20 THINGS AN ENTREPRENEUR NEED TO KNOW POST-INCORPORATION/REGISTRATION OF THEIR NEW BUSINESS IN NIGERIA
Incorporation refers to the legal process used to form a new corporation. A corporation may be a business, a non-profit organization, a club, a charity organization, an association, etc.
In Nigeria, under the provisions of the Companies and Allied Matters Act (CAMA) 1990, the Corporate Affairs Commission (CAC) is the statutory body legally empowered to incorporate a business.
Once the Certificate of Incorporation is issued to a business, it then means the business is a legal entity, distinct and separate from its owners.
A company’s duties and obligations do not cease upon incorporation.
This new status of incorporation endures indefinitely – subject to the observance of a set of conditions stipulated by the CAMA and enforced by the CAC. These set of conditions/activities are known as Post-incorporation requirements.
This article seeks to enlighten readers to ensure that they are aware and conversant with the different post-incorporation requirements and the documentary requirements applicable.
Below are some post-incorporation requirements expected of a Nigerian entrepreneur/small business owner.
Business Entity Concept
According to the business entity concept, every business is considered to be separate and distinct from its owners. Business transactions are recorded in the books of accounts from the business point of view and not owners.
Owners being separate from the business are considered creditors of the business to the extent of their capital.
Keep a Separate Bank Account (Business and Personal)
One of the most important things a newly incorporated company should do is to open a bank account for their business. Most business owners make the mistake of using a personal bank account for their business.
Having a separate account for your business will enable you to easily separate your business and personal expenses, which will help you reconcile your accounts when it’s time to complete your annual returns.
Separate your account from the business account.
Insurance protects your business against unforeseen circumstances and events that might occur during the course of running your business. Insurance for an electronics/appliances company covers the following:
Goods in transit;
As a business owner, it is important that you get insurance an insurance cover for your business.
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A company incorporated in Nigeria is required to be registered with the relevant tax authorities for tax purposes. Following the incorporation of the company, a Tax Payer Identification Number (TIN) is automatically generated for the new company. This TIN is to be used when remitting taxes due to the Federal Government. Taxes imposed by State Governments require separate taxpayer registration.
Types of Taxes
Value Added Tax
A taxable person shall upon commencement of business, register with the FIRS for VAT.
VAT is charged at a rate of 7.5%
Businesses with turnover below ₦25,000,000:00 (Twenty-five Million Naira) are exempted from VAT payments, while VAT registration is compulsory when a business crosses the VAT threshold which is ₦25,000,000:00 (Twenty-five Million Naira).
Paragraph 4 (Section 37 of the Finance Act, 2019) states: “Where a person to whom taxable supplies are made in Nigeria is issued an invoice on which no tax is charged, such a person shall, self-account for the tax payable and remit the output tax to the service…”
The implication of this is that a small company is exempted from output VAT i.e VAT on the sales invoice.
However, if a small company is involved in a transaction with a large company, the small company is expected to pay VAT on the purchase invoice but if a small company is involved in a transaction with another small company, VAT would not be paid by either of the small company.
Hotel occupancy and restaurant consumption tax
It is a tax imposed on goods and services consumed in hotels, bars, restaurants and event centres within Lagos State. This tax is payable by the consumers who purchase these goods and services. The hotels, bars, restaurants and event centres serve as collecting agents for LIRS
Withholding tax is an advance payment of income tax deducted at source from payment accruing or made to individuals or corporate entities in respect of income receivable for service(s) rendered or from investment and remittance of same to the Relevant Tax Authority in line with the provisions of Personal Income Tax (PITA) and Companies Income Tax Acts (CITA).
Company Income Tax
Under the tax law (Finance Act 2019), companies are categorized for corporate tax liability by annual gross turnover.
A small company is defined as a company which has an annual gross turnover of ₦25,000,000.00 (Twenty Five Million Naira) and below. Such a company is exempted from paying Company Income Tax.
A medium-sized company is defined as a company having an annual gross turnover of over ₦25,000,000.00 (Twenty Five Million Naira) per annum but below ₦100,000,000.00 (One Hundred Million Naira). Such an entity pays Companies Income Tax at the rate of 20%.
A large company is defined as a company with an annual turnover greater than ₦100,000,000.00 (One Hundred Million Naira) and it pays Companies Income Tax at the rate of 30%.
Gross turnover is defined as the gross inflow of economic benefits (cash, revenues, receivables, other assets) arising from the operating activities of a company, including sales of goods, the supply of services, receipt of interest, rents, royalties or dividends.
The new Act includes a provision that grants to all companies engaged in agricultural production in Nigeria, an initial tax-free period of five years renewable for an additional three years subject to the determination of the satisfactory performance of such company.
Personal Income Tax
Tax is imposed on individuals who are either in employment or are running their small businesses, under a business name or partnership.
Though the collection of Personal Income Tax is a federal responsibility, this tax is generally collected by state governments from those that are resident in their various states, regardless of whether they are federal, state, local government, or private-sector workers. The Federal Inland Revenue Service, also collects this tax but only from residents of the Federal Capital Territory as well as what may be described as a highly mobile federal worker; staff of the Ministry of Foreign Affairs, other Nigerians and foreigners outside the country but earning income in Nigeria (non-residents), expatriate workers resident in Nigeria, Police Officers, and Military Officers.
Civilians working in Police and Military formations, however, pay to their respective States of residence.
The current law guiding the taxation of personal incomes is the Personal Income Tax Act (Cap P8 LFN 2004). Under the law, Federal and States’ tax boards are empowered to identify persons living in or earning income from Nigeria who is required to pay tax and to assess incomes and tax their incomes using specified guidelines and rules.
Income from employment shall be deemed to be derived from Nigeria and therefore taxable in Nigeria if:
The duties of such employment are performed wholly or partly in Nigeria, unless:
the employer is not resident in Nigeria and the remuneration of the employee is not borne by a fixed base of the employer in Nigeria, and
the employee is not in Nigeria for an aggregate of 183 days (inclusive annual leave or temporary period of absence) or more in any 12 calendar month period, and
the employee’s income is liable to tax in that other country/territory under the provisions of the avoidance of double taxation treaty with that other country/territory.
Note that all the conditions listed above must be jointly met for the expatriate to be exempted from taxes in Nigeria.
The employer is in Nigeria or has a fixed base in Nigeria.
The concept of residence is critical in determining the relevant tax authority to assess and collect taxes.
Under the PIT Act, a person’s place of residence is defined as a place available for their domestic use in Nigeria on a relevant day. This excludes hotel, rest house or other places at which they are temporarily lodging unless no more permanent place is available for their use on that day.
Once a place of residence is determined, the relevant tax authority is the tax authority of the territory in which the taxpayer has their place of residence or principal place of residence, as the case may be. For example; if an employee resides in Oyo State but works in Lagos State, the relevant State Internal Revenue Service (SIRS) will be the Oyo State Internal Revenue Service (OIRS).
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Two types of PIT
Pay-As-You-Earn (PAYE) i.e. taxes from employment
PAYE is an acronym for “Pay as You Earn”. It is a method of collecting personal income tax from employees’ salaries and wages through deduction at source by an employer as provided by the relevant sections of the Personal Income Tax Act (PITA). (S.81 of Personal Income Tax Act Cap P8 LFN 2011).
Taxes from self-employed persons (Direct Assessment)
Direct Assessment is an assessment raised directly on self-employed persons (eg. Professionals, Contractors, Traders, Landlords etc).
The self-employed person will without notice or demand, file a return of income earned in the preceding year.
Business Premises Levy
It is a tax on property used for the production of income including rental houses, office buildings, factories etc. Business premises amounts to ₦10,000 for registration and then ₦5,000 for renewal in subsequent years for urban areas and ₦2,000 / ₦1,000 respectively in rural areas.
Filing of Annual Returns
The Annual Returns of a company is a yearly statement which gives essential information about a firm’s composition, activities, and financial position, and which must be filed by every active incorporated firm with an appropriate authority.
In Nigeria, it is a statutory requirement that all duly registered businesses and companies submit their annual returns yearly to the CAC.
New companies may not file its return within the first 18 months of its incorporation, while for older companies, the annual return is due no later than 42 days after its Annual General Meeting. Section 374 CAMA.
For Business Names:
Partnerships, Business Ventures and all other types of organizations registered as Business Names need not submit Annual Returns for their first year of operation after registration. For subsequent years, however, the business is required to file its Annual Returns and make payments of the applicable fees on or before the 30th day of June of each year.
Very vital importance is that filing of the annual return by a company helps to keep the Corporate Affairs Commission (CAC) aware that such company is still actively in operation and still engaging in business activities or otherwise.
Get a tax advisor
It is always a good idea to get a tax advisor. A brief meeting with a tax advisor can give you valuable insight into how you should file your taxes as an entrepreneur.
Advantages of hiring a tax advisor
- Structuring the affairs of the business to minimize tax liability
- Keeping the business compliant with their tax obligations
- Knowledge of recent changes in tax laws
- Expert Assistance
Whether you are a small business who needs tax services or an individual looking for tax preparation assistance, Call 0802320801, 08075765799 or send us an email via email@example.com
Keeping good records is vital for any business. Whether it’s to help manage your costs, whether it’s for legal, regulatory or tax purposes, or simply to help manage and improve your business. Collecting, storing and effectively analyzing your data is vital.
Obtain Necessary Permits
It’s always necessary to get one’s business registered with a related body. This is because most businesses are supervised by associations. Often, there are fees to be paid before becoming a member of these associations.
Industrial Training Levy
Employers having 5 or more employees or less than 5 employees but with an annual turnover of at least Fifty million naira are eligible to contribute a levy of 1% of the annual payroll of the employer to the industrial training fund.
There is an obligation to have a training programme for employees, of which 50% of the training costs paid by the employer is refunded on application.
Standards Organisation of Nigeria (SON)
The Standards Organisation of Nigeria (SON) is the apex standardization body in Nigeria. The aim of the body is the; preparation of the standards relating to products, measurements, materials, certification of industrial products and assistance in the production of quality goods. A business into manufacturing and importation of goods should endeavour to register its products with the standards organization of Nigeria.
Contributory Pension Scheme
The National Pension Commission (PenCom) is the body set up to regulate, supervise and ensure the effective administration of pension matters in Nigeria. The minimum contribution for the employer is 10% while the minimum contribution for the employee is 8%.
Penalty for Non-Compliance with Pension Reform Act
Non-remittance of the contributions as at when due attracts penalty to be stipulated by the commission as enshrined in Section 11(6) &(7) and Section 24(d) of the Pension Reform Act (PRA), 2014. The penalty shall not be less than 2% of the unpaid contribution and is recoverable as a debt.
National Agency for Food and Drug Administration and Control (NAFDAC)
NAFDAC is the agency authorized to regulate and control the manufacture, exportation, importation, advertisement, sale, distribution and use of drugs, cosmetics, packaged water, packaged foods and snacks and chemicals (collectively known as regulated products) in Nigeria. It is important for an entrepreneur that is into either the manufacture, exportation or importation of any of the regulated products to register with the National Agency for Food and Drug Administration and Control.
Issuing Employment Contracts
Request the services of a lawyer to prepare the employment contracts and work manual for your staff and ensure you comply with the requirements under the Labour Act to avoid legal liabilities.
The employment contract should address the following
- Salary details
- Confidentiality guidelines
- Details of the position offer, including job title
- Duties and responsibilities that the job role entails
- The duration of employment
- Details of any benefits such as holiday entitlement, pension, bonuses, health insurance plans etc
- Restrictive covenants (if any)
- Reasons and grounds for termination
Also If your business is offering a service, you should have a contract for every client you engage.
When you run a business, you assume responsibility for the well-being of a range of people, from employees to customers. Your business activities have the potential to affect these stakeholders in serious and costly ways, and business insurance protects you financially from some of these consequences.
Expatriate Quota Approval (Non-Nigerians)
In Nigeria, a company that wishes to employ a foreigner is expected to obtain the expatriate quota approval before processing a temporary work permit or Combined Expatriate Residence Permit and Alien Card (CERPAC). It is important to note that regulations 11 of the 2017 Immigration Regulations exempt member states of the Economic Community of West African States (ECOWAS) from obtaining CERPAC provided that such citizen shall register with the service as nationals of ECOWAS.
The application of expatriate quota is granted by the Minister of Interior Affairs to foreign or indigenous companies to enable foreign employees, directors or owners of businesses work in Nigeria.
The expatriate quota is of two types namely;
- Temporary expatriate quota
- Permanent until Reviewed
Resident Permit and VISA (Non-Nigerians)
The Nigerian law requires non-Nigerians who wish to enter Nigeria and or reside in Nigeria to comply with the regulations made under the Nigerian Immigration Act.
It is imperative to state that foreigners working in Nigeria are required to apply for a work permit.
Employee Compensation Scheme
The Employee’s Compensation Act, 2010 is a publication of the Federal Government which commenced 17th day of December 2010.
It was enacted basically to address the patent errors, loopholes and some other areas not covered and repeals the Workmen Compensation Act CAP. W6 LFN 2004.
The Act provides a shield and guides the employees who suffer from occupational diseases or sustain injuries arising from accidents at the workplace or in the course of discharging their duty(ies) in the workplace or off workplace but sent by the employer. The act applies to all employers and employees in the public and private sectors in the Federal Republic of Nigeria. Every employer is required to make a minimum monthly contribution of 1% of the total monthly payroll into the employee compensation fund.
Penalty for Non-Compliance with the Employee Compensation Scheme
Anyone who falls short of the provisions in the Act and fails to comply with the provisions in any Section of this Act and there is no penalty prescribed, such offender, shall be liable on conviction to a fine of ₦20,000 for the first case or jail term of not more than a year and ₦100,000 on subsequent cases. The offender may even be punished with fine and imprisonment.
In conclusion, the Act has the best welfare package for workers across all board or spheres of work making it a point of duty that no one suffers loss or injury without being compensated to ease the patient pain and further help the person recover on time for partial injury.
Special Control Unit against Money Laundering Registration (SCUML) Registration
SCUML is the body charged with the responsibility of monitoring, supervising and regulating the activities of Designated Non-Financial Institutions (DNFIs) and professions in Nigeria in line with the Money Laundering (Prohibition) Act ML(P)Act 2011 and the Prevention of Terrorism Act (PTA) 2011.
The Act defines Designated Non-Financial Institutions (DNFIs) as dealers in jewellery, cars and luxury goods, Precious stones and metals, Real estate, Estate developers, Estate Surveyors and Valuers, Estate Agents, Chartered Accountants, Audit firms, Tax consultants, clearing and settlement companies, hotels, casinos, supermarkets, Dealers in Merchanised Farming equipment and machinery, Practitioners of Mechanised farming, Non-Governmental Organisations (NGOs) or such other businesses as the Federal Ministry of Trade and Investment or appropriate regulatory authorities may from time to time designate.
Other regulatory agencies that you need to know include:
The Consumer Protection Council (CPC)
The CPC is a parastatal of the Federal Government of Nigeria, supervised by the Federal Ministry of Trade and Investment. The Consumer Protection Council’s aim among others, is to eliminate hazardous products from the market; and causing offenders to replace such products with safer and more appropriate alternatives; provide speedy redress to consumers complaints through negotiation, mediation and conciliation; to undertake campaigns that will lead to increased consumer awareness, ensure that consumers interest receive due consideration at the appropriate forum, and encourage trade, industry and professional associations to develop and enforce in their various fields quality standards designed to safeguard the interest of consumers.
The Nigerian Investment Promotion Council (NIPC)
The Nigerian Investment Promotion Commission is a federal government agency, established with the sole responsibility of promoting industrialization in Nigeria through its support and assistance in promoting investment in Nigeria.
Be the agency of the Federal Government to co-ordinate and monitor all investment promotion activities to which this Act applies;
Initiate and support measures which shall enhance the investment climate in Nigeria for both Nigerian and non-Nigerian investors;
Promote investments in and outside Nigeria through effective promotional means;
Collect, collate, analyze and disseminate information about investment opportunities and sources of investment capital, and advise on request, the availability, choice or suitability of partners in joint-venture projects;
Register and keep records of enterprises to which this Act applies;
Identify specific projects and invite interested investors for participation in those projects;
Initiate, organize and participate in promotional activities such as exhibitions, conferences and seminars for the stimulation of investments;
Maintain liaison between investors and Ministries, Government Departments and Agencies, institutional lenders and other authorities concerned with investments;
Provide and disseminate up-to-date information on incentives available to investors;
Assist incoming and existing investors by providing support services;
Evaluate the impact of the Commission on investments in Nigeria and make appropriate recommendations;
Advise the Federal Government on policy matters including fiscal measures designed to promote the industrialization of Nigeria or the general development of the economy; and
Perform such other functions as are supplementary or incidental to the attainment of the objectives of the Act.
- The Securities & Exchange Commission (SEC) for the regulation of securities issued to the Nigerian Public;
- Trademarks, Patent & Design Registry is responsible for registering, administering and regulating intellectual property rights relating to trademarks, patent and industrial design;
- Nigerian Copyright Commission (NCC) is responsible for intellectual property rights but as it relates to copyright; and
- National Film and Video Censors Board
- Central Bank of Nigeria
- Pharmacist Council of Nigeria
- Institute of Chartered Accountants of Nigeria
- Pharmacists Council of Nigeria
- Nigerian Investment Promotion Commission (NIPC)
- Securities and Exchange Commission
When businesses and companies continue to grow and expand, there may be significant changes in the company’s structure. It is a statutory requirement for the Corporate Affairs Commission (CAC) to be notified of such changes.
In Nigeria, it is mandatory to file a notice of any of these and other changes with the Corporate Affairs Commission (CAC) for record purposes and in compliance with the provisions of CAMA.
Such changes include but not limited to:
Change of name of the company or business
After incorporation, an existing business might decide to change its name. This could be due to merger and acquisition, change in the ownership of the business, etc.
The owners of such business must apply for a ‘Change of name’ with the Corporate Affairs Commission (CAC).
Change of Registered Address
When a business decides to change its registered address, it is advisable to apply for a “change of address” with the CAC.
Increase or decrease in the share capital of an incorporated company
Changes in the shareholding structure of the company
Change of company officials such as the Board of Directors or Company Secretary of an incorporated company,
Change in proprietorship in a registered Business Name,
It would be in the best interests of entrepreneurs to get informed of post-incorporation requirements and obligations and implement them to the latter, to continue enjoying the benefits of incorporation.
ABOUT THE AUTHOR
Ayoade Apelegan is a Chartered Accountant who enjoys reading anything in print. He currently works at MATOG Consulting (A management consulting firm in Nigeria)
If you require more information on how you should handle your companies post-incorporation requirements in Nigeria or any of the services highlighted you should buzz 08023200801 or email:firstname.lastname@example.org. You can also send us your request for proposal on: