The corporate business environment is regulated by certain requirements to be met for the effective operation of its business in Nigeria. When the necessary corporate compliance is adhered to by companies, it brings sustainable development to that organization. The major statute that imposed various compliance on companies is the Companies and Allied Matters Act 2020 (CAMA).
These various corporate compliances in Nigeria will be discussed below.
- Incorporation of Companies & Annual Returns- The CAMA is the principal statute that governs corporate activities and stipulates regulations that must be complied with before commencing business operations, and during operations in Nigeria. Before the commencement of business operations, to incorporate a company in Nigeria, companies are to comply with the requirements of the Corporate Affairs Commission (CAC).
There are also post incorporation compliances to be met by Companies registered with the CAC, they are also to comply with the requirement of filing annual returns at the CAC. It is statutory compliance that all registered companies must submit their annual returns yearly to the CAC, to enable the commission to have up-to-date records of the company. The annual returns are yearly statements evidencing the performance of the company for the year and its financial position.
Apart from incorporation and post-incorporation, there are other several statutory compliances imposed by the virtue of CAMA and Companies Regulations. Some of these compliances include statutory meetings of the companies, filing of company resolutions with the CAC among others.
- Taxation-There are various taxes to be paid by
companies operating in Nigeria and failure for companies to comply
with the various tax requirements will be tantamount to
non-compliance by the company. The company tax obligations to be
complied with are as follows:
- Company Income Tax- A company in Nigeria is to comply and register with the Companies Income Tax imposed and levied by the Government through the Federal Inland Revenue Service (FIRS). The Company Income Tax is governed by the Companies Income Tax Act (CITA), Cap C21, LFN 2004 (as amended). It is imposed on the profit of a company from all its sources. The rate of tax is 30% of the total profit earned by the company in the accounting year ending preceding assessment for companies with more than N100 Million turnover; companies with a turnover between N100 Million and N25 Million are liable to pay 20%; while companies with less than N25 Million turnover are exempted from taxation Some profits are exempted from CIT provided they are not derived from the trade or business activities carried out by the company. Every company is required to comply and pay provisional tax not later than three (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.
- Capital Gains Tax- The governing legislation of the Capital Gains Tax is the Capital Gains Tax Act. It is imposed on companies by the FIRS to pay Ten Percent (10%) of company gains realized upon the disposal of chargeable assets or exchange of certain kinds of interests. The most common capital gains tax payable by companies is realized from the sale of stocks, bonds, precious metals, real estate, and property investments. Capital gains tax accrues yearly.
- Petroleum Profit Tax (PPT)- Petroleum Profit Tax is imposed on the income of companies in the petroleum operations (upstream) sector of the economy. The tax is governed by the Petroleum Profits Tax Act, Cap P13 LFN 2004 (as amended). The Act regulates the financial activities of oil companies comprising of those in crude oil production, petroleum marketing, and also servicing companies involved in the survey, drilling, and data collection. It is the profits generated by companies that engage directly or indirectly in petroleum operations that are subjected to tax under the Act, while profits generated by marketing and servicing companies are taxed under the Companies Income Tax Act. Companies engaged in petroleum operations are chargeable to tax under the PPTA. It is also important to note that companies liable to comply with payment of PPT are not liable to comply with payment of Companies Income Tax on the same income.
- Value Added Tax- Companies in Nigeria are to comply and register with the Value Added Tax (VAT) imposed and levied by the Government through the Federal Inland Revenue Service (FIRS). This category of tax is governed by the Value Added Tax Act and it is imposed on goods and services sold to the public. The current tax payable is 7.5% on the supply of goods and services, however, zero 0% tax rates compliance applies to goods and services in Nigeria which includes;
- non-oil exports, commercial aircraft, and spare part imports;
- certain humanitarian initiatives;
- machinery and equipment used in the solid minerals sector;
- exports, agricultural equipment, and commercial vehicles;
- basic foodstuffs;
- residential rents; medical and pharmaceutical supplies;
- education and related materials and;
- books and newspapers.
Furthermore, another corporate compliance to be adhered to by companies in Nigeria is the Employee Compensation Scheme.
- Employee Compensation Scheme- The Employee Compensation Act 2010 was established to guarantee and impose obligations to employers in both the private and public companies to deduct 1% from the monthly salary of its employees and remit it to an Employee Compensation Fund, in event of death, injury, disease, or disability of the employee arising in course of employment. The Nigerian Social Insurance Trust Fund Board (NSITF) has the power to implement the fund. The Scheme is targeted at protecting private-sector employees and their dependents from financial difficulties in the event of either old age, cessation of employment, diseases, invalidity, or death associated with the employee's employment. The NSITF is not a tax but insurance which is an obligation for companies and failure to comply with the provisions can give rise to legal actions. This employee compensation contribution is for the benefits and interests of the employees and their employers of a company.
- Industrial Training Fund (ITF)- another
important corporate compliance for companies is the registration
with the Industrial Training Fund (ITF). Industrial
Training Act, 2011 establishes the Industrial Training
Fund and its purpose is to promote the acquisition of relevant
skills in industry or commerce to generate a pool of indigenous
manpower to satisfy the needs of the economy. Every employer that
is liable to comply under the ITF Act by contributing 1% of the
amount of its annual payroll to the Fund not later than the
1st of April of every year. The ITF is established to
utilize the contributions to the funds for skills in management,
technical and entrepreneurial development in the private and public
sectors of the Nigerian economy. Employers that are required to
comply by making contributions under the Fund are:
- Employers having five (5) or more employees in their establishment;
- Employers who have less than five (5) employees but having a turnover of N50 Million Naira and above per annum;
- Suppliers, Contractors or Consultants who bid for contracts from any federal government agency or parastatals or private companies; and
- Companies operating in the free trade zone which seeks approval for Expatriate Quota or makes use of any custom services.
In the determination of the contributions to be made to the Fund, all employees including those who work part-time and temporary employees are included in the assessment. Also, all allowances and entitlements paid to such employees within or outside Nigeria are calculated when considering the total payroll of an employer.
The IDTF Act further imposes a duty on employers to provide training for their indigenous staff to improve their job-related skills. It also provides that the Fund's Council may make a refund of up to 50% of the amount paid by an employer where it is satisfied that its training program is adequate.
Failure to comply and make contributions within the stipulated period in a calendar year attracts a penalty of five per cent (5%) of the amount unpaid for each month or part of a month after the date on which payments should have been made.
- Nigerian Immigration Service (NIS)- filing of expatriate returns with the Nigerian Immigration Service (NIS) is also important compliance for companies having foreign employees. The returns are submitted at the NIS headquarters and the sections within the State where the company operates. For companies with expatriate employees who reside and work in Nigeria, they are required to comply and submit to the NIS a monthly expatriate monthly report on how the company has utilized the expatriate quota approval granted to them by the Ministry of Interior. The report is to contain information on any visiting expatriate to the company, their nationality, arrival or exit, and their area of residence in Nigeria. Failure to comply with the requirements of the NIS and submit the expatriate monthly returns to the relevant offices amounts to a violation and attracts a fine or conviction on the defaulting company. Section 105 of the Immigration Act 2015 provides that “any corporate body that refuses to render expatriate monthly returns shall be liable on conviction to a fine of N3, 000,000 (Three Million Naira) or its Dollar equivalent”.
- Financial Reporting Council (FRC)- another corporate compliance for companies is the registration with the Financial Reporting Council. The FRC is empowered to oversee compliance with accounting, auditing, corporate governance, and financial reporting standard in Nigeria by companies, therefore, all companies that are involved in financial reporting activities must be registered and comply with the requirements of the FRC.
- Special Control Unit against Money Laundering (SCUML) Registration- Corporate compliance also extends to the registration of designated non-financial institution companies with the Special Control Unit against Money Laundering. This organization was created in compliance with the Money Laundering Act 2004. This registration is done at the Economic and Financial Crimes Commission (EFCC) and through this form of registration; companies can actively protect themselves against money laundering. Companies are expected to comply with the provisions of the law that regulates the registration with this organization to avoid being sanctioned for non-compliance.
Effects of Non-Compliance
Companies that fail to comply with the various requirements that regulate a company in Nigeria face the risk of being sanctioned by the relevant authorities regulating it. Sanctions for non-compliance of companies could be in form of fines and penalties which could, in turn, affect the revenue made by the defaulting company; it can also have a negative impact on the cash flow of the company and disruption of the business activities of the company.
Non- compliance can also bring bad publicity to the company, thereby affecting the brand integrity of the defaulting company. It can also lead to revocation and withdrawal of the license, permits, or grants issued by relevant authorities in the applicable sector of the company.
Regulatory compliance is an intentional function that forms an integral part of the way business is operated by companies in Nigeria. For companies to operate in Nigeria without any or reduced management risk, it must comply with the above-highlighted statutory provisions.
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.