Business Formation & Corporate Compliance In Nigeria

Registering a company is one of the most essential steps in setting up a business entity in Nigeria. Upon registration, periodic compliance is required to sustain a company under Nigerian law. The procedure could seem overwhelming, but one can successfully navigate it with the correct knowledge and direction. This article will briefly overview Nigeria's current corporate compliance requirements and business formation process.

Applicable Law

The Corporate Affairs Commission (CAC) is responsible for company registration in Nigeria, and all company registration applications must be submitted directly to the CAC. The authority of the CAC to administer incorporations is derived from the Companies and Allied Matters Act 2020 (CAMA). The Companies Regulations 2021 provide additional clarifications to aid CAMA.

Forms of business organization in Nigeria

In Nigeria, there are several business forms and business structures, and each of them comes with a unique ownership structure. The type of business structures in Nigeria will be enumerated below.

Sole proprietorship: This kind of business structure is often owned by one person, who assumes all risk and is subject to all liabilities of the company. This type of structure is usually registered as a business name with CAC. Small business organizations choose this type of business since it is simple to establish.

Partnership: This is a type of business in which two or more people jointly provide resources to establish the business entity. Each partner shares equally in the company's risks and obligations. A partnership can be registered with the CAC as a business name or limited liability partnership (LLP)

Company: This is a type of business with distinct legal entities from owners. Once registered, it becomes a legal person with the ability to own property, file lawsuits, and pay taxes. A Company can either be limited by shares, limited by guarantee or unlimited. Each of these types of structures has its own unique identity and features, which shall be explained below.

Types of companies in Nigeria

Section 21 of CAMA provides the types of companies that can be registered under Nigerian Law, which shall be enumerated below.

• Company limited by shares: This is one in which members of the corporation are not held personally accountable for the debts or obligations of the company because of its corporate structure. It can be a private company limited by shares (Ltd) or a public company limited by shares (PLC). A private company has a minimum of one member and a maximum of 50, but public companies can have an unlimited number of members.
• Company limited by guarantee: This is referred to as a non-profit organization. It is a type of commercial organization whose goals are to further charitable, religious, sporting, or educational activities. It does not operate a business to generate revenue to distribute to its members.
• Unlimited company: In this kind of business structure, each member's responsibility is unrestricted and will be responsible for the entire company's debt.

Steps and requirements for setting up a business in Nigeria

The following criteria must be met by anyone seeking to have a successful business setup in Nigeria:

1. Company Registration in Nigeria: anyone who seeks to set up a business in Nigeria must first register such a business with CAC following the provisions of CAMA. Foreigners must meet slightly different standards than Nigerians to register a company.

2. Taxation requirements: Tax Identification Number (TIN) is mandated for all registered companies in Nigeria. For a newly established business to obtain TIN, it must register at the closest Federal Inland Revenue Service to the company's address. The only requirement for registration is the incorporation documents. A company requires a TIN to open bank accounts.

Other Requirements for Setting Up Business in Nigeria by Foreigners

In addition to the above-listed requirements, the following are the special requirements for foreigners willing to set up a business in Nigeria.

1. Registration with the Nigeria Investment Promotion Commission (NIPC): This registration is mandatory. The NIPC is a legally mandated organization that encourages foreign investment in Nigeria. Any company with foreign participation must be registered by the commission, which also issues the company a certificate. The registered company's incorporation certificate with CAC is the primary requirement for NIPC registration. In addition, the commission will look for more information regarding the type of business and the capital that will be imported for it.
2. Business Permit from the Ministry of Interiors: All newly incorporated companies that are fully owned by foreign nationals are required to apply for a business permit from the Ministry of Interiors before the commencement of business operation. This requirement does not apply to a business that a Nigerian citizen controls or owns a portion of. There are specific standards that must be met for the Nigerian Ministry of Interior to issue a business permit.
3. Expatriate Quota: This is another permit issued by the Ministry of Interiors for Nigerian companies to employ expatriates, and it is granted upon the company's application. The expatriate quota usually lasts for three years, and there are different categories. There are temporary quotas and permanent until review (PUR) quotas. Only the company's directors are eligible for PUR.
4. Combined Expatriate Residence Permit and Aliens Card (CERPAC): CERPAC holders are entitled to live and work in Nigeria. Each foreign national wishing to work in Nigeria requires a valid residency or work permit. The CERPAC is a requirement for any foreign nationals residing or employed in Nigeria. The CERPAC is the last authorization to obtain residency in Nigeria. It comes after the expatriate quota has been obtained for the expatriate, and the expatriate arrives in Nigeria with the Subject to Regularization Visa (STR).

Key compliance requirements for companies in Nigeria

Business compliance is the act of adhering to laws, rules, and industry standards that control a business's operations. It covers a wide range of topics, including annual maintenance, taxation, legal requirements, and financial reporting requirements. In essence, it involves abiding by the regulations established by oversight organizations to guarantee responsibility, equity, and openness in corporate dealings. In Nigeria, there are several important areas where companies need to concentrate on compliance; taxation, CAC annual returns and immigration compliance will be discussed below.

Taxation

Companies operating in Nigeria are required by law to pay taxes, and failure to pay these taxes often results in penalties such as fines. All the taxes a business needs to pay or comply with will be enumerated hereunder.

• Companies Income Tax (CIT): This specific tax is governed by the Finance Act 2019 and the Company Income Tax Act. Nigerian businesses are required to pay it according to their profits. Currently, the corporation income tax is levied at three different thresholds based on the company turnover:

Foreign companies not resident in Nigeria with a fixed base in Nigeria are only required to pay company income tax on their incomes derived from Nigeria. Every newly incorporated company must file for CIT within 18 months of being incorporated or not later than six months after the end of the accounting period, depending on the earlier one.

• Value Added Tax (VAT): This is a tax levied by the Federal Inland Revenue Service on the consumption of goods and services, and it is paid by individual or corporate bodies that trade in goods and services at 7.5%. The Valued Added Tax must be paid on or before the 21st of the month following the month of the transaction. Hence, VAT must be paid monthly, and failure to do so attracts a penalty of up to 5% per annum.
• Capital Gains Tax (CGT): The Capital Gains Tax Act is the regulating law for CGT, and it is imposed on companies by the FIRS. Ten per cent (10%) flat rate of the organization's gains realized from the sale of chargeable assets are charged for it. The due date for filing is the same as that of the CIT.
• Personal Income Tax: The Personal Income Tax Act (PITA) governs this tax. It is levied against individual and sole proprietors' income. The Internal Revenue Service of each state is responsible for collecting personal income taxes. The employer must remit it at the end of the month on behalf of employees. The tax rate ranges from 7% to 24%, depending on the amount of chargeable income. It is a progressive tax; the more you earn, the more you pay. Companies are obligated to collect and remit these taxes monthly to the state tax office for the employees.
• Withholding Tax (WHT): It is not another type of tax but an advance payment of income tax that may be used to offset or reduce tax liabilities. Taxes on payments owed to individuals or firms who supply goods and services to Nigerian residents or businesses are to be withheld from those payments. Withholding tax returns must be filed within 21 days following the emergence of the obligation for company deductions. The rate of WHT ranges from 2.5% to 10% for individuals, depending on the transactions.

Failure to pay taxes when they are due can result in fines. By statute, the FIRS can fine non-compliant taxpayers or even bring legal action against them.

CAC Annual Returns

Every company, business name and incorporated trustee must file annual returns with CAC. Annual returns are information about the company that is filed with CAC to inform the Commission that the company is still in existence, and it is done pursuant to section 417 of CAMA. Once the annual return has been filed, the status of the company will be updated to show that it is still Active. After registering a company in Nigeria, the first annual return of such a company must be filed within 18 months of being incorporated, and subsequent filings must be done annually.

The following information/documents may be attached to annual returns:

• Balance sheet
• Profit and loss account
• Director's and auditor's reports.

The provision's main thrust is that all registered Nigerian companies must submit their annual reports to the CAC every year. New companies are not required to file annual returns in the same year of incorporation.

Nigeria Immigration Service

Every company that employs expatriates in Nigeria is required to file the Expatriate Monthly Return (EMR) at the Nigeria Immigration Service to detail the status of that company's expatriate quota in use. Currently, the monthly expatriate return can be filed electronically through the e-CITIBIZ platform; however, the online filing does not affect physical submission at the NIS office. The NIS requires companies to prepare and submit the EMR in the first week of the following relevant month.

Conclusion

Nigeria offers a wide range of investment opportunities, as well as welcoming rules and regulations that have been put in place to draw in investors and ensure ease of doing business. In Nigeria, the CAC is the only government agency in charge of company registration. The most suitable form of business entity to start a business is a private company limited by shares (also known as LLC). The incorporation process has been simplified and may now be completed remotely through an accredited agent such as a lawyer or law firm. Registering a company does not imply that one will be automatically eligible to partake or engage in any or all businesses in Nigeria. Some specific business sectors require operational permits or licenses before engaging in such industries. For instance, a money lending license is needed to engage in a lending business.

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.