Compliance is not merely a box-ticking exercise; rather, it lays the foundation for sustainable growth, ethical operations, and legal compliance.
As a budding entrepreneur or an established business leader, understanding and adhering to compliance regulations is crucial to mitigate risks, protect stakeholders’ interests, and unlock growth opportunities.
Nigeria has made significant strides in improving its ease of doing business index, ranking 131 out of 190 economies, according to the latest World Bank annual rankings. This progress highlights the country’s commitment to creating a conducive environment for businesses to thrive.
From tax obligations and company registration to employment laws and intellectual property rights, these regulations form the framework within which businesses must operate. Failing to comply with these regulations can lead to severe penalties, reputational damage, and even legal consequences.
Therefore, in part 1 of this article series, we’ll explore 3 important compliance regulations that all Nigerian businesses must be well-versed in.
Compliance Regulation 1: Tax Regulations
Nigeria has a complex tax system that encompasses various types of taxes, including corporate income tax, value-added tax (VAT), personal income tax, withholding tax, and others. The Federal Inland Revenue Service (FIRS) is responsible for administering and enforcing tax regulations in the country.
You are required to register your business with the FIRS and fulfill their tax obligations based on the applicable tax laws. Tax laws in Nigeria outline the procedures for tax registration, tax filing, payment deadlines, allowable deductions, and other relevant provisions.
Nigeria’s tax-to-GDP ratio remains relatively low compared to other countries, indicating low tax compliance and tax morale. The Nigerian government has been implementing various initiatives and reforms to enhance tax compliance and increase revenue generation.
For example, the Voluntary Assets and Income Declaration Scheme (VAIDS), introduced in 2017, allows individuals and businesses to declare undisclosed assets and income, paying outstanding taxes without penalties or prosecution. The aim was to broaden the tax base, improve compliance, and boost revenue.
To simplify tax processes and improve transparency, the government introduced online tax registration and filing systems like the Integrated Tax Administration System (ITAS) and TaxPro-Max. These systems streamline processes, reduce bureaucracy, and improve the ease of doing business.
Enforcement of tax compliance has been strengthened through increased audits, investigations, and stricter penalties for non-compliance. These measures discourage tax evasion and encourage voluntary compliance.
Nigeria has also engaged in international collaborations, including participation in the Base Erosion and Profit Shifting (BEPS) framework developed by the OECD. This collaboration aims to strengthen tax administration and combat cross-border tax evasion.
If your business is found to be non-compliant, you may face legal proceedings, asset seizures, and other enforcement measures. This is why getting your tax identification number is very important to your business, no matter its size.
We’ve written a guide explaining how to navigate tax registration: Get Your TIN In Nigeria: Follow This Simple 9-Step Express Guide
Compliance Regulation 2: Company Registration and Corporate Affairs
Registering a company in Nigeria involves a series of steps and legal requirements. It is a crucial aspect of establishing a business and ensuring its compliance with Nigerian laws and regulations. The process typically includes the following key elements:
- Choosing a business name: Select a unique and suitable name for the company that complies with the guidelines set by the Corporate Affairs Commission (CAC).
- Reservation of the business name: Applying to the CAC for the reservation of the chosen business name to prevent others from using it.
- Preparation of required documents: Gather the necessary documents, such as identification, memorandum, articles of association, forms, and other relevant legal documents.
- Submission to the CAC: Submitting the completed documents and paying the requisite fees to the CAC for review and processing.
- Verification and approval: The CAC verifies the submitted documents and conducts due diligence to ensure compliance with legal requirements. Once approved, the company is officially registered and issued a Certificate of Incorporation.
Legal obligations and compliance requirements for registered businesses
After the company is registered, it becomes subject to various legal obligations and compliance requirements. These obligations may include:
- Filing of Annual Returns: Registered businesses must file annual returns with the CAC, providing updated information about the company’s operations, financial statements, and other relevant details.
- Maintenance of Statutory Records: It is essential for registered companies to maintain accurate and up-to-date statutory records, including registers of members, directors, shareholders, and minutes of meetings.
- Compliance with Tax Laws: Registered businesses are obligated to comply with Nigerian tax laws and fulfill their tax obligations promptly. This includes filing tax returns, remitting taxes, and maintaining proper accounting records.
- Appointment of Company Secretaries and Directors: Compliance regulations require companies to appoint qualified individuals as company secretaries and directors, ensuring proper corporate governance and adherence to legal standards.
- Corporate Governance: Registered companies must adhere to corporate governance principles and guidelines to ensure transparency, accountability, and ethical business practices.
This article will help: Step-by-Step Guide to Registering Your Limited Company in Nigeria
Registering your company gives it legal recognition and protection, separating your personal assets from business liabilities. This instills credibility and trust, enhancing your reputation and opening doors to business opportunities, including government contracts and partnerships.
Investors are more likely to be attracted to registered companies due to the transparency and adherence to the legal standards they demonstrate. Moreover, compliance with regulations ensures your business operates within the law, reducing the risk of penalties or legal disputes.
Compliance Regulation 3: Employment Laws and Regulations
These laws ensure fair treatment of employees, protect their rights, and promote a healthy working environment, therefore adherence is of utmost importance for businesses.
Employers are required by law to provide written employment contracts that cover essential aspects such as job responsibilities, remuneration, working hours, leave entitlements, and termination procedures. These contracts must comply with legal requirements and ensure fairness for both parties involved.
Additionally, Nigerian labor laws establish a minimum wage of ₦30,000 per month, with the possibility of higher minimum wage requirements in certain sectors or states. Employers must ensure timely and accurate payment of salaries and benefits, meeting at least the minimum wage threshold.
The maximum working hours for employees are set at 8 hours per day or 40 hours per week, with any work beyond these limits considered overtime, entitling employees to additional compensation or time off in lieu of overtime pay.
Nigerian labor laws also provide for various types of leave entitlements, including annual leave, maternity leave, paternity leave, sick leave, and public holidays. Employers must comply with these provisions and ensure that employees receive their entitled leave benefits.
Furthermore, employers are required to create a safe and healthy working environment, implement preventive measures, provide necessary safety equipment, conduct regular risk assessments, and promote occupational health and safety awareness.
Non-compliance with Nigerian employment laws can have serious repercussions including legal penalties, reputation damage, employee discontent and turnover, and employee litigation.
The landscape of compliance regulations presents both challenges and opportunities for Nigerian businesses. Part 1 of this article shed light on three critical areas: tax regulations, company registration and corporate affairs, and employment laws.
While compliance can be perceived as a burden, it also offers advantages for businesses that approach it strategically. Actively complying with tax regulations can not only avoid penalties but also optimize your financial operations and build trust with stakeholders.
Company registration and adherence to corporate affairs regulations provide businesses with a solid legal foundation, protecting their interests and enabling them to access various government incentives and benefits.
Complying with employment laws fosters a positive work environment, boosting employee morale and productivity.
Part 1 of this article has laid the foundation, and in Part 2, we will delve into additional compliance regulations to further empower businesses in navigating the regulatory landscape.