Every country makes laws and rules to regulate business activities. These laws, with varying degrees of success, facilitate good business practices, protect stakeholders, and improve the ease of doing business. Various laws, rules, and regulations guide doing business in Nigeria. They address aspects of running a business, such as sales of goods, corporate governance, capital acquisition, foreign investment, taxation, insurance, etc. This article, which is in 2 parts, is a basic guide to some of these laws.
TAXATION
Governments expend considerable sums on capital projects and recurrent expenditures. This spending drives the need for a means of revenue generation to ensure they can continue to meet their obligations. They impose taxes on goods, profits, properties, individuals, and businesses as a primary or supplementary means of revenue generation.
- Federal Inland Revenue Service (Establishment) Act 2007
The Act established the Federal Inland Revenue Service (FIRS). It is charged with the assessment and collection of Federal taxes on individuals and other entities, such as the Companies Income Tax, Value Added Tax, etc. Non-remittance of taxes is an offence, and the Act empowers the FIRS to investigate and discipline defaulters, including locking down defaulting and recalcitrant businesses.
- Revenue Laws of Each State
Each state in Nigeria has an internal revenue service, which is created by the revenue law of the state. The state’s internal revenue services are empowered to collect state taxes like the Personal Income tax, which all employers are expected to remit on behalf of their employees, and which every self-employed Nigerian is expected to remit voluntarily.
- Companies Income Tax (Amendment) Act
The Act imposes a tax on the annual earnings of companies in Nigeria. Companies with an annual turnover of more than ₦25 million but less than ₦100 million are charged at 20% and companies with an annual turnover of more than ₦100 million are charged at 30% respectively. The Act exempts companies with an annual turnover of less than ₦25 million. Newly registered companies must file tax returns within 18 months after registration, or no later than six months after the end of the first accounting period.
Payments made under a Securities Lending Transaction and distributions made by a Real Estate Investment Trust Company are exempt but are subject to withholding tax. Non-resident companies are also subject to withholding tax deductions on the income they earn from Nigeria.
- The Industrial Development (Income Tax Relief) Act
The Act provides for the grant of Pioneer Status to businesses. This grant exempts a company from taxes for 3-5 years. The tax holiday is an investment incentive designed to drive growth in new or underdeveloped sectors of the economy. Upon successful application, the Federal Ministry of Industry, Trade, and Development grants a Certificate of Pioneer Status to the business.
- Value Added Tax Act
The Act imposes a 7.5% Value Added Tax (VAT) on consumable goods and services. It requires companies to pay taxes on goods and services that are consumed by individuals, corporate organizations, and others. It exempts medical and pharmaceutical products, books, educational materials, staple foods, food additives, all exported goods and services, and sanitary towels produced locally. Goods and services purchased by diplomats and goods purchased in Nigeria for humanitarian use are also exempted.
While VAT is charged to the final consumer, it is often collected by businesses and subsequently remitted to the FIRS.
- Capital Gains Tax Act
The Act regulates capital gains tax in Nigeria. Capital gains tax is payable on profits made by any person/business on the disposal of assets for the year of assessment. It is chargeable on all forms of tangible and intangible property. It will be charged on assets located outside Nigeria if any amount from it is received or brought into Nigeria. It is charged at a rate of 10%. Capital gains tax is not chargeable on profit from the acquisition of shares of a company that is either taken over, absorbed, or merged.
Ecclesiastical, charitable, or educational institutions of a public character; statutory or registered friendly societies; cooperative societies under the cooperative societies law of any state; trade unions registered under the Trade Unions Act; and local government councils are exempt from paying capital gains tax.
- Industrial Training Fund Act
The Act requires employers to contribute 1% of their annual payroll to the Industrial Training Fund created under it. The Act applies to every employer with more than five employees. It also applies to employers with less than five employees who have an annual turnover of up to ₦50 million.
- Education Tax Fund Act
The Act levies a tax on all companies in Nigeria at the rate of 2% of their annual profits. This goes to the Educational Trust Fund and is used to carry out educational projects.
- Stamp Duties Act
The Act levies stamp duties on both physical and electronic instruments either according to their value or at fixed rates.
EMPLOYEES
There are laws in place stating the obligations of employers and employees, as well as mechanisms available in the case of a dispute, injury, or claim.
- Labour Act
The Act is the primary law regulating employer-employee relations in Nigeria. It covers only workers employed for clerical work or manual labour, excluding administrative, executive, technical, and professional staff. Employers are required to provide a contract of employment to their employees stating the terms and conditions of employment, within the first 3 months of employment.
The Act prohibits any attempt by employers to prevent their employees from joining registered trade unions or include terms that require renouncing membership of one in the contract of employment. The Act also provides for rest breaks, sick and maternity leaves, holidays, and the transfer or termination of employment.
- National Industrial Court of Nigeria (NICN) Act 2006
The National Industrial Court of Nigeria was specially established to entertain matters that may arise from labour issues. It has jurisdiction over all labour and employment matters and industrial relations. The establishment of the Industrial Court facilitates the speedy resolution of industrial and labour disputes thus enabling a healthier business environment.
- Nigerian Immigration Service (NIS) Act 2015
The Act regulates the employment of foreign nationals and expatriate employees and applies to employers of foreign nationals. Employers who wish to employ foreigners must get authorization approving the maximum number of expatriates they can employ, their job titles, and term of employment.
Employers must show that there are no suitably qualified Nigerians to fill those positions. Where approval is granted, Nigerians are expected to be trained to fill the positions over time. Foreign employees must get visas at Nigerian embassies abroad. This could be a Subject To Regularization visa or a Combined Expatriate Residence Permit and Alien Card (CERPAC). These documents are required to gain entry into Nigeria and stay for a certain period.
Foreigners need a Business Permit to register and do business, and an Expatriate Quota where they intend to employ foreigners, either as a director or staff.
COMPETITION AND CONSUMER PROTECTION
A competitive economy thrives by letting new businesses, technologies, and products compete in the open market. This ensures that only the best survive while giving consumers access to better products and prices. As large companies bear the brunt of competition, they often resort to hostile practices to acquire competing businesses or force them out of the market. As such, laws are made to check their monopolistic tendencies.
- Federal Competition and Consumer Protection (FCCP) Act 2019
The Act established the Federal Competition and Consumer Protection Commission (FCCPC) to regulate competition in Nigerian Markets, combat adverse market practices, and protect and promote the interests and welfare of consumers by providing access to a wider variety of quality products at competitive prices.
The Commission regulates mergers and acquisitions to ensure that they do not adversely affect competition. The Act also empowers it to seal up premises suspected of harbouring fake or substandard products and publish a list of goods banned or restricted.
APPROVALS
Businesses in some sectors must obtain approval (permits, licenses, and certifications) from regulatory bodies to provide goods and services. This allows regulatory bodies to supervise the businesses, ensure customers’ safety, and ensure the expertise of the persons involved.
- Finance Act, 2020
The Act mandates every taxpayer to acquire a Tax Identification Number (TIN). Persons and businesses need a TIN to operate, as essential activities like obtaining licenses and permits require a Tax Clearance Certificate, which bears the TIN. Applicants for a Money Lenders License, Department of Petroleum Resources Permit, Certificate of Residence, etc., require a TIN.
- National Agency for Food and Drug Administration and Control (NAFDAC) Act
The Act established NAFDAC to supervise and regulate persons or businesses that manufacture certain foods or drugs. Failure to obtain NAFDAC approval before distributing drugs, processed food, or food materials may lead to the seizure of such products.
- Money Lenders Act
The Money Lenders Act of various states provides for the grant of a Money Lending License to persons intending to open a money lending business. After a successful application to the Chief Magistrate in the jurisdiction of the intended operation, a lending license is issued to the person. Failure to acquire this may prevent a person or business from recovering money lent to a defaulter through the court.
- Banks and Other Financial Institutions Act
The Central Bank of Nigeria (CBN) is the primary body responsible for regulating financial services and institutions in Nigeria. The Act empowers it to issue licenses to companies designated as financial institutions under its provisions. It prohibits any company from carrying out FinTech services in Nigeria without approval or a license from the CBN. The CBN can vary the requirements for obtaining licenses, issuing legal tender, etc., from time to time. It also requires a foreign business intending to import capital to obtain a Certificate of Capital Importation from an authorized dealer, i.e., a bank.
E-COMMERCE
With the increasing adoption of the internet, people are now doing more online. From finding love to booking cheaper flights, the internet offers a lot. The presence of more people online is driving more businesses towards e-commerce. In addition to the usual laws, the novel aspects of e-commerce require regulation.
- Nigeria Information Technology Development Agency (NITDA) Act
The Act established NITDA, whose main role is to establish a National Electronic Commerce Council (NECC) to govern electronic commerce users and businesses in Nigeria. All companies or persons engaged in e-commerce business must register with the agency.
All the laws above apply to e-commerce businesses as well. Like physical businesses, e-commerce businesses are required to register with the CAC and acquire the necessary approvals needed by their physical counterparts. Businesses must also be aware of the data protection provisions of the NITDA.
You can check our article on data protection guidelines for businesses.
Conclusion
In conclusion, the laws and agencies discussed above are not exhaustive. There are other laws, and the government has and continues to make rules and regulations through its agencies to regulate business activities. Other important government agencies regulating businesses in Nigeria include the Economic and Financial Crimes Commission, which investigates economic crimes and prosecutes offenders, the Nigeria Customs Service, and the Standards Organization of Nigeria, among others.
