Regulatory compliance requirements for companies operating in Nigeria

Introduction

Regulatory compliance is important for any company and forms the foundation that enables businesses operate smoothly and sustainably. For companies operating in Nigeria, the first step in the regulatory compliance process is incorporating the business with the Corporate Affairs Commission followed by registration with relevant industry regulators, where applicable. Once the company is successfully incorporated, there are various regulatory requirements that must be met to ensure that the company can continue to operate legally in Nigeria.

In this newsletter, we have highlighted some of these key compliance requirements.

1. Corporate Affairs Commission (CAC)

All companies registered in Nigeria are mandated to file annual returns with the CAC. The annual returns are to be filed within 18 months of incorporation and subsequently on an annual basis. These returns must be accompanied by the company’s audited financial statements or audited accounts for the relevant financial year.

The deadline for filing returns with the CAC is 14 days after a company’s general meeting for the year, but no later than June of that year. Late filings attract penalties for each year of non-compliance.

2. Nigeria Data Protection Commission (NDPC)

Companies that collect or process personal data of over 1,000 Nigerians within a 6-month period or handle the personal data of more than 2,000 Nigerians within a year, are mandated to submit an annual Compliance Audit Report (CAR) to the Nigeria Data Protection Commission (NDPC) through a certified Data Protection Compliance Organisation (DPCO). The DPCO will review the company’s data protection policies, evaluate its systems and practices, and assess staff knowledge before making recommendations.

A summary of the CAR for the previous year must be submitted to the NDPC no later than March 15 of the current year. Failure to meet this deadline will result in a penalty of 50% of the filing fee.

3. Tax Compliance

Companies are required to file the taxes as set out below to the Federal Inland Revenue Service (FIRS) and Inland Revenue Service of States respectively 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 2% 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 10% of the tax not withheld or remitted.
• 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 in the first month and ₦25,000 for each subsequent month of default. It is important to note however that 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, all exported goods and services, equipment and infrastructure related to the expansion of compressed natural gas and liquefied petroleum gas amongst others.
• Personal Income Tax: Companies are required to withhold and file the personal income tax of their employees to the internal revenue service of the state where the employees reside. This income tax is also known as Pay As You Earn (PAYE). In Lagos State, for example, employers must begin deducting tax from employee salaries six months after the company commences operations. The deducted are to be remitted to the Lagos Internal Revenue Service (LIRS).

The deadline for remitting PAYE is before the 10th of the month following the deductions. Also, returns must be filed with the LIRS by January 31st for the preceding year.

4. Labour and Employment Compliance

Companies are required to meet the requirements set out below in respect to labour and employment.

• Industrial Training Fund (ITF): Companies are required to contribute 1% of the total sum of their annual payroll to the ITF. 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 from this remittance requirement. Payments are required to be made on or before the 1st of April each year. Where eligible 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.
• Nigeria Social Investment Trust Fund (NSITF): The NSITF was 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.
• 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 at least 2% of the total outstanding pension contributions that remain unpaid, in addition to the already outstanding contributions.

Conclusion

Please note that this list is not exhaustive, as companies may be subject to additional compliance requirements based on their industry or sector. Meeting all compliance obligations is important as it enables companies to remain legally compliant, avoid regulatory sanctions, and foster trust in their brand among customers. It is advisable that companies doing business in Nigeria liaise with legal advisers to help create a tailored compliance checklist for ease of operations.