this mandate, has the operational autonomy to carry out the following task:

Persons required to register with the NSITF

The NSITF act provides that all employers of labour in the private sector, registered under the Companies and Allied Matters Act (CAMA)  2020 are to register with the NSITF. The act further provides as follows, individual or companies that are required to register with the NSITF:

Are some people exempted from registering with the NSITF?

Yes, the Act exempts the following people from registering with the Fund:

Requirements for registering your company with the NSITF

What are the objectives of the NSITF? 

The following objectives or functions of the NSITF

It is important to note that the objectives of the NSITF are similar to those stated under the ECA above, as the ECA empowers the functionality of the NSITF.

How does the NSITF administer its functions?

The NSITF scheme was funded with contributions from the registered members of the scheme. The cost of administration of the scheme (capital and recurrent) is borne by the Fund, as the scheme plan allowed between 5-25% of contributions received to meet administrative costs (normally higher at inception of scheme and progressively lower as the scheme matures). 

NSITF is also empowered under the Act to carry on business of a profitable nature, investment, etc. This is stated in the financial provisions of the NSITF Act (Sections  27 & 23)

What is the funding scheme of the NSITF?

The funding of the scheme is based on 1% of your payroll as an employer, which should be remitted to the Fund. It comprises of the total emoluments, excluding pension contributions, bonuses, overtime payments, 13th month income. 

The NSITF in achieving the above will perform a risk assessment to clarify contributions on workers' exposure and estimate the appropriate payments. 

The NSITF has begun the process of putting in place the infrastructures to implement social security benefits of aged, unemployed persons welfare and physically challenged. It has also put in place the means of collecting and collating data of those listed in Act that are entitled to social security benefits. 

Categories of contributions covered by the above scheme.

You should know that the above scheme applies to contributions payable by you as an employer on behalf of your employees against the contingencies of retirement, pension, death, invalidity, emigration, or contributions against other contingencies of employees in private companies. (Provided in section 12 of the NSITF Act). 

It is important to note that the deduction is not from the employees salary rather; it is a statutory payroll contribution from you. The NSITF states that an employer who deducts from an employee's salary is subject to sanction (provided in section 20 subsection 2b and section 16 of the NSITF Act).

In addition, the Fund covers only social security insurance services except for pension, in accordance to section 84 of the Pension Reform Act, 2014, and the NSITF act 1993.

How to calculate the contribution of a company to NSITF

The total emolument is defined as the summation of basic salary, transport, and housing allowances. For example, let’s assume that Mr. John's organisation' payroll breakdown is contained in the table below:

The above will give us a total of NGN 26,500,000

Therefore, the company will only contribute:

Basic (N5,000,000) + Housing (N2,000,000) + Transport (N1,000,000) × 1% = N80,000. 

What are your benefits as a contributor who satisfies the requirements of the NSITF?

The following are the benefits payable to you as a contributor for satisfying the applicable conditions prescribed by regulations made under the NSITF act:

Due date for your company to remit employees' contribution to NSITF

As an employer, you must pay the contributions provided under the NSITF act on a monthly basis, precisely on the last day of the month. It is usually computed by reference to the wages of the employees concerned.

What is the penalty for failure to remit contribution to NSITF?

The Act provides that if any of the above stated contributions has not being paid within the time prescribed above, a sum equal to 5% of the amount unpaid, shall be added for each month or part of the month after the date when payment should have been made but was not paid and any amount added will be recoverable as a debt owed to the NSITF Board by the employer (provided in section 14 of Act).

What are the procedures for registering a company with NSITF? 

The following are the steps for NSITF employee Registration

Conclusion

If you own a private company, incorporated under the Companies and Allied Matters Act (CAMA) in Nigeria, with not less than five employees, you should register your employees with the NSITF to affirm compliance with Employees Compensation Act 2010 

This is important as it enables you as an employer to contribute to employees compensation scheme, to secure your employees against work-related injuries or diseases or against other work related contingencies, as stated under the NSITF Act.

For more guidance on how to register with the NSITF, consult a legal expert.

The process of registering a business as a company is often viewed as rigid by business owners. In this guide, we walk you through, step by step, how to register your business as a company. 

The Corporate Affairs Commission (CAC) recognises the various forms of business entities in Nigeria. These are as follows:  

·       Business name;

·       Partnerships;

·       Companies; and

·       Incorporated Trustees.

A company is the most common form of business entity used by business owners. A business is recognised as a company by its registration with CAC. This practical guide defines a company, highlights the types of companies recognised by CAC, and how to register a company with CAC. 

What is a Company in Nigeria?

A company is a recognised legal entity formed by at least two persons to carry out a business activity with the aim of making profit. CAC recognises the following types of companies as provided in the Companies and Allied Matters Act;

Limited Liability Company

The owners of this type of company are responsible for its debts only to the extent of the amount of capital they invested. This liability is further measured by shares and every owner’s liability is measured by the number of shares owned in the company. A Limited Liability company is of two types. 

They are as follows: 

Private Company Limited by Shares: 

The shares of this company cannot be owned, traded, subscribed and exchanged publicly. This company is formed by a minimum of two persons and a maximum of fifty persons. Small and medium businesses often form this type of company as well as family-owned businesses.     

Public Company Limited By Shares: 

This limited liability company can be formed by two persons and more, as the number of persons who can form this company are unlimited. However, the shares of this company can be owned, traded, subscribed, and exchanged by members of the public. This is done by listing the company and its shares on the stock exchange for public trading.    

Company Limited by Guarantee:

This type of the company is also known as a Guarantee Company. The owners of this company are known as guarantors. The liability of its owners are measured by the amount of money he/she is obliged to pay in the event that it is wound up. This type of company is often used by charitable organisations as they are not used for profitable ventures.  

Unlimited Liability Company: 

This type of company is uncommon in Nigeria. The liability of the members are unlimited as members assume full responsibility for all the debts of the company despite the capital invested.  

The registration of any of these companies can be summarised into these three steps: 

Steps to Registering Your Company In Nigeria

The steps to registering a company are  

Pre-Registration Steps; 

The following steps highlighted below are steps a business owner should take before registering a company:

Pre-Registration Step 1: Conduct a public name search on the CAC portal. 

The step entails the following:

Carry out a public search of these three names by imputing these names on the search portal of the CAC.

Pre- Registration Step 2: Reserve a Name

This step entails the following: 

Registration Steps:


These are the steps leading to the registration of a business as a company. Company registration begins after the CAC issues the name availability code.  These steps are as follows: 

Step 1: 

After logging into the portal, click on new company registration. This would lead to a page asking that the name availability code be provided. 

Step 2: 

Input the name availability code on the page as provided by the CAC.

Step 3: 

This would immediately lead to a page with Form CAC 1.1.  

Step 4: 

Complete this form by providing the requested information about the business. This information includes the following: 

Step 5: 

After completing this form, it will be submitted to the CAC via its portal. This submission is to be accompanied by the payment of the prescribed registration fee. The prescribed registration fee is dependent on the value of the company’s issued share capital. 

Step 6: 

After the payment of the registration fee, the CAC would either approve and issue a certificate of registration to the company or issue queries on the information provided. The issued certification of registration is accompanied by certified true copies of the memorandum of association and the CAC form 1.1.      

Post-Registration Steps: 

This step includes compliance requirements expected from a company after it is registered. These steps are dependent on the transaction the company intends to carry out. They include: 

However, the filing of annual returns is to be done annually by every company registered with the CAC. This is done by completing and submitting Form CAC 19 accompanied with the payment of NGN5000 for private companies and guarantee companies and NGN10000 for public companies.   

Conclusion: 

Registering your business as a company gives your business a legal identity and personality distinct from the business owner.  

This legal identity enables the company to do the following: 

In conclusion registering a business as a company is less challenging if the steps highlighted above are followed.    

However, it is important to point out that this article is only intended to serve as a guide and not to replace proper legal advice. 

If you have further questions about registering a business as a company, book a free session with an expert.

In 1997, the Minister of Finance through the Federal Inland Revenue Service introduced withholding tax in Nigeria to resolve the challenges of poor tax collection and lack of enforcement of income tax laws. 

In this guide, we will discuss the purpose of withholding tax, laws, its rates, deductions and how it affects you and your business.

What is Withholding Tax?

Withholding tax is not an income tax like personal income tax or company income tax. It is an advance payment of income tax aimed at reducing the tax liabilities of the taxpayer. Withholding tax is chargeable on specific transactions and it is deductible at the source of income inflow.  This tax is charged at the rate of  5% -10% depending on the transaction. 

Business owners (including unregistered business entities) have the responsibility to charge and collect withholding tax where appropriate.        

How is Withholding Tax in Nigeria Calculated and Deducted?

Withholding tax is deducted directly from the source —  at the point of transaction – where revenue comes in.

Here’s an example:

A business owner enters into a contract of supply worth NGN 2-million. The relevant withholding tax rate is assumed to be 5%. The purchaser upon the payment of the purchase sum would deduct NGN 100,000 from the invoice of the supplier and pay to the relevant tax authority.

When paying the withholding tax, the business owner would collect evidence of payment known as a withholding tax credit note from the tax authority and issue it to the supplier.  The supplier at the end of the tax year when paying his income tax can use the withholding tax credit note to reduce his income tax liability.
Where the tax withheld is that of the business owner’s company, payment should be done to the FIRS authority within 21 days after deduction.

If the tax withheld is the personal income tax of the business owner, payment should be made to the relevant state tax authority within 30 days after deduction.  

What is the effect of Withholding tax on a Business Owner tax liability?

Withholding tax reduces a business owner's income tax liability. If the withholding tax remitted is more than the business owner income tax liability, the business owner can apply for a refund. 

The tax authority is to pay such a refund within 90 days after the tax assessment. Where the tax authority fails to pay the refund, the business owner has the right to bring a claim against the tax authority. This right ceases to exist after six years of the assessment.

In practice, the tax authority often proposes to the business owner to use such excess to offset future income tax liabilities. Nonetheless, if the excess withholding tax remitted is more than the personal income tax of the business owner, it is not refundable. 

What is Withholding Tax Credit Note?

A Withholding Tax Credit note is a document issued by the tax authority showing that the taxpayer has undergone a withholding tax deduction. 

If contains the following information:

A business owner cannot use a withholding tax credit note to pay a late returns penalty.
Failure to pay withholding tax attracts a penalty of 10% per annum of the taxes withheld under Section 82 of the Companies Income Tax Act. (Lagos State Board of Internal Revenue v Cradle Productions and Services Limited TAT/LZ/PIT/054/2021).  

Under the Personal Income Tax Act, the penalty is 10% of NGN 5000 or 10% of the tax withheld, whichever is higher. This is paid in addition to the tax due and often includes an interest at the prevailing commercial rate under Section 74(1) of PITA.      

Is there a WHT Law in Nigeria? 

No. There is no specific law in Nigeria known as the Withholding Tax Act.  Nevertheless, since withholding tax is a form of prepaid tax on income tax, the income tax laws govern withholding tax in Nigeria. 

These laws are the Personal Income Tax Act (PITA) and Company Income Tax Act (CITA), which were amended to provide for withholding tax. These laws also provide for withholding tax rates and the transactions and income, which are to be subject to withholding tax. 

In addition to these laws, the Withholding Tax Regulations, 1997 governs the payment of withholding tax in Nigeria.  

Who are the agents of collection of Withholding Tax? 

Agents for collection of withholding tax include the following:

·       Companies

·       Partnerships  

·       Individuals, Business Owners (Sole Proprietors)

·       Statutory Bodies and Public Authorities.  

However, for corporate entities and sole proprietors not registered with the Corporate Affairs Commission, and get a withholding tax deduction, the relevant state tax authority is responsible for collection.
For unregistered sole proprietors and companies operating within the FCT, the FIRS is responsible for the collection.   

What transactions/Income can be charged Withholding Tax and at what Rate? 

Most withholding tax is deducted from transactions involving a purchase or supply contract, rather than sales done in the course of everyday business.

Here is an example: 

If you sell general merchandise like cereal, butter, detergent, etc. it is not subject to withholding tax on income from the daily purchase of such items. However, when a customer makes a large order for cereal, it becomes a contract of supply and income earned would be subject to withholding tax at 5%.    

Here are key transactions subject to withholding tax:

Dividends, Interests and Rents:  

Income from dividends, interests, and rents are subject to a withholding tax rate of 10%. 

Dividends paid to a business owner are subject to a withholding tax rate of 10%. Where the dividend received is from an oil-producing company, it is not subject to withholding tax.
Where the business owner’s company pays dividends to its shareholders, it is to deduct withholding tax before paying the dividends to its shareholders.  

Rent paid to a business owner from leasehold properties or transactions are subject to withholding tax at a 10% rate. Examples of such rental income includes agricultural rent, rent from tenancy agreement, etc.
Nonetheless, rents from the charter or lease or hire of equipment, goods, and non-leasehold properties are not classified as rental income. These transactions are classified as contracts of service. 

Interests paid to a business owner on any income or transaction is subject to withholding tax at 10%. Interests paid on an interbank deposit are not subject to withholding tax.

Hire/ Charter/ Lease of an Equipment Contracts

Income from the hire/charter/lease of an equipment is subject to a withholding tax rate of 10%. 

The hire/ charter/ lease of equipment or chattels or non-leasehold properties are contracts of service. Income paid to a business owner from these contracts is subject to withholding tax at the rate of 10%. 

Royalties

Income from royalties is subject to a withholding tax rate from 5% and 10%. 

Royalties are payment for the right to use a moveable or intellectual property such as a patent. 

Royalties earned by a business owner operating as a sole proprietor are subject to withholding tax at the rate of 5%. While royalty earned by a business owner’s company is subject to withholding tax at the rate of 10%.  

Construction (Roads, Buildings and Bridges)

Income from construction agreement is subject to a withholding tax rate of 2.5% and 5%. 

Any income obtained from construction contracts of all kinds is subject to withholding tax at the rate of 2.5% for business owners operating as a company. While business owners operating as sole proprietors are to charge 5%. 

Commission, Consultancy, Technical, Professional/ Management Service Fees

Business owners operating as companies, who receive any of these services can charge withholding tax on the fee paid at the rate of 10%. Business owners who operate as sole proprietors can charge withholding tax at the rate of 5%. Consultancy and Technical services are classified as special services requiring special skills or knowledge.

According to FIRS Information Circular No. 2006/02 services provided by a business that has the name ‘consultancy’ as part of its name may not classify as a consultancy or technical service. The content of the service would be looked into to see if it amounts to a consultancy service. Where it does; the appropriate rate will apply.

Here is an example;

If an engineering company is carrying out a construction activity, the proper classification for the services is ‘‘construction’’ as opposed to Professional/Technical services. 

Similarly, the use of industrial machinery to provide a service does not classify such service as ‘‘technical’’. This is because most industries require that only arrangements that involve a transfer of Technology would classify as technical.

Moreover, withholding tax is chargeable on all types of contract activities and arrangements, other than sales done in the ordinary course of business. 

The application of this is quite wide and may apply to all kinds of contracts, especially among manufacturing businesses. 

To limit the application of this to all manufacturing contracts, the FIRS came up with the following exceptions, where withholding tax would not apply:  

Here is an example:

A cocoa farmer supplies cocoa to a chocolate factory, the purchase price of the contract would not be subject to withholding tax . This is because a complementary relationship exists between the parties.   

Here is an example:   

Where a manufacturer of chocolate hires an agent to source cocoa from a cocoa farmer for his chocolate factory. This relationship may ease into a dual relationship where the manufacturer decides to directly source cocoa from the cocoa farmer.
If the tripartite relationship exists and the manufacturer finances the sourcing of the cocoa, the purchase price of the contract would not be subject to withholding tax. Nonetheless, the agent’s service fee is subject to withholding tax.
However, where the agent funds the sourcing of the cocoa, the purchase price is subject to withholding tax. 

What Income/Contracts are not subject to Withholding Tax? 

The following income received by a business owner is not subject to withholding tax:

Legal experts are of the opinion that the FIRS lacks legal authority to support this practice. This is because the FIRS lack circulars, laws, or regulations clearly defining and justifying this practice.
However, the decision of the Tax Appeal Tribunal in (Tetra Pak v FIRS) states that sales from the ordinary course of business should be exempt from withholding tax.
It further stated that defining what ‘sales in the ordinary course of business’ was a question of fact. As in his opinion the tax authority has the obligation to determine whether a business activity is ‘sales in the ordinary course of business.’ In determining so, the following guidelines are to be considered:    

Business owners should embrace the aim behind the introduction of withholding tax. This is because it encourages voluntary compliance and reduces the cost of collection for the government.
Moreover, business owners should be careful to deduct the appropriate withholding tax rate. As charging the wrong rate may lead to a reduction in profits or an illusioned increase in profits. Therefore leading to penalties levied by the tax authorities as well as loss of income by the business owner. 

If you have further questions about the withholding tax and how it relates to you, book a free session with an expert.

This article provides an in-depth knowledge of personal income tax in Nigeria, the applicable laws, administrative agencies, chargeable incomes, how personal income tax is accessed and charged as well as how to calculate the chargeable tax rates in Nigeria.

What is personal income tax?

Personal Income Tax (PIT) is a levy imposed by the federal or state government of Nigeria, on the income of certain individuals such as employees, partners in partnership, families or communities, which they are liable to pay to the relevant federal or state agencies where they reside in Nigeria. 

Personal income tax is usually based on the source or residency rule.

What are the Laws regulating PIT in Nigeria

The Personal Income Tax (Amended) Act 2011 (PITA) and the Finance Act 2020 regulates the PIT.

These laws serve as a guide to individual and governmental agencies to understand the meaning of Personal Income Tax, the extent of its applicability, rates, it serves as a guide for administrative purposes.

Which Agencies administer Personal Income Tax in Nigeria? 

Personal Income Taxes are paid to designated government agencies at the Federal or State level. 

At the federal level, the Federal Inland Revenue Service (FIRS) administers personal income taxes at the Federal Capital Territory, while the State Board of Internal Revenue (SBIR) administers taxes at the various states in Nigeria.

Unlike what some might think, you shouldn’t pay your income tax directly to Banks.

Chargeable and Nonchargeable incomes  under the personal income tax in Nigeria

Under the Personal Income Tax Act (PITA), there are chargeable and nonchargeable incomes in Nigeria

What are chargeable incomes?

Chargeable incomes include business or employment income of individuals whose income is taxable and determined by the Personal Income Tax Act (PITA). It is usually levied on the salaries or wages, dividends, interests or some other incomes of such persons, their expenses and other deductions in Nigeria, throughout an entire year.

What are nonchargeable incomes?

Non-chargeable incomes include income such as salaries or wages, interests or some other incomes of persons which cannot be tax in Nigeria, because of the reasons spelt out in section 37 schedule 6, part b and section 6 schedule 10 of the Personal Income Tax (Amended) Act 2011 (PITA) which deals with employment income of a person.

Personal Income Tax is chargeable on the income of the following individuals and they include:

Non-Chargeable Income under PITA

Individuals whose incomes are not chargeable or taxable include:

It is important to note that there are benefits that cannot be taxed, such as retirement benefits of individuals, medical benefits, housing funds, etc, because these are the benefits of taxpayers.

It is important to state that every person is liable to a minimum income tax of 1% of their gross income, though aside those that earn the minimum wage or below it. (This is contained in section 37, schedule 6 of the PITA).

How is personal income tax charged in Nigeria?

Personal income tax can be accessed in two ways, either by pay-as-you-earn (PAYE) or self-assessment.

Personal income taxed by pay as you earn (PAYE scheme)

This is where the employer of an employee in an organization in Nigeria, deducts the tax of an employee monthly and remit to the relevant tax authorities in their state of residence. 

Personal income taxed by self-assessment

This is where individuals who are self employed in Nigeria can access their taxes yearly, based on their income within that year. It must be remitted to the relevant tax authorities in their state of residence, and must be within the fiscal year or due date for filing tax returns as spelt out under the PITA.

What are the Personal income Tax Rates In Nigeria?

Personal income tax rate is usually applied on a graduated scale and taxable income bands. It is calculated as set out in the table below.

Personal Income Tax Rates in Nigeria

How to calculate personal income tax rate in Nigeria

The PITA in Nigeria spells the applicable Tax rates as seen above. It usually progresses from 7% to 24% of the taxable income band. It usually progresses from 7% to 24% of the taxable income band.

To calculate the applicable tax rate, multiply the amount per annum by the tax rate as provided in the table above. For example, Jane earns N300,000.00 per annum, multiply N300,000.00 by 7% which is for the first year, this will  amount to N21,000.00.

What is the due date to file Personal Income Tax?

Personal Income taxes are determined by the means in which they are charged.

If it is by pay as you earn (PAYE) as stated above, the due date of filing or payment is on or before the 10th day of the following due date for payment of salaries. For example, if Jane’s employer deducts her tax on the 10th of January 2022, it must be filed to the relevant tax authorities on or before the 10th day of February 2022.

In the second instance, which is self assessment, payment should be made along with returns within 90 days of the fiscal year, that is the year of remittance of filing of such taxes, not later than 31st March of the preceding year which is the following year. For example, the personal income tax of Jane for the year 2021, should be remitted or filed not later than 31st day of March 2022.

What are the Penalties for failure to file or remit Personal Income Tax in Nigeria?

The penalties for non-remittance or failure to file Personal income tax after the due dates is an imposition of an additional 10% of the taxable amount not being paid or filed.

Conclusion

It is important to file personal income tax before the due date, as tax compliant individuals are conferred with definite benefits, rights and privileges based on their tax compliance status, also they are  exempted from the sanctions of noncompliance in Nigeria. Therefore  seek a professional guide to know your chargeable personal income tax in Nigeria.

In Nigeria, the government has put up a lot of infrastructures to aid the growth of new companies alongside Small and Medium-Scale Enterprises (SMEs). This includes amongst others, tax exemption for new companies in Nigeria.

This has created a surge of new companies as well as investments in the Nigerian economy. The Nigerian Investment Promotion Commission registered 137 businesses in the second quarter of 2022, spanning over fifteen sectors of the economy. Click here for the full report. The Corporate Affairs Commission approved 42,339 registrations in just June 2021.

The importance of startup companies cannot be overemphasised. Startup companies reduce unemployment rates, increase living standards, and attract local and foreign investment when they thrive. These are major factors that boost the economy. This is why the Nigerian government grants incentives, which include tax exemption, to new and startup companies to ease their entrance into the economy. It helps mitigate unfair competition and enhance production, as well as the economic output of the startup. 

Currently, the tax incentives granted by the Nigerian government include:

We will discuss these in more detail shortly, but first, let's examine what tax incentives actually are.

What are Tax Incentives?

By lowering the amount of tax paid to the government, a tax incentive is a policy the government adopts with the goal of motivating people and businesses to invest more money in their operations. 

Who is Entitled to Tax Incentives in Nigeria? 

For ease of reference, we will classify companies into three sizes based on their turnover:

Most tax incentives are granted to small and medium companies, as large companies are believed to be already well grounded. There are some exceptions where the government grants tax holidays to large companies in exchange for corporate social responsibility or where they diversify into a critical sector of the economy. Small companies are automatically granted tax exemption upon tax registration. We will delve into these incentives shortly.

Let’s take an example: Dangote Cement Plc, which takes the lead in tax remittance to the government, exemplifies large companies that are given tax holidays. It remitted N92.79 billion to the Nigerian government in the first half of 2022. In 2021, the Nigerian government gave tax credit certificates to Dangote Cement Plc in exchange for the construction of the Apapa - Oworonshoki - Ojota road in Lagos and the Obajana - Kabba road in Kogi State. A tax credit of N22.3 billion was awarded for both road networks. On the other hand, one of its younger subsidiaries, Dangote Sinotrucks West Africa, was granted  Pioneer Status for investing in a critical sector of the economy. l

While the general law requires you remit your tax returns within six months of the company’s financial year. For a new business, eighteen months from the day of incorporation or six months after the company’s first accounting period, whichever is earlier. This also applies to exempt companies. Exempt companies are required to comply with the procedures for:

Through the rest of this guide, we will delve into tax-specific incentives for small and medium-scale enterprises.

What are the Categories of Tax Incentives in Nigeria 

There are two categories of tax incentives. They are: 

The type of tax incentive granted depends on your:

Categories of Tax Incentives in Nigeria

In this article, we will focus on the following profit-based incentives that are applicable in Nigeria:

What is Pioneer Status

The Industrial Development (Income Tax Relief) Act (IDA) governs it, among other extant regulations of the Nigerian Investment Promotion Commission (NIPC). It was enacted in line with modern taxation practices to encourage both foreign and local investment while boosting economic development in Nigeria. 

It is a form of tax holiday granted to companies deemed as pioneers in economically disadvantaged industries. If you qualify for this, NIPC will grant you company income tax relief for three years. It can also be extended for one or two more years. 

This status also qualifies you for relief from payment of 10% withholding tax on dividends paid out of business profits.

How do you qualify for pioneer status?

You can check the application procedure here.

To qualify, you also need to show:

You must comply with the requirements laid down by IDA to continue to enjoy this status. One requirement is to submit an annual performance report to NIPC.

Which Industries fall under the Pioneer Status?

Pioneers in the industries listed below can enjoy  the benefits of the Pioneer status:

This list is non-exhaustive. To check your industry vis-à-vis your products or services, click here.

There has been a recent movement by the government to grant pioneer status to tech startups, but they have not enacted it. We will talk about this soon.

What are the Tax incentives available to Small and Medium Companies?   

The Finance Act 2021 provides that the Federal Inland Revenue Services (FIRS) should grant a 100% company income tax exemption to small companies. The company will, however, need to comply with:

Failure to comply will make them liable to:

The Act also provides that small companies can benefit from the following tax incentives:

For medium-sized companies, The Act provides that they will pay 20% of company income tax as against the 30% paid by large companies.

What is the fate of Tech Start-ups? 

The federal government gave the green light to implement strategies to support the growth of “Innovation Driven Enterprises.” This led to the Nigerian Communications Commission (NCC) developing the National Digital Economy Policy and Strategy. Ministries, Departments, and Agencies (MDAs) were given the mandate to prioritise incentives and tax relief for tech start-ups. The MDAs involved are the:

The Federal Government directed the Trademarks, Patents, and Design Registry to work with NITDA to develop an IP framework for tech start-ups

The BPP will also work with NITDA to develop a framework to involve tech startups in government procurement processes to encourage ideation, innovation, and the design of solutions to solve development challenges.

There is a Start-up Bill that the Nigerian Senate has passed but needs to go through the House of Representatives before it can get the President’s assent. The bill seeks to grant pioneer status to tech startups alongside other economic and tax incentives. 

However, a tech start-up that qualifies as a small company will enjoy tax exemptions for new companies in Nigeria as explained above.

Conclusion

The reduction of taxes will lower operational costs, such as those associated with product development and upgrades, as well as potentially higher wages and salaries. Tax exemption for new companies will also encourage reinvestment of profit back into your company to aid the growth. Just like the start-up bill mentioned above, there is a drive to ease the challenges of starting up a new and innovative company by the Nigerian government.

If you have questions on this subject or other tax-related inquiries, get a free personalised session with an expert.

Nigeria ratified the UN resolution on money laundering on the 1st of November, 1989, and issued the first decree on Money Laundering - National Drug Law Enforcement Agency Decree 1989 (this was limited to proceeds of drug trafficking).

This was the first step in the journey to money laundering legislation in Nigeria.

The Nigerian government, however, enacted other legislation afterward, each repealing the last one. They are:

In this article, we will analyse the Money Laundering (Prevention and Prohibition) Act 2022 (we will subsequently refer to it as “the Act”), which repealed the Money Laundering (Prohibition) Act 2011. It became active in May 2022. We will identify how it applies to you as an individual, to your business, and to transactions with financial and non-financial institutions both locally and internationally.

The Act works hand in hand with other laws and regulations to curb financial crimes, especially terrorism. The Nigerian Financial Intelligence Unit (NFIU), the Economic and Financial Crimes Commission (EFCC), and the Central Bank of Nigeria (CBN) execute and enforce the Act.

What is Money Laundering?

The term “laundering” means cleaning. This translates money laundering literally to “money cleaning.”

Money laundering is, however, broadly defined as concealing the origin of illegally earned money by converting it into a legitimate source.

The perpetrators get most of these funds from illegal activities; for example, embezzlement, corruption, drug trafficking, kidnapping, gambling, etc.

What does the 2022 Act say about Money Laundering? 

The Act defines money laundering as an act carried out by a person or a company regarding any fund or property while trying to:

It specifies that for this to apply to you, you must have been intentional about your actions. It also applies to situations where you reasonably ought to have known that such a fund or property is part of the proceeds of an unlawful act. This includes taking part in or assisting someone else in the movement of funds to make the proceeds appear legitimate. It involves three steps:

  1. depositing cash into the financial system
  2. Carrying out transactions to conceal the source of the money
  3. Taking possession of the wealth produced by the transactions

The Act defines an unlawful act to include:

Regulatory authorities do not have to establish that a person committed a specific unlawful act to prove a money laundering offence. They can infer all elements of the offence from the facts and circumstances of the action.

The Act comprises 31 sections, divided into 5 parts.

  1. Objectives
  2. Prohibition of Money Laundering
  3. Special Control Unit against Money Laundering
  4. Offences and Penalties
  5. Miscellaneous provisions

Objectives

  1. The Act provides a practical framework for the “prevention, prohibition, detection, prosecution, and punishment of money laundering and related offences,”
  2. It strengthens the existing system for combating money laundering
  3. The scope of money laundering offences is expanded as well as provisions made for penalties
  4. The Act establishes the Special Control Unit against Money Laundering (SCUML) under the EFCC for effective implementation of the provisions concerning the designated non-financial businesses and professions.

Prohibition of Money Laundering

This is the core aspect of the Act. It is aimed at five categories of corporate and non-corporate bodies:

  1. Businesses and professions in the financial and specified non-financial sectors
  2. Individuals 
  3. Political persons
  4. Shell banks
  5. Casinos

We will focus mainly on the first three bodies. There is a threshold for the maximum amount of money that you can travel with or transact with, either as an individual or a company. Let’s discuss this alongside the obligations of financial and non-financial institutions in carrying out these transactions.

Businesses and Professions in the financial and specified non-financial sectors

The Act defines businesses in the financial sector to include:

The specified non-financial businesses and professions fall under the ambit of SCUML. You can check the list here. It is referred to as the Designated Non-Financial Businesses and Professions in the Act, but for clarity, we will refer to them as “Non-financial institutions.”

Prohibitions and Guidelines under the Act
  1. You cannot make or receive a cash payment that is higher than
    • ₦5,000,000 (Five Million Naira) as an individual
    • ₦10,000,000 (Ten million Naira) as a company, unless you do so through a bank or any other financial institution.
  1. You cannot carry out transactions separately with one or more financial institutions or non-financial institutions with the intention of
    • not reporting a transaction, especially when the Act requires that it be reported, or hiding information in any other way
  1. Any transfer of money or securities worth more than US$10,000 to or from a foreign nation must be reported in writing to the NFIU, CBN, and SEC within one day of carrying out the transaction. The report should show:
    • Nature and amount of transfer
    • Names and addresses of the sender and receiver

Additionally, you should inform the Nigerian Customs Services (who will report it to the CBN and the NFIU) if you transport cash or negotiable instruments in that amount into or out of Nigeria. Failure to comply with this will lead to two years of imprisonment, forfeiture of money or other negotiable instruments, or both.

  1. Both financial and non-financial institutions must:
    • Identify any customer by using relevant identification documents, e.g., driver’s licence, national identity card, voter’s card, Nigerian passport, etc.
    • Confirm the identity of the customer using a reliable and independent means
    • Identify and confirm the identity of the beneficiary
    • Verify the identity of any person purporting to act on behalf of the customer
  1. Both financial and non-financial institutions are required to ensure customer due diligence in:
    • All their relationships, regardless of whether there is a suspicion of money laundering and especially where there is a doubt about the identification data gotten from the customer
    • They must keep all documents and information up-to-date, especially for high-risk categories of customers or business relationships
    • With international transactions, they are to perform due diligence on the receiving party.

This also applies to any casual transaction involving more than US$1,000 or where they suspect that the amount of the transaction is the proceeds of an illegal activity, regardless of whether it is up to US$1,000.

Furthermore, a financial or non-financial institution must deem a transaction suspicious and report it to the NFIU right away and within 24 hours.

They should do this if the transaction, in the institution’s opinion, is unjustifiable, occurs more frequently than the account’s typical pattern, or involves the proceeds of an illegal act. The institution must:

The NFIU is empowered to place a stop order on such a transaction or issue an order within 72 hours if it is suspected to be an illegal act.

If the financial or non-financial institution does not receive a stop order from the NFIU within 72 hours or if the order has expired, they can carry out the transaction unless they get an order from the FHC. A criminal proceeding can be brought against such an officer of the institution if it is discovered he was involved in a conspiracy. 

Unless an institution can prove that they were acting in good faith, failure to comply is an offense that is punishable by a fine of ₦1,000,000 (one million naira), for each day the offense goes unpunished.

Equally important is the fact that both financial and non-financial institutions are required to keep all records for five years following the completion of business and make them quickly available to relevant authorities where needed.

They are also required to combat the laundering of proceeds of crime by putting in place internal procedures, policies, control, and training of their employees to ensure

Failure to comply makes them liable on conviction to 

Financial and non-financial institutions are tasked with the responsibility of identifying money laundering and terrorism financing risks. These risks may arise in connection with the development of new products/business practices. Financial institutions must ensure that receiving financial institutions in foreign countries don't allow their accounts to be used by numbered, anonymous, or shell banks.

They include the use of new delivery mechanisms and new developing technologies/mechanisms for both new and pre-existing products, as specified by regulatory authorities.

The assessment should be done before using or launching such products, technologies, or practices. It is expected that such institutions will take measures to manage and mitigate the risk.

Political Persons

The Act provides that financial and non-financial institutions should put risk management systems and procedures in place to determine whether a customer or a beneficiary is a politically exposed person.

If it is a foreign, politically exposed person, it is required that

These requirements also apply to a politically exposed Nigerian where the business transaction is high risk.

This brings us to the questions:

  1. Who should the money laundering report be made to? 
  2. When should it be made?  
  3. How should it be made?
  4. What is the penalty for not complying?

These questions will be answered in the next section.

Mandatory reports
Financial and Non-financial Institutions

Financial institutions are to report to the NFIU, while non-financial institutions report to SCUML, any single transaction, deposit, or transfer of funds that exceed:

All reports are to be given in written form. Failure to comply makes the affected institution liable to a fine of at least ₦250,000 (two hundred and fifty thousand naira), but not more than ₦1,000,000 (one million naira) for each day of non-compliance.

Individuals

A person can voluntarily give information about transactions exceeding:

SCUML and the specified Non-Financial Institutions

The Special Control Unit against Money Laundering (SCUML) is a department under the EFCC responsible for supervising Designated Non-Financial Businesses and professions (non-financial institutions).

The SCUML ensures compliance with the Act and other relevant laws and regulations.

Functions of the SCUML

The specified non-financial institutions

The Act lists them as:

The above-named institutions that deal in cash transactions are required to: 

Failure to comply within 7 days from the date of a transaction is an offence punishable on conviction by 

Penalties

The Act makes provisions for penalties for offenders who have been convicted of money laundering. The penalty takes three (3) forms. A convicted offender could be liable to one or all the forms of penalties. They are:

A company will be liable for the same fine. If the company persists after conviction of the first offence, the regulators may withdraw or revoke its certificate or licence.

If an officer of the financial or non-financial institution, whether a director or an employee, connives with or warns an offender to stop the statutory report to the NFIU, he is liable on conviction to a fine of ₦10,000,000 (ten million naira) or imprisonment for at least two years. Where a person or financial institution fails to make its findings and ends up transacting with a shell bank, such a person or institution will be liable on conviction to:

Officers of Financial and Non-Financial Institutions

The Act places a lot of responsibilities on officers and management of financial and non-financial institutions. That being said, when an officer is found guilty of the following:

The officer or director of a financial/non-financial institution will be liable on conviction to imprisonment for at least 3 years or a fine of ₦10,000,000 (ten million naira) or both for an individual. A company will be liable for a fine of ₦25,000,000 (twenty-five million naira)

Such an officer or director will also be liable to

Anyone who wilfully obstructs officers of a competent authority in the exercise of their powers under the Act commits an offence and is liable on conviction to;

The Act empowers the Attorney General of the Federation (AGF) to prescribe sanctions for any breach of the Act. This takes precedence over any other sanctions imposed by existing regulations.

Conclusion

To sum it up, remember that the highest cash transaction you can do as an individual is ₦5,000,000 (five million naira) which is about US$11,816.18 today. As a company, the highest cash transaction you can handle is  ₦10,000,000 (ten million naira). That is approximately US$23,632.36. You should do any amount higher than this through a financial institution. You can not invoke customer confidentiality on activities bordering on money laundering, as it is not applicable. If a person commits the acts making up the offence in various/different countries or places, the regulatory authorities can secure his conviction and sentencing in Nigeria.

Money laundering makes economic policy formulation more difficult and is associated with lower economic growth: a major reason the government strives to put legislation in place to curb it. As such, it is also your duty as a Nigerian citizen to report voluntarily any suspicious act of money laundering.
If you have questions about the Money Laundering (Prevention and Prohibition) Act 2011, its amendment we talked about, and how it relates to you, book a free session with an expert.

A tax is a compulsory contribution of a taxpayer to the government’s revenue. It is a levy placed by the government on workers’ income and business profits or added to the cost of some goods, services, and transactions. Where the government and the authorities manage taxation well, it filters back into society to aid social development.

An example is the education tax that is pooled into the tertiary fund (TETFUND). The government uses this pool of money for infrastructural developments and educational grants in Nigerian universities. Tax can be direct (e.g., company income tax) or indirect (e.g., Value Added Tax).

In analysing the Nigerian tax system, we need to consider the taxes in force presently and the reality in which they work, i.e., the various tax laws and their administration, and how they apply to you. Nigeria runs a decentralised tax system in which every tier of government handles its own administration.

The Federal Inland Revenue Service (FIRS) handles the taxes remittable to the federal government while each state has its own Internal Revenue Service, e.g., Kwara State Internal Revenue Service (KWIRS) and Lagos State Internal Revenue Service (LIRS). The local government revenue committees administer the taxes due to them.

Key Stakeholders in the Tax System in Nigeria

The Government 

This includes the federal, state, and local governments with their respective ministries and agencies.

The government is obligated to:

The Taxpayer

A taxpayer is a person or group of persons or an entity that pays or is liable to tax. As a taxpayer, you are the primary focus of the tax system. It entitles you to:

As a taxpayer, you are obligated to:

Revenue Agencies

The revenue agencies include the Federal Inland Revenue Service (FIRS), the various States Internal Revenue Service, including the FCT, and the Local Government Authorities. The agencies are obligated, alongside their statutory functions, to:

Professional Bodies and Tax Practitioners

These are the tax agents that act on your behalf in dealing with the tax agencies. This also includes tax consultants. They are bound by their professional duty of care in all their dealings with and on behalf of their clients.

Media and Advocacy Group 

They are a vital stakeholder as they are close to the grassroot community. They are obligated and enjoined to:

Types of Taxes in Nigeria

Personal Income Tax (PIT)

The Personal Income Tax (Amendment) Act 2011 regulates it. 

For the past 10 years, it has been capped at between 7% - 24% of an individual’s annual income derived from labour, pensions, interest, and dividends. The rates used by the FIRS to charge personal income tax are:

FIRS Personal Income Tax rates

Value Added Tax (VAT)

This is a form of indirect tax on the supply of goods and services that is eventually borne by you as a consumer of goods and services. It is presently charged at a flat rate of 7.5%. 

The Value Added Tax is regulated by the Value Added Tax Act. The Act provides that, when you begin a business, you must register with the FIRS within six months or be liable to a penalty of ₦10,000 for the first month and ₦5,000 for every subsequent month that you remain unregistered. 

Goods and Services exempt from VAT

All the above items are based on a list which specifies the details and circumstances of exemption. You can find the list here.

Company Income Tax (CIT)

The Company Income Tax Act, Cap C21, LFN 2004 (as amended), governs it. It is imposed on the profit of a company from all sources, be it from business or investment. Companies paying dividends to their shareholders are to first pay tax on their profits before they distribute them as dividends. 

CIT only applies to profits derived from trade/business activities carried out by the company. It is not applicable to profits that are subject to Capital Gains Tax, Petroleum Profits Tax, and Personal Income Tax.

As a company, you are to pay provisional tax not later than 3 months from the beginning of each year of assessment, which is an amount equal to the tax paid in the previous year of assessment. It is a payment on account of the year’s income tax assessment payable to the Federal government. 

The FIRS has a set due date for the filing of CIT.

A company in operation for over four years is liable to a minimum tax/alternative tax, unless specifically exempted by the tax law. The minimum tax rate is 0.5% of the gross turnover of a company.

A minimum tax is applicable where;

Minimum tax/alternative tax also applies to foreign digital companies deriving profits from Nigeria. 

The minimum tax does not apply to companies in the first four calendar years of business, companies engaged in the agriculture business, or small companies.

For non-life insurance companies, the minimum tax is calculated as 0.5% of the gross premium. Life insurance companies’ minimum tax is calculated as 0.5% of gross income.

Resident companies are liable for CIT on their worldwide income, while foreign companies are subject to CIT on their Nigeria-sourced income. This includes foreign companies with a digital presence and Significant Economic Presence (SEP) in Nigeria. This applies where they derive an income of N25 million or its equivalent from Nigeria in a year. The taxable activities for foreign companies include:

The CIT rate is determined by the size of the company, which is measured by profits:.

Profits exempt from Company Income Tax

Capital Gains Tax (CGT)

It is charged at 10% of accrued gains and governed by the Capital Gains Tax Act, Cap C1 LFN 2004 (as amended).

All chargeable assets, including all forms of property, whether or not in Nigeria, are subject to CGT when disposed of at a gain. CGT will apply to gains accruing from a property disposed of outside Nigeria.

For this to apply to you, you would have to bring the gains into Nigeria. The allowable expenses include fees, commissions, professional fees, and the cost of transfer. The due date for filing is the same as for CIT.

Exemptions

Withholding Tax (WHT)

This tax is used to collect income tax in advance, offsetting or reducing tax liabilities. You can deduct this at varying rates, ranging from 5% to 10% for individuals and 2.5% to 10% for companies, depending on the transaction. It is to be deducted from payments made to contractors, suppliers, and providers of services. You remit the deductions to the tax authority before the 21st day of the month following the month in which you made the deduction. The penalty for failure to remit tax is 10% of the amount not deducted.

Companies are required to submit electronically a schedule of all their supplies for the month showing:

WHT applies to the following specified transactions:

Transactions that are subject to withholding tax in Nigeria

WHT deductions for individuals should be remitted to the State Board of Internal Revenue of the state where the contractor lives. You should remit it to the FIRS in the case of a foreigner (company or individual), incorporated company, individual, or enterprise resident in the Federal Capital Territory.

To avoid double taxation, Nigeria currently has tax treaties with 13 countries. Some of these treaties are being ratified while others have not yet been ratified. For other non-treaty countries, there is a fixed rate of 10%.

Transactions exempt from WHT

Stamp Duties

These are duties levied on written documents for transactions such as agreements, payment receipts, share capital, mortgages, land and property transactions, loans, etc. to give them legal recognition. Stamp duty can be in two forms:

The FIRS currently runs an Integrated Stamp Duty Service. It is an online platform that allows you to carry out stamp duty transactions. To use this platform, you must have your TIN. On completion, you can generate a stamp duty certificate and the platform will automatically send a copy to your email. To be on the safe side, we will advise you to use the same email address used while registering with the FIRS.

Banks and other financial institutions are mandated to charge stamp duty on certain eligible transactions. Transactions above ₦10,000 attract a fee of ₦50, except for transfers between accounts owned by the same person or a salary account.

The Stamp Duties Act, Cap S8, LFN 2004 (as amended), regulates Stamp Duty. Both the federal and States internal revenue service administer it. The FIRS administers stamp duty between a company and an individual, group or body of individuals. FCT and the States' Internal Revenue Service administer transactions between individuals.

They are to be paid on documents before the parties sign them.

Customs and Excise

The rates vary from 5% to 35% depending on the item. It is an indirect tax paid by producers/importers of goods. The Customs and Excise Management Act (CEMA) regulates it. 

Custom duty applies to goods imported into the country. Customs duty is determined based on the existing Harmonised Commodity and Coding System, also known as the HS code. Only items imported by the Nigerian President are exempt from the payment of duties or taxes.

Excise duties apply to locally manufactured goods. An excise licence has to be applied for by manufacturers and approved before they can manufacture excisable goods in Nigeria. You can make such applications to the Comptroller General of the Nigeria Customs Service through the area controller of your region.

Excisable Items

Education Tax

Education tax is capped at 2.5% of a company’s assessable profit for each year of assessment. It is also known as the Tertiary Education Tax, which funds the Tertiary Education Fund (TETFUND). It is imposed on all companies.

The tax is payable within two months of an assessment notice from the FIRS. A company can pay on a self-assessment basis along with their company income tax. It is an allowable deduction for companies subject to the Petroleum Profit Tax.

Petroleum Profit Tax (PPT)

It applies to companies involved in upstream petroleum operations. They pay this in place of CIT. The Petroleum Profit Tax Act regulates it.

PPT Tax rates

Following the enactment of the Petroleum Industry Act 2021 (this applies to existing licence holders upon renewal of their licence), Hydrocarbon Tax (HT) was introduced. It applies to petroleum operations involving crude oil, condensates and natural gas liquids produced from associated gas in an oil field. The Act further provides that holders of a Petroleum Prospecting Licence (PPL) and Petroleum Mining Lease (PML) will be subject to both the Company Income Tax and the Hydrocarbon Tax (HT). The HT rates are:

Company Income Tax applies at 20% or 30% depending on the turnover of the company. HT will not be deductible from the Company Income Tax payable by the company.

Deep offshore companies are exempt from HT.

Current oil mining licence and oil prospecting licence holders will continue to be taxed in line with the PPT Act unless they execute a conversion contract in line with the Petroleum Industry Act 2021.

The penalty for late filing of a PPT return is ₦10,000 and ₦2,000 for every day the failure continues. If you do not pay an instalment by the due date, it will attract a penalty of 10%.

E-FILING 

The FIRS now has an online platform for filing tax returns. You can make payments via the platform or through the FIRS designated banks.

Taxes Applicable (E-filing)

The e-filing platform requires an access form to be filled out by the CEO or the officer in charge of a company to determine the level of access you will have on the platform. The access options provided are:

The Joint Tax Board (JTB)

The Personal Income Tax Act 2004 created the JTB and charged it with ensuring uniformity of standards and the application of Personal Income Tax administration in Nigeria.

Membership
Functions

The Challenges of the Nigerian Tax System

Tax Refunds in Nigeria

You have a right to a tax refund in the event of tax overpayment or wrong payment from the FIRS or the States’ Internal Revenue Service. You can make a request in writing, stating the relevant details such as the period in question, type of tax, reason for refund, and amount of refund. On request, the FIRS or the affected State Internal Revenue Service will conduct a special audit into your account to find out your claim.

On audit, they will check all your tax accounts, and if there is an underpayment in other tax areas, they will set the excess off against them.

In some circumstances, taxpayers end up owing the government when an audit is conducted and they discover underpayment in other tax areas. To prevent this, ensure proper documentation and up-to-date payment of tax returns.

The government is liable to pay within 90 days after a tax refund request goes through. 

You can claim a tax refund in two ways; 

Here, you may decide to set off the tax refund balance resulting in your favour against the tax to be paid in subsequent months by making the outstanding refund from the previous month the first charge in the current month’s tax payments. This is a popular refund approach in many tax systems, and the FIRS encourages it since it saves time and unnecessary paperwork.

There are some companies that perpetually have tax refund claims. We cannot reasonably expect such a company to set–off by credit because the need for a refund is repetitive. It is for this category of companies that regular cash refunds may be necessary.

You can also make a refund using both methods at once, depending on the amount of the refund.

In this guide, we have reviewed the Nigerian tax system, its administration, challenges, and how it applies to you as a taxpayer. Nigeria’s tax system can be complex. Get a free personalised session with an expert to review your specific tax needs and review next steps. 

When setting up a business, you must decide what type of business entity to form. You also need to think about how to comply with the rules of the country or region in which the business is located. In this article, we will focus on how to structure your business within the legal framework in Nigeria.

The entity you choose will bear your legal, financial, and operational obligations.

The most common legal structures for businesses in Nigeria are:

  1. Companies
  2. Partnership
  3. Business name
  4. Sole Proprietorship
  5. Incorporated Trustees

There are some things to think about when choosing a business structure. Some of them are:

  1. Nature of business activities:This is a major deciding factor as it determines the financial and operational responsibilities to be borne by you in administering the business.
  2. Cost of registration and expenses: The cost of legal compliance for each of the legal structure categories differs. Consider which fits best for your budget.
  3. Speed of processing and completion of registration: The requirements and registration process differ for each business body. You should consider which fits into your business plan.
  4. Documentation and legal compliance. Some businesses require licences and permits from other government agencies to operate besides being registered by the Corporate Affairs Commission. e.g. NAFDAC permits issued by the National Agency for Food and Drug Administration and Control (NAFDAC), private security licences issued by the Nigerian Security and Civil Defence Corps (NSCDC) and the Central Bank of Nigeria issued FINTECH permits amongst others. 
  5. Post registration compliance and regulatory supervision 
  6. Sphere, extent and flexibility of operation- Your preferred business entity should enable innovation and progress of your business plan rather than limit it.
  7. Transferability of ownership: Some business entities allow succession and transfer of ownership through shareholding. You should give this some great thought if you intend to pass on your business to someone in the future or share ownership.
  8. Financial requirements: Define your present and projected cash flow and how it will sustain the business entity you choose.
  9. Profit: How would you divide the profits? With just you (sole proprietorship) or with other partners/shareholders.
  10. Government policies: There are policies in place in relation to tax, location of business premises for industries or service stations, insurance, labour relations, money laundering, technology transfer, business permits and licensing, and so on. This list is not exhaustive as your line of business will determine the government policies to look out for.
  11. Risk and Liability: This depends on the size of the business. The extent of personal liability for debts and other liabilities depends on the legal structure of the business. 

These factors are not all-inclusive and they are interdependent. You should consider them before making a decision.

What Are the Benefits of a Proper Legal Structure for Your Business in Nigeria?

Legal structuring is the best option for you if you want to achieve long-term high growth, establish a scalable business, and benefit from lower personal liability. Amongst others, a structured business will achieve:

 

Choosing a Legal Structure in Nigeria

First, let’s cover the rules that govern choosing the best legal structure for your business. The Companies and Allied Matters Act, 2020 (CAMA 2020), governs how your company is structured and the Corporate Affairs Commission (CAC) serves as its regulating body.

Depending on the type of business you’re into, you might also deal with these other regulatory authorities:

With the authorities out-of-the-way, let’s discuss how you might categorise your business.

The Common Types of Business Structure in Nigeria 

Your business can be structured as:

Let’s discuss each:

Business Names 

A name or title under which a person, or other legal entity, trades. 

Any individual, firm, or corporation carrying on business under a business name is required to register within 28 days of commencing the business. The business must have an address for its operations in Nigeria.

The business name is eligible for registration where

The business name does not need to be registered under the following circumstances:

The Advantages of Business Name

Company

A legal entity formed by a group of people to run a business.

This is the most common business structure, with profit maximisation as its primary goal. It is preferential because of the structured administration.

A company gains a separate legal identity and can operate independently of its shareholders upon formation.

When you form your company, your key formation documents are the Memorandum of Association (MoA) and the Articles of Association (AoA), a.k.a. MemArt.

The MoA includes:

The AoA establishes the company’s governing corporate administration guidelines.

When you register your company, The MemArt, acts as a deed between;

As part of your company’s formation, your company will be one of:

I know what you’re thinking:

Yes—you can convert between each category of company type.

Before we move on, let’s discuss another company type that doesn’t fit neatly with those. 

Can  Foreign Companies operate in Nigeria?

A foreign company can be defined as a company incorporated outside Nigeria and intending to do business in Nigeria. If your business or company falls under this category, you must take all the steps to be incorporated as a separate entity in Nigeria.

You cannot conduct business or perform any act incidental to that except for activities related to preliminary incorporation matters. There is an exception to this rule. This is where the company is exempted by:

The foreign company can be exempt if it falls into any of these categories:

The Corporate Affairs Commission may cancel this exemption if it is determined that

After incorporation, as a foreign company to carry on business in Nigeria. You must:

The Advantages of Companies

If you’re thinking, "What if I want a legal personality but I want to handle the administration of my business alone?" This is where sole proprietorship comes into play. 

Sole Proprietorship

A sole proprietorship, also referred to as a “one-man business”, can be registered as either a small private company or a business name. 

As a small private company, it will be exempt from some provisions of CAMA pertaining to companies. This includes the quorum for meetings and the adjournment of meetings.

To qualify as a small company, it must meet the following criteria:

You can refer to the paragraph where Business Name was defined above.

Companies like Ebay and Dangote Group started out as sole proprietorships.

The Advantages of Sole Proprietorship

Partnership

When two or more people pool their resources to start a business and decide to share the risks, rewards, and losses, they have formed a partnership. CAMA divides partnerships into two types:

Limited Liability Partnership (LLP)

A LLP is recognised as a body corporate with perpetual succession under CAMA 2020. It is a legal entity separate from the partners.

It should have at least two partners, and one must be a resident in Nigeria. You can also form a partnership with a corporate body.

The rights, duties, and obligations are in the partnership agreement. The partnership agreement is to be filed with CAC. If there is no agreement, the fifteenth schedule of CAMA will apply.

It has these features:

A LLP consists only of limited partners. They all take part in the management. It involves pooling the resources of partners while reducing the cost of business, which will increase the capacity for growth.

Unless otherwise stated in the partnership agreement, the partners are liable for the acts of each other partner performed on behalf of the firm.

This also applies to foreign LLPs willing to carry on business in Nigeria, except exempted, as I pointed out above.

In countries like the United States of America, professionals such as accountants, architects, lawyers, etc., incorporate their business services as LLP. It is not as popular in Nigeria, except with law firms, because it was only introduced with the new amendment to CAMA in 2020.

Limited Partnership (LP)

It can be a partnership between a minimum of two people. It comprises both general and limited partners.

The general partner is liable for all debts and obligations, while the limited partner’s liability is restricted to and cannot exceed the amount that he invested in the company. The maximum membership is 20 partners.

A limited partner cannot take part in the partnership’s management.

A limited partner can only check the books and examine the state and prospects of the partnership business. He can also offer advice to the partners thereon.

If a limited partner takes part in the partnership’s management, he is liable for all debts and responsibilities as if he were a general partner.

The Advantages of Partnership

Incorporated Trustees

It is a non-profit organisation formed by a group with the aim of pursuing a common goal.

Incorporated trustees can be formed when two or more people (who will now be trustees) are appointed by a group of people.

The group should be united by custom, religion, kinship, or nationality. Any association of people formed for the following purposes can also appoint the trustees:

PERSONS DISQUALIFIED

They can only apply the income and property of such a body or association towards the promotion of the objects set out in its constitution. They can't transfer it to any of the other association members. This does not include

An incorporated trustee can operate without registration, unlike companies and business names, but won’t be able to take advantage of the incidences of incorporation.

Its constitution must pledge to:

It applies to:

Key Advantages of Incorporated Trustees

Now that you know all the structure your business can have, let’s take the first step:

How to Choose a Name for Your Business

In Nigeria, the choice of corporate names is modulated by the CAC. Before you can incorporate your business, you must reserve the name.

They can reject a reserved name on several grounds. To prevent delays in the process, the CAC recommends that you submit two names for reservation. If the names don't meet their criteria, they will be rejected. 

Here are some reasons they might reject your name:

CAC will approve your choice of name where it meets all the laid down standards above. Where you intend to make use of a restricted name, you can seek approval by paying a stipulated fee for the application.

Doing business in Nigeria is now significantly easier. CAC (Corporate Affairs Commission) and other regulatory authorities continue the on-going effort to improve the simplicity of registration, compliance, and post-incorporation—on par with global business standards. 

In this guide, we addressed the details of questions on business structuring in Nigeria. You can use the CAC company registration portal to register a business, although the process can be daunting. It is best to hire and seek the advice of an expert when structuring your business to ensure that you are making the right choice for your business.

An expert will also help avoid technicalities and complications to ensure full compliance with all regulatory bodies both before and after incorporation. 

If you have questions, we’re happy to help. Book a time with our Counseal experts.

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