Nigeria: Compliance Requirements For Doing Business In Nigeria

INTRODUCTION

Upon the incorporation and commencement of business in Nigeria, companies are required to adhere to certain regulatory requirements. These regulatory requirements involve filing returns or remitting levies to bodies established by law. In this newsletter, we examine the various compliance obligations of companies doing business in Nigeria by detailing the relevant regulatory bodies and the filing responsibilities associated with them.

1. Federal Inland Revenue Service (FIRS)

Companies are required to file the following taxes to the FIRS either monthly or yearly.

• Companies Income Tax (CIT). Companies are obligated to file their annual returns within 18 months of incorporation. Subsequent filings are to be made within 6 months following the end of the financial year which is typically by June 30 of every year. The penalty for failure to file CIT returns is ₦25,000 for the first month and ₦5,000 for each subsequent month of default. While late payment of CIT attracts a 10% penalty and interest at the prevailing bank rate.
• Withholding Tax (WHT). This serves as an advanced method for the collection of CIT. It is deducted at rates which vary between 5% and 10%, depending on the nature of the transaction and the parties involved. The deadline for filing WHT returns falls on the 21st day of each subsequent month after the deduction. The failure to meet this deadline will result in a late filing penalty of ₦25,000 for the first month and an additional ₦5,000 for each month during which the failure persists.

Value Added Tax (VAT). This is a consumption tax levied on the value of goods and services provided in or imported into Nigeria. It is charged at a rate of 7.5% which is applicable to all goods and services provided to individuals and companies. The deadline for filing VAT returns is the 21st day of the month following the month of transaction. Failure to meet this deadline will result in a late filing penalty of ₦50,000 for the first month and an additional ₦25,000 for each subsequent month during which the failure continues. However, VAT is not paid on all goods and services. Some of the exempt goods and services are medical and pharmaceutical products, basic food items, books and educational materials, tuition from nursery to tertiary education, baby products, all exported goods and services, amongst others provided in the VAT Act.

2. Internal Revenue Services of States

Companies are required to withhold and file personal income tax of their employees to the internal revenue service of the state where employees reside. This income tax is also known as Pay As You Earn (PAYE). In Lagos State for instance, employers must begin deducting tax from the salaries and wages of their employees after 6 months of the company commencing operations. The deducted taxes are remitted to the Lagos Internal Revenue Service (LIRS).

The deadline for remitting PAYE is before the 10th of the month following the month when the deductions were made. For example, January PAYE must be remitted on or before February 10th. At the end of the year, employers in Lagos are expected to file duly updated returns on all salaries and wages paid to the employees on their payroll within the preceding tax year. Returns must be filed at the LIRS before January 31st for the preceding year.

The PAYE requirements in Lagos are the same in Abuja and many other states in Nigeria, however, the implementation of PAYE (i.e. how it is filed) varies from state to state.

3. Corporate Affairs Commission (CAC)

All companies registered in Nigeria are required to file annual returns to the CAC. Companies are to file their annual returns within 18 months of incorporation and subsequently on an annual basis. The filing of the annual return should be accompanied by the Audited Financial Statement/Audited Account of companies for the financial year end.

The deadline for filing annual returns at the CAC is 14 days after the date of the general meeting for the year and in any case, before June of the current year. Failure to file annual returns attracts a penalty of either ₦3,000 or ₦5,000 for each year of non-compliance depending on whether the company is regarded as a small or large company. However, in November 2023, the CAC announced that by April 2024, it would start penalizing companies and their directors for failure to file their annual returns.

4. Industrial Training Fund

Every company is required to contribute 1% of the total sum of its annual payroll to the Industrial Training Fund. The fund is used to develop human capital and provide individuals with technical and entrepreneurial managerial skills in both the public and private sectors.

However, companies with less than five employees and with a turnover of less than ₦50 million are exempted. Payments are required to be made on or before the 1st of April each year. Where companies do not make the required contribution to the fund, they are liable to pay a monthly penalty of 5% on the unpaid contribution for each month they are in default.

5. Nigeria Social Investment Trust Fund (NSITF)

The NSITF is established by the Employee's Compensation Act and is designed to provide insurance for employees against incidents that occur in the course of their employment such as workplace injuries, mental stress, occupational hazards, and death. Employers are required to contribute 1% of their total monthly payroll to the NSITF by the last day of each month in which payroll payments are made.

Where companies do not make the required contribution to the fund, they are liable to pay a monthly penalty of 5% on the unpaid contribution for each month they are in default.

It is important to note that an employer cannot deduct from the remuneration of an employee towards its contribution to the NSITF. An employer cannot also require an employee to indemnify it against any liabilities which the employer may incur under the Employee's Compensation Act.

6. National Pension Commission (PENCOM)

The Pension Reform Act which establishes the PENCOM as the pensions regulatory body in Nigeria requires employers with at least 15 employees to participate in a contributory pension scheme. Under the scheme, the employer contributes a minimum of 10% of the employee's monthly emolument and the employee contributes 8%. However, the employer may opt to bear all the contribution to the pension scheme. In that case, the minimum contribution will be 20% of monthly emolument.

Contributions are required to be remitted within 7 days after the payment of salaries and are to be made monthly for the duration of the employee's employment in the company. The penalty for non-contribution is not less than 2% of the total outstanding pension contributions that remain unpaid, in addition to the outstanding contributions.

7. Nigeria Data Protection Commission (NDPC)

All companies collecting or processing the personal information of over 1,000 individuals within a 6-month period and processing the personal data of more than 2,000 individuals within 12 months are required to submit a yearly Compliance Audit Report (CAR)1 to the NDPC though a Data Protection Compliance Organisation (DPCO). The DPCO will review the data protection documentation of the company, assess the systems and practices of the company and assess the knowledge of the staff before providing recommendations. The DPCO will thereafter submit a summary of the CAR to the NDPC not later than the 15th of March of the following year. A default fee of 50% of the filing fee will apply where companies fail to file their CAR by the 15th March deadline.

In February 2024, the NDPC issued a guidance notice2 requiring companies that process the data of Nigerians to register with the NDPC as "Data Controllers or Data Processors of Major Importance". Companies are considered Data Controllers or Data Processors of Major Importance (DCMI/DPMI) if they:

i. process the personal data of more than 200 Nigerians within 6 months;

ii. provide ICT services directly to individuals;

iii. process personal data in the ordinary course of their business; or

iv. operate in sectors critical to Nigeria's economy, society, or security, including financial, communication, health, education, insurance, and others listed in the guidance notice.

Companies regarded as DCMI/DPMI are to register under any of the three categories of data processors/controllers listed in the guidance notice between January 30, 2024, and June 30, 2024.

The failure to register within this timeframe or registering after the due date will be deemed a default under the Nigeria Data Protection Act (NDPA), subjecting the defaulting companies to penalties as stipulated in the NDPA.

Conclusion

It is important to note that the list above is not exhaustive. In addition to the compliance obligations above, certain sector-specific regulatory requirements may apply depending on a company's sector of operations. Companies should seek legal counsel to understand the specific regulatory requirements applicable to their operations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.