Nigeria Info
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 Posted: Mon Mar 12, 2007 11:39 am Post subject: DOING BUSINESS IN NIGERIA / NIGERIA BUSINESS GUIDE |
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DOING BUSINESS IN NIGERIA / NIGERIA BUSINESS GUIDE
STARTING A BUSINESS
STANDARDIZED COMPANY
Legal Form: Private Limited Liability Company
Minimum Capital Requirement: 100,000
City: Lagos
Registration Requirements:
Procedure 1. Check the availability of company name with the Corporate Affairs Commission
Time to complete: 2 days
Cost to complete: NGN 200(application form)
Comment: The Corporate Affairs Commission has improved efficiency due to better utilisation of already existing technology. Only accredited customers of CAC can make this inquiry as the online system of name check will not process any name search inquiry without the customers' accreditation number.
Procedure 2. Prepare the requisite incorporation documents and pay the stamp duty
Time to complete: 7 days
Cost to complete: cost included in next procedure
Comment: Tasks include: preparing and printing the Memorandum and Articles of Association; completing the requisite statutory forms; and having the Memorandum and Articles of Association and Statement of Share Capital assessed and stamped by the Federal Board of Inland Revenue Service. The documents are stamped after payment of N500 for the original copy and N50 per counterpart. The fees and charges are frequently reviewed, the most recent having taken effect from 1 September 2003.
Procedure 3. Notarise the Declaration of Compliance (CAC Form CO1)
Time to complete: 1 day
Cost to complete: NGN 200
Comment: A sworn declaration that the requirements of the Companies and Allied Matters Act have been met, must be sworn to by:
(a) A barrister or solicitor engaged in the formation of the company or,
(b) A person named in the Memorandum and Articles of Association as a director or secretary of the company.
In High Court Oath is N200, but if before Notary public, cost varies and ranges from N500 and above.
Procedure 4. Register the company with the Corporate Affairs Commission
Time to complete: 18 days
Cost to complete: NGN 500 incorporation forms, + NGN 10,000 Incorporation fees (an extra NGN 50,000 for same-day processing), + 1.5% stamp duty paid on capital, + NGN 500 for each additional copy of Memorandum and Articles of Association stamped + NGN 3,000 for certified true copy of memorandum and articles of association, + NGN 2,000 for certified true copy of particulars of directors, +NGN 2,000 for certified true copy of particulars of shareholders.
The following incorporation documents are submitted to the Corporate Affairs Commission:
- Name reservation/availability form
- Two printed copies of Memorandum and Articles of Association stamped by commissioner for stamp duties
- Notice of Registered Address (Form CAC 2.2)
- Particulars of Directors (Form CAC 2.3)
- Statement of share capital (Form CAC 2.4)
- Return of allotment of shares (Form CAC 2.5)
The Corporate Affairs Commission which manages the Companies Registry effected a 100% increase in the statutory incorporation fees with effect from September 1, 2003. Incorporation fee is now NGN 10,000 for company whose nominal share capital does not exceed NGN 1,000,000, and NGN 10,000 for every NGN 1,000,000 thereafter. Procuring the certified true copy of the memorandum and articles and the particulars of directors and shareholders is absolutely necessary since these documents are mandatory for other start-up steps such as opening a bank account.
The Corporate Affairs Commission introduced the option of a "same-day" incorporation at an increased statutory fee 5 times above the cost for normal incorporation. In June 2005, the Corporate Affairs Commision (CAC) commissioned an online system. This system provides for an option for online registration of a company, whereby the completion of registration documents and payments may be done electronically by CAC accredited lawyers. However, the system is not fully implemented, yet.
Procedure 5. Register with the Federal Board of Inland Revenue Department of the Ministry of Finance for income tax
Time to complete: 4 days, depending on complexity of drafting and availability of notary
Cost to complete: no charge
Comment: The FIRS (Federal Inland Revenue Service) will require the applicant to complete tax registration forms for corporate income tax registration. The Company registers for companies' income tax purpose at a Federal Tax Office nearest to its place of business or registered office. A letter is written to the tax authority applying for a tax clearance certificate. A form obtained from the tax office is filled and the following documents submitted with it:
- Copy of Memorandum and Articles of Association
- Names and Addresses of Directors
- Copy of Certificate of Incorporation
- Name, Address of Tax Adviser
Upon receipt of the completed form and accompanying documents, the tax office opens a file, allocates a tax reference number and issues a tax clearance certificate. This certificate is evidence of satisfaction of the company's tax liability for the current tax year. The certificate is renewable annually.
Procedure 6. Register for VAT
Time to complete: 2 days
Cost to complete: no charge
Comment: The procedure entails writing a letter to the tax authority, which would be acknowledged with a reference number assigned to the company. Regarding VAT, although the company gets a VAT number assigned (which to all intents and purposes suffices for the purpose of the company charging VAT where services are VATable), the VAT certificate which the company should display may take up to 30 days.
Procedure 7*. Register for personal income tax PAYE at the State Tax office
Time to complete: 2 days
Cost to complete: no charge
Comment: All employers shall register with the relevant state tax authority for the purposes of deducting income tax from employees. Once the application is filed with a copy of the certificate of incorporation attached, a reference file is then opened for the company.
Procedure 8*. Visit from a local government inspection officer and obtain business license
Time to complete: 7 days (simultaneous with previous procedure)
Cost to complete: no charge
Comment: The inspector visits the premises in order to determine their size and to ascertain that the business is not situated in an area prohibited or restricted by any law. The business license also serves as a zoning check. The inspection happens some time after the application, but the business can operate in the meantime, so effectively only one day is lost. The local government issues a demand notice stating the cost of the business license, which contains the mode of payment, the receiving bank and due date. After payment of the fee, the company has in effect fulfilled its obligation. The local government periodically checks payment and enforces court action on any default. Both the State and Local Governments determine (through physical inspections) which businesses are operating within its jurisdiction and issue various levies, assessments and charges for payment by the company concerned. Failure to pay can lead to legal action in State (and Local Government) Courts.
Procedure 9*. Pay fees at a designated bank
Time to complete: 1 day (simultaneous with previous procedure)
Cost to complete: NGN 15,000 + NGN 1000 advertising fee
Comment: The fee varies between N5,000 for small businesses and N50,000 for large-scale businesses. The fee above is for initial registration. The registration must be renewed each year (N5,000 for each renewal). These prices are for an urban area.
Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*).
FORMS OF BUSINESS ORGANISATION
A business may be conducted by individuals, partnerships or public and private limited liability companies. The names of public companies have the designation "Plc" added to them.
Limited liability companies are governed by the Companies and Allied Matters Decree, 1990.
A private company is required to have a minimum of two Directors and two Shareholders, while a public company is required to have a minimum of seven Directors and a minimum of seven Shareholders except when the shares are quoted on the Stock Exchange when the minimum number of Shareholders should be 50.
For any expatriate investor doing business in Nigeria, a Nigerian limited liability company must be incorporated and approval must have been obtained from appropriate Government Authorities to establish such a business.
Where a wholly owned company is to be formed by an expatriate investor, a minimum capital requirement of between N2 million and N20 million is required depending on the type of business to be established.
A business permit on the investment must be obtained before the establishment of the company. A certificate of capital importation must also be obtained as evidence of foreign capital importation.
Where a certificate of capital importation is obtained on a foreign investment, dividends and the proceeds from the sale of an investment can be repatriated.
All limited liability companies are required to be audited and they must lodge their annual financial statements with the Corporate Affairs Commission.
TAXATION
Corporate tax
Main rate: 30%, plus education tax, 2%
Nigerian companies are taxed on their worldwide income, with a credit for foreign tax paid; foreign companies are taxed on Nigerian-source income only. A Nigerian company is a company incorporated under Nigerian law. Corporate tax is generally charged at 30% based on total profit. An education tax is charged at 2% based on assessable profit, and a minimum tax applies. A 10% withholding tax is deducted from dividend payments to companies and individuals. Capital gains are taxed separately.
Individual tax
Progressive rates to 25%
Resident individuals are taxed on their worldwide income; non-residents are subject to tax on Nigerian-source income only. A person who is in Nigeria for 183 days in the tax year is regarded as resident. Tax is charged at progressive rates up to 25% on total income. Dividends received are grossed up and included in total income, with a credit for the withholding tax deducted. A minimum tax of 0.5% of total income applies. Capital gains are taxed separately. Under a proposed tax reform, the top individual tax rate would rise to 35%, and employees would be entitled to a tax-free allowance of 40% of their total income.
Capital gains
Gains are taxed at 10%
Companies and individuals are liable to capital gains tax at 10%. Exemptions from capital gains tax include gains on motor vehicles that are not normally used for commercial purposes, gains on furniture and fittings, gains on gifts, gains on stocks and shares, and gains on life-assurance policies.
Indirect tax
VAT standard rate: 5%
Value-added tax (VAT) applies to most transactions at 5%. Registration is compulsory for businesses. Exemptions include exports of goods and services, basic food, agricultural inputs, medical and pharmaceutical products, and services of certain banks.
Tax administration and compliance
Tax year: Corporations: accounting year; Individuals: calendar year
Companies must submit at least once a year a self-assessment tax return, and further returns may be required by the tax authorities. Companies pay tax when submitting their tax return, but may by concession pay tax by instalments. Individuals must file tax returns within three months of the end of the fiscal year.
Additional tax information
Withholding taxes: Dividends, Interest and Royalties 10%. The rate is reduced to 7.5% for countries that have a double-taxation agreement with Nigeria.
Tax treaties: Nigeria has concluded more than ten tax treaties.
Dividends: Dividends are taxable.
Revenue protection: No formal transfer-pricing or thin-capitalisation rules. Anti-avoidance provisions for transactions between connected parties.
Groups: Group taxation is not allowed by Nigerian tax law.
Incentives: Pioneer industries; agriculture; export businesses; natural gas.
Other taxes: Air travel levy, Cattle tax, Customs and excise duties, Education tax, Entertainment tax, Freight tax on oil exports, Industrial training fund levy, Minimum tax, Stamp duty. |
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