TAXATION OF CRYTPOCURRENCY UNDER THE 2022 FINANCE BILL

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By Aderonke Alex-Adedipe and Sharon Okpo

 

Introduction

In our previous article, we highlighted some of the proposed amendments/reforms to the various tax laws in operation in Nigeria under the 2022 Finance Bill (the “Bill”). Some of the highlights of the Bill include taxation of digital assets, taxation of gaming and gambling companies, tax increase for flaring companies, and rollover relief on shares and stocks, amongst others.

In this article, we will be examining the provisions of the Bill on the taxation of digital assets and its implications on businesses and individuals should the provision be maintained upon enactment of the Act.

Provision of the Bill

Section 3 of the Bill provides as follows:

Section 3(a) of the Capital Gains Tax Act (“CGTA”) is amended by inserting the phrase “digital assets” after the word “debt” as follows-

“subject to any exceptions provided by this Act, all forms of property shall be assets for the purposes of this Act, whether situated in Nigeria or not, including- options, debts, digital assets, and incorporeal property generally”

By the above provisions, digital assets which include cryptocurrency are considered property or asset and are made subject to the provisions of the CGTA.

The justification for this provision according to the Bill is to provide clarifications on the basis of taxing cryptocurrency and other digital assets in line with the government’s efforts at enhancing cross-border and international taxation of growing e-commerce with the emerging markets. Upon enactment and implementation of this provision, Nigeria will become one of 3 African countries to impose tax on cryptocurrency.

Implications of the Provision of the Bill

  1. Capital gains tax at a flat rate of 10% shall apply to all gains (after making such deductions as are allowed in the computation of the gains) made following a disposal (i.e sale, transfer, assignment, compulsory acquisition, etc.) of all or any part of cryptocurrency held by any individual to whom the Personal Income Tax Act (“PITA”) or legal entity in any year of assessment. This shall be in addition to the tax obligations that may be imposed under PITA;
  2. The owner or dealer in cryptocurrency shall have the obligation to report every cryptocurrency transaction and disposal made by him in the particular year of assessment.

Conclusion
An attempt by the government at bringing cryptocurrency transactions under its tax net has been long anticipated, especially following the Securities and Exchange Commission’s (SEC) moves to regulate cryptocurrency and other digital assets. However, it is expected that the government and relevant tax authorities may experience some challenges in enforcing this provision, especially with the anonymous nature of cryptocurrency transactions. We expect that upon enactment of the Bill into law, further directives and guidelines on compliance by individuals and companies will be issued by the relevant authorities.

KEY PROVISIONS IN THE NIGERIAN FINANCE BILL TO TAKE EFFECT IN 2023

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By Seun Timi-Koleolu and Adedolapo Arisoyin

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Introduction

The Nigerian Finance Bill (the “Bill”) which is to take effect in January 2023 is currently undergoing the legislative review and approval process at the house of representatives. It was shared by President Buhari and presented by the Minister of Finance, Budget, and Economic Planning to the House of Representatives on Thursday, December 22, 2022.

The Bill is proposing key reforms to tax laws and other relevant laws in Nigeria.

We have highlighted in this article, some of the proposed amendments in the Bill.

Key amendments in the Bill

1. Taxation of digital assets: The Bill proposes that gains on digital assets are to be subject to tax under the Capital Gains Tax Act at the rate of 10% (ten percent).

2.  Taxation of gaming and gambling companies: The Bill proposes that income derived by a company from gaming, gambling, betting, or lottery business is to be subject to tax under the Companies Income Tax Act.

3. Tax increase for gas flaring companies: In line with Nigeria’s climate change commitments to reducing greenhouse gas emissions, the Bill proposes that gas-flaring medium and large companies are to be liable to corporate taxation at a 50% rate. It is anticipated that this rate will help to deter gas-flaring, as it is more than the typical 30% nominal income tax rate.

4. Exclusion of losses: The Bill proposes the set-off of capital losses against capital gains on two identical capital assets (i.e. two assets that are of the same kind) in a taxable year.

5. Remittance of Value Added Tax (“VAT”) by specific entities: Entities like MTN, and oil and gas companies, appointed to deduct VAT at source on invoices received from their vendors will be expected to remit such VAT to the Federal Inland Revenue Service on or before the 14th day of the following month (currently 21st day of the following month).

6. Import Levy: In addition to existing customs duties and other charges, a levy of 0.5% is to be imposed on goods imported into Nigeria from outside Africa. It is stated that this duty will be used to make payments for subscriptions, and other financial obligations to multilateral institutions like the African Union, African Development Bank e.t.c

7. Investment allowance: The existing investment allowance of 10% (ten percent) applicable on qualifying expenditure incurred on plant and equipment will no longer apply as from December 31, 2022, where the Bill is passed as an Act.

8. Rollover relief on shares and stocks: Investors need to note that they will be required to   pay a tax of 10% on the gains they make from the sale of their shares in startups and other companies. The Bill, however, proposes that investors that purchase shares from startups will be eligible to roll over reliefs in the event that they reinvest the proceeds of the sale of such shares. Rollover relief provides a mechanism for deferring payment of tax from the sale of an asset, where the proceeds from such sale are reinvested to buy new assets.

9. Goods liable to excise duty: All services including but not limited to telecommunication services, provided in Nigeria will be subject to excise duties.

10. Supervisory role: The Minister of Finance, Budget, and Economic Planning is to be charged with the responsibility for the supervision of the Tariff Review Board.

Conclusion                                                           

As mentioned earlier, the Bill is currently undergoing review at the house of representatives, and we await the final Act. It will, however, be interesting to see how the provisions on the taxation of digital currency will be implemented particularly in the cryptocurrency space.

 

 

REGULATORY UPDATE: APPLICATION PROCEDURE FOR ADMISSION TO THE CENTRAL BANK OF NIGERIA’S REGULATORY SANDBOX

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By Aderonke Alex-Adedipe and Feyijuwa Akinyanmi

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Introduction

In January 2021, the Central Bank of Nigeria (“CBN”) issued the Framework for Regulatory Sandbox Operations  (the “Framework”), which provides for the establishment of a regulatory sandbox in Nigeria and the rules guiding its operations. In our previous newsletter on the establishment of the Framework, we highlighted the application process for admission into the sandbox.

In view of the foregoing, the CBN has issued a notice to participants in the financial sector to submit expressions of interest to participate in the sandbox (“Invitation”).

Today’s newsletter briefly highlights the application procedure as well as the eligibility criteria for admission to the Sandbox  in view of the CBN’s Invitation.

1. What is the CBN’s Regulatory Sandbox?

The CBN’s regulatory sandbox is a process established by the CBN for companies involved in the provision of financial technology to conduct live tests of new, innovative products, services, delivery channels, or business models in a controlled environment, with appropriate regulatory oversight. It enables the CBN to remain well-informed about innovations in the financial services sector and ensure consumer protection while promoting innovation.

2. Who is Eligible for admission into the Sandbox?

According to the Invitation, all entities with innovative financial solutions are eligible to apply for admission into the Sandbox, including existing CBN-licensed institutions. The CBN will, however, consider the following criteria when selecting candidates for the sandbox:

  1. the product, service or solution (“Product”) must be innovative with a clear potential to improve the accessibility, security and quality of financial services. It should also address gaps in, or provide new opportunities for financial benefits or investment in, the Nigerian economy;
  2. the applicant should be able to test the Product within the transaction value and volume limit approved by the CBN;
  3. the applicant should have conducted an adequate assessment of the functionality, usefulness and inherent risks of the product. In addition, the risks of the product should not affect existing financial structures and consumer experience;
  4. the applicant is required to possess the requisite resources and expertise to support the testing of the Product in the Sandbox and mitigate potential risks; and
  5. the applicant must present a business plan showing that the Product can be successfully deployed after exiting the Sandbox.

3. What is the Application Process?

a. Submission of the Required Documents: The Invitation requires applicants to complete an online form and provide the following documents to the CBN:

    1. a board resolution approving the application;
    2. the incorporation documents of the Company:
    3. the Company’s profile;
    4. the resumes of the members of the board of directors and management team of the Company;
    5. the business plan of the Company;
    6. the Company’s AML/CFT Policy; and
    7. patent certificates or evidence of patent registration (where applicable) and other documents.
  3. b. Acknowledgement and Evaluation of Applications: Successfully submitted applications will be acknowledged by the CBN following which an applicant is to be informed of the approval or rejection of its application within 60 working days after the deadline for the submission of applications.

c. Approval of Application: Upon approval of an application, a Letter of Approval will be issued to the entity by the CBN, authorizing the applicant to test its Product within the Sandbox. It is important to note that approval to participate in the Sandbox does not guarantee a license from the CBN. Upon a successful exit from the regulatory sandbox however, the CBN will provide regulatory support on a case-by-case basis.

4. What is the Deadline for the Submission of an Application to the CBN?

Applicants are required to submit an application to be admitted to the Sandbox on or before 1st February 2023.

 

Conclusion

As the principal regulator of the Nigerian financial sector, it is vital that the CBN remains at the forefront of financial innovation and by extension, financial regulation. Therefore, the CBN’s Sandbox is a welcome development as it will help the CBN remain informed about new products within the sector. It is hoped that the CBN’s invitation to the public will encourage players within the Nigerian financial space to participate in the CBN’s Sandbox programme.

REGULATORY UPDATE: EXTENSION OF TIME FOR THE REGISTRATION OF DIGITAL MONEY LENDING COMPANIES WITH THE FEDERAL COMPETITION AND CONSUMER PROTECTION COMMISSION

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By Seun Timi-Koleolu and Sharon Okpo

As stated in our previous article, the Federal Competition and Consumer Protection Commission (the FCCPC”) on August 18, 2022, issued the “Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending 2022” (the “Framework”) directing all existing digital money lending companies (“Digital Lenders” or “Company”) in Nigeria to register with the FCCPC within ninety (90) days from the date of issuing the Framework; and all new Digital Lenders to register as they commence operations.
In furtherance of this directive, the FCCPC has commenced registration of existing Digital Lenders and published names of Digital Lenders that have been granted full or conditional approvals. The FCCPC recently released an official notice on December 6, 2022, extending the deadline for registration from November 14, 2022 to January 31, 2023, to enable digital lending companies who were unable to meet the deadline, to comply with the directives issued under the Framework.
It is important to note that the provisions of the Framework should be adhered to by Digital Lending Companies in addition to any other regulatory requirements set out by the Central Bank of Nigeria (CBN) in regulations and licenses; the Nigerian Data Protection Bureau (NDPB); and all other laws and regulations that previously applied to the Company, depending on the license held by it (see our article on FinTech licenses).
In this article, we have set out the requirements for registering with the FCCPC in line with the provisions of the Framework, and other documents that may be required of companies wishing to be registered.

Requirements for Registration

  1. In complying with the provisions of the Framework, Digital Lenders are required to-

1. Submit a duly completed FORM DLG 001 highlighting the following information:

  1. registered name, physical address, and contact details of the Company;
  2. website of the Company;
  3. identity and nationality of its promoters, directors, and initial key role players;
  4. source(s) of funding including equity, debt, or otherwise. This should include details on the nature of the instrument, capital injection, the identity of sources, and the nature of business of sources;
  5. details of affiliations with other companies, institutions, or similar businesses, whether local, regional, or global;
  6. consultants, agents, or any other person assisting with the registration process, operations, or management. The Company is required to authorize a representative to act on its behalf;
  7. bankers;
  8. proposed interest rate regime and loan balance calculation methodologies;
  9. any licenses authorizing the business to operate; and
  10. list of all apps in operation or intended for operation. The Company is also required to notify the FCCPC of any material modifications made to these apps or the introduction of new apps.

2. In addition to the FORM DLG 001, the Company is also required to submit the following documents;

  1. certified copy of its certificate of incorporation;
  2. a brief description of the business of the Company;
  3. organogram of the Company;
    d) name and address of person(s) within the Company authorized to accept correspondences on behalf of the Company;
  4. evidence of membership in any trade or professional association;
  5. any service level agreements with service providers with respect to operations;
  6. evidence of feedback and complaint resolution mechanism;
  7. evidence of tax payments or tax waivers where applicable;
  8. all applicable fees associated with the service and
  9. a declaration of digital lending businesses in Nigeria (FORM DLG 002). This declaration is basically a confirmation by the Company’s directors of its compliance with all provisions of the law with respect to third-party privacy rights and personal data, as well as recovery practices that are consistent with fair lending principles provided for in the FCCPC Act 2019. The declaration should also confirm that the Company’s processes and operations comply with the CBN Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT).

B. Following a review of the Company’s application, the Company may also be required to provide further documents to ensure compliance with the provisions of the NDPR including the following:

  1. terms of use,
  2. privacy policy,
  3. code of conduct, and
  4. evidence of implementation of feedback and complaint resolution mechanism

Conclusion
Even though the Framework does not set out penalties for non-compliance, the penalty set out in Schedule 1 of the FCCPC Administrative Penalties Regulations 2020 will apply. There is also the risk of the Company being banned from operating until they conform and other sanctions being imposed on the Company.

PAYMENT OF VALUE ADDED TAX IN NIGERIA: NEW COLLECTION AGENTS

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By Seun Timi-Koleolu and Feyijuwa Akinyanmi

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Introduction

The Nigerian Finance Act, 2021 grants the Federal Inland Revenue Service (“FIRS”) new powers to appoint persons as Value Added Tax (“VAT”) agents for the purpose of collecting and remitting VAT to the FIRS.  In furtherance of this, the FIRS recently issued a public notice (“Notice”), appointing Telecommunications service providers- MTN and Airtel; and money deposit banks, as VAT agents and mandates them to collect/withhold VAT on taxable supplies made to them.

We have set out below, information to provide clarity on the notice.

1.What is VAT?

VAT is a consumption tax paid on goods and services supplied in Nigeria other than goods specifically excluded under the Value Added Tax. It is currently charged at the rate of 7.5%.

2. Application for a Type Approval Modification Certificate

Generally, suppliers of goods and services in Nigeria are required to collect VAT at the rate of 7.5% and remit it to the FIRS on or before the 21st day of the following month. Most service providers usually charge their clients VAT in addition to their fees.

3. What has the Notice changed?

By virtue of the Notice, money deposit banks (commercial banks), MTN and Airtel (the “New VAT Agents”) are now required to withhold VAT on taxable goods and services supplied to them. The Notice also requires the New VAT Agents to remit VAT withheld to the FIRS on or before the 21st day of the following month.

4. When will the Notice take Effect?

The New VAT Agents are required to commence withholding VAT from January 1, 2023.

5. Is there any Penalty for Failure to Comply with the Provisions of the Notice?

The New VAT agents that fail to collect or withhold VAT from relevant contractors would be liable to pay a penalty of 150% of the amount not collected plus 5% interest above the CBN Monetary policy rate.

6. How can Service Providers Get a Refund For Input Tax Already paid?

Generally, the Value Added Tax Act permits taxable persons to offset the VAT paid by them on business costs (Input Tax) from VAT charged on their goods and services and payable by their clients (Output Tax). It is, however, important to note that only input tax paid on: i) goods purchased or imported directly for resale;  and ii) goods that form the stock-in-trade used for the direct production of any new product on which the output tax is charged, is permitted to be deducted from the business’ output tax.

Where the output tax exceeds the input tax, the taxable person will be required to remit the excess to the FIRS. However, where the input tax exceeds the output tax, the taxable person will be entitled to request a refund from the FIRS.

Under the Notice, the FIRS stated that businesses whose input tax exceeds their output tax would be entitled to a refund from the FIRS. The FIRS is also permitted to convert the amount refundable to credits for the purpose of offsetting their future VAT liability.

Conclusion

Although, we are not privy to the reasons for the authorisation of the New VAT Agents to commence the collection of VAT, this might be a test run  by the FIRS for a system of VAT collection by consumers.

We will keep you updated with new developments.

NOTICE OF CHANGE IN THE NIGERIAN DOUBLE TAXATION TREATY REGIME ON WITHHOLDING TAXES

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By Aderonke Alex-Adedipe and Sharon Okpo

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INTRODUCTION

The Federal Inland Revenue Service (“FIRS”) in May 2022, issued a public notice highlighting changes to the rate of withholding taxes (“WHT”) applicable to dividends, interests, and royalties payable by Nigerian entities/residents to residents of other countries (“Partner Countries”) with whom Nigeria has Avoidance of Double Taxation Agreements (“ADTA” or “DTA”) (the “Notice”). By the Notice, the tax burden on residents of Partner Countries is increased with effect from July 1, 2022.

This newsletter highlights the provisions of the Notice, and the implications as they relate to the payment of dividends, interests, and royalties to parent companies resident in Partner Countries.

THE NOTICE

Nigeria is a contracting party to DTAs with several countries which sets out various withholding tax rates chargeable in line with the provisions of the respective DTAs. Under these DTAs, the applicable WHT rate on dividends, interests, and royalties was either 7.5% or 10%. Nigeria opted to apply 7.5% across all DTA countries. This was the status quo until the issuance of the Notice by the FIRS.

In this Notice, the FIRS establishes and acknowledges that Nigeria has since 1999 been unilaterally implementing a uniform WHT rate of 7.5% on dividends, interest, and royalties paid by residents of Nigeria and beneficially owned by residents of Partner Countries. The FIRS also acknowledged that this WHT rate is lower than the WHT rates under relevant local tax laws which are applicable within Nigeria.

By this Notice, and following the approval of the Minister of Finance, Budget and National Planning, the applicable WHT rate of 7.5% which applied uniformly to dividends, interests, and royalties are discontinued, and with effect from July 1, 2022, the new rates were set to apply. This action is in no way contrary to the provisions of the DTAs to which Nigeria is a party, as the DTAs provide a maximum applicable rate of 10%.

The Notice also withdraws any ruling, direction, or approval that had been previously issued by the FIRS on the WHT rate applicable with respect to any of the DTAs with effect from July 1. 2022. These approvals are as contained in the Information Circular on the Claim of Tax Treaty Benefits in Nigeria issued on June 3, 2021 (the “Circular”).

The Circular was issued pursuant to the DTAs between Nigeria and the 16 countries listed therein, and pursuant to the provisions of current tax legislation[1].  The purpose of the Circular was to lay down a general description of the applications of the DTAs between Nigeria and other countries, especially on the treaty benefits that can be accessed by residents of either contracting countries by way of relief from double taxation, treaty tax rates on income from source countries, dispute resolution mechanisms and others. One of such reliefs provided by virtue of this Circular is “Reduced (Treaty) withholding tax rates for passive income or fees for technical service derived from Nigeria by residents of a treaty partner”.

IMPLICATIONS OF THE PROVISIONS OF THE NOTICE

Beginning from July 1, 2022, DTA residents were expected to begin payment of a new WHT rate of 10% on their dividends, interests, and companies.  It is important to note that DTA residents shall however not be required to pay WHT at the new rate in any of the following instances:

  1. Where the taxpayer is a resident of South Africa, China, Singapore, Sweden, and Spain;
  2. Where the applicable royalties are to be paid to individuals, then the rate of 5% will apply.

CONCLUSION

The new rates as provided by the Notice are already in force and being implemented by the FIRS. Nigerian companies with parent/holding companies and Special Purpose Vehicle  (SPV) Companies in these DTA countries should be aware of these provisions, and how they may affect the structure and tax obligations of the company.

[1] Sections 45 and 46 of the Companies and Income Tax Act (“CITA”) 2004 (as amended), Sections 38 and 39 of the Personal Income Tax Act (“PITA”) 2004 (as amended), Sections 61 and 62 of the Petroleum Profits Tax Act (“PPTA”) 2004 as amended, and Section 41 of the Capital Gains Tax (“CGTA”) 2004 (as amended). 

CARBON CREDITS IN NIGERIA: ROAD TO IMPLEMENTATION

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By Seun Timi-Koleolu and Adedolapo Arisoyin

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Introduction

On November 8, 2022, the new Africa Carbon Markets Initiative (ACMI) was inaugurated at the United Nations Climate Change global conference held in Sharm, Egypt, with an objective to scale the production of carbon credit across the continent.

Nigeria and other African countries shared their commitment to collaborating with the ACMI to achieve this objective, and we expect that steps will be taken in Nigeria to implement this objective.

In furtherance of this commitment, it is expected that the Nigerian government will put in place a framework for the implementation of a carbon credit system in Nigeria.

We have set out in this article, a general overview of how carbon credits work in other jurisdictions, as we expect that a similar system will be adopted by our government in developing the framework.

1. What is carbon credit?

Carbon credit is an instrument that represents one (1) tonne of carbon dioxide (CO2) or greenhouse gas (GHG) emissions removed from the atmosphere. Carbon credits are given to companies whose activities benefit the climate either by removing CO2 from the air or preventing it from being emitted in the first place.

Carbon credits were devised as a mechanism to reduce GHG emissions by creating a market in which companies can trade in emissions permits. Under the system, companies get a set number of carbon credits, which decline over time, and can sell any excess to another company.

2. What are the types of carbon credit markets?
There are broadly two types of carbon credit markets in the world right now, the compliance market which is developed as a result of regulatory requirements, and the voluntary market, which allows private companies and individuals to purchase carbon credits voluntarily. We assume that in Nigeria, the first market that will be developed will be the compliance carbon credit market.

3. How do carbon credits work?

Typically, in jurisdictions like the USA, and certain developed nations where regulations exist with respect to the activities governing carbon credits, it is the responsibility of the governing body to create and allocate carbon credits periodically to deserving companies and individuals within that jurisdiction. The number of credits issued to a particular company or organization represents its emissions limit.

In certain jurisdictions, carbon credits are given to companies whose activities pull out
emissions from the atmosphere. Companies that want to compensate for their carbon
footprint may purchase carbon credits from responsible companies that have accumulated
carbon credits.

4. How does a company qualify for carbon credits?

In states in the USA where regulations for carbon credits exist, companies that:  i) over time produce less GHG emissions, and ii) embark on projects that prevent GHG emissions or aim to remove GHG emissions from the atmosphere, will be eligible to earn carbon credits.

5. Who can purchase carbon credits and from where?

Carbon credits can be purchased by individuals, companies, non-profit organizations, and governments. Carbon credits can be purchased: directly from private companies with excess carbon credits; through a broker, and on a climate trade marketplace.

6. What are the benefits of carbon credits to companies?

a. It creates monetary incentives for companies that consciously embark on projects to reduce GHG emissions; and for companies that devise methods to reduce its GHG emissions in the course of its activities;

b. It creates a system for the proper measurement and verification of emission reductions; and

c. Addressing climate change will create immense dividends for the African and Nigerian economy.

7. What are the Regulations that affect carbon credits in Nigeria?

The United Nations Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol and Paris Agreement, whose objective is to stabilize GHG concentrations in the atmosphere, to which Nigeria is a party.

The Climate Change Act, 2021 which provides a legal framework for achieving low GHG emissions and categorizes climate change actions into national plans and programmes.

It is also interesting to note that Nigeria has launched its Energy Transition Plan, which details a roadmap to achieve net zero emissions by 2060.

Conclusion

It is not clear the category of companies that will be eligible for carbon credit in Nigeria. We, however, expect that the Nigerian government will develop a framework that will outline and govern the implementation of carbon credits in Nigeria in the near future.

REGULATORY UPDATE: THE NIGERIAN START UP ACT, 2022

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By Aderonke Alex-Adedipe and Sharon Okpo

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Introduction

We are excited to announce that the Nigerian Start Up Bill, now the Nigerian Startup Act, has received presidential assent and has been signed into law. This brings hope that businesses within the Nigerian technology ecosystem, especially startups, will have a better chance to grow and thrive within the Nigerian business environment

The Act was passed to provide for the creation and development of an enabling environment for technology-enabled startups in Nigeria. Some of the objectives of the Act include:

  1. providing for the development and growth of technology-related talents;
  2. providing an enabling environment for the establishment, development, and operation of startups in Nigeria; and
  3. positioning Nigeria’s startup ecosystem, as the leading digital technology centre in Africa, having excellent innovators with cutting edge skills and exportable capacity.

In our previous publications, we had highlighted some of the provisions of the Nigerian Start Up Bill such as the definition and categories of Startups under the Act; the process for application by eligible companies with the One Stop Shop Centre (OSSC) in order to obtain incentives under the Act; incentives available to Startups (including funding, tax incentives and expedition of licence applications) amongst other things. In this publication, we have highlighted below more provisions of the Act which Startups in Nigeria should be aware of.

  1. Establishment of the National Council for Digital Innovation and Entrepreneurship (the “Council”)

The Act establishes the Council which shall be made up of-

  1. the President of the Federal Republic of Nigeria., who shall serve as the Chairman of the Council;
  2. the Vice-President who shall act as the Vice-Chairman;
  3. ministers from select ministries;
  4. four representatives from the Startup Consultative Forum also established under the Act;
  5. one member of the Nigeria Computer Society;
  6. one member of the Computer Professionals (Registration Council of Nigeria), and
  7. the Director-General of the National Information Technology Development Agency (NITDA) who shall serve as the Secretary of the Council.

The Council shall have the power to-

  1. support digital technological development through grants to persons, research institutions, and universities in areas of science, technology and innovation;
  2. review policies and directives of Ministries, Departments and Agencies (MDAs) which may impact on the operation, establishment and investments in a startup; and
  3. ensure the monitoring and evaluation of the regulatory framework to encourage the development of startups in Nigeria.

2. Establishment of the Startup Support and Engagement Portal (“Startup Portal”)

The Startup Portal shall serve as a platform through which a startup conducts its registration process with the relevant MDAs. The Startup Portal will-

  1. facilitate the issuance of a permit or licence to a labelled startup;
  2. foster the access of startups to finance, information, innovation and the global market;
  3. provide information on clearances, approvals and registration requirements by a startup;
  4. Provide opportunities for a startup to enter into contracts with the federal government; and
  5. Provide opportunities for a startup to participate in beneficial challenges and programmes including incubation and accelerator programmes, showcases, pitch competitions, fellowships, and other related programmes.

3. Procedure for Startup Labelling

A startup label is described by the Act as a certificate issued by NITDA (which shall serve as the Secretariat of the Council) to a startup upon the fulfillment of the requirements under the Act. Some of the requirements under the Act include-

  1. registration as a limited liability company under the Companies and Allied Matters Act;
  2. the startup must not have been in existence for more than 10 years;
  3. the objects of the startup must include innovation, development, production, improvement and commercialisation of a digital technology innovative product or process;
  4. startup must be the owner or author of a software, or holder of a product or process of digital technology;
  5. startup must have at least one-third of local shareholding held by one or more Nigerians as founder or co-founder; and
  6. where the startup is a sole proprietorship or partnership, it must satisfy c, d and e above

A startup that is desirous of being granted a label under the Act must submit an application on the Startup Portal. Upon satisfactory fulfillment and compliance with the requirements for labeling, the Coordinator of the Startup Portal shall enter the name of the applicant on the register of startups kept for that purpose, and then issue a startup label (certificate) to the startup. This label shall be valid for a period of 10 years from date of issuance.

Conclusion

The Act is a collaborative effort between Nigeria’s tech startup stakeholders and the presidency, and it contains a plethora of provisions which if effectively implemented will ensure that the Nigerian tech ecosystem remains relevant in the global market.

REGULATION OF CONTACTLESS PAYMENTS IN NIGERIA

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By Seun Timi-Koleolu and Feyijuwa Akinyanmi

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Introduction

In our previous article, we examined the Framework issued by the Central Bank of Nigeria (“CBN”) for the regulation of Quick Response Code Payments (a form of contactless payment) in Nigeria. To further protect the general public and drive innovation, the CBN has issued an Exposure Draft of the Guidelines for Contactless Payments in Nigeria (“Draft Guidelines”).

The Draft Guidelines stipulates the minimum standards and requirements for the operation of contactless payments in Nigeria and specifies the roles and responsibilities of stakeholders involved in contactless payments in Nigeria.

Our newsletter highlights notable provisions of the Draft Guidelines which issuers and acquirers of contactless payments should note.

1.What is Contactless Payment?

Contactless payment refers to a method of payment which enables consumers  to make payment for goods and services by tapping a contactless payment enabled credit card, smart card or device over a contactless- enabled payment terminal. It provides an easy, convenient and efficient cashless option for making payment. Examples of  instruments which can be used for contactless payment include,  contactless enabled pre-paid, debit and credit cards,  key fobs, mobile electronic devices, wearable devices etc.

2.What Financial Institutions are Affected by the Draft Guidelines?

The Draft Guidelines are applicable to financial institutions  that are parties to contactless payments. These include: acquirers; issuers; payment schemes; switching companies; Payment Terminal Service Providers (PTSPs); Payment Terminal Service Aggregators (PTSAs) e.t.c.

3.What are the minimum standards for compliance applicable to stakeholders in contactless payment transactions?

The Draft Guidelines require the financial institutions listed in 2 above, whose activities involve the processing and storage of customer information to ensure that their terminals, applications and other systems used for processing customers’ information are compliant with the following minimum standards: (i) Payment Application Data Security Standard (PA DSS); (ii) Payment Card Industry Pin Entry Device PCI PED; (iii) Payment Card Industry Data Security Standard (PCI DSS);(iv)Advanced Encryption Standards (AES); (v) ISO 27001; (vi) and other standards as may be specified by the CBN from time to time.

3.What are the Roles and Responsibilities of Acquirers and Issuers with respect to Contactless Payments?

The Draft Guidelines precludes institutions that are not licensed by the CBN from acting as acquirers or issuers to contactless payment transactions.  Permitted acquirers and issuers that engage in contactless payment are required to ensure that all contactless enabled applications, instruments, and devices deployed have been certified to process contactless payments by the CBN.

The Draft Guidelines also requires issuers and acquirers to ensure that the contactless payment instruments are neutral i.e brand agnostic.

Please note also that permitted issuers are required to only activate contactless payments on the instruction and consent of its customers.

4.What is the Transaction Limit for Contactless payment?

The Draft Guidelines provide that the CBN would determine the transaction and daily limit for contactless payments. Payments below the limit would be consummated without the need for customers verification, while payments above the limit will require customers verification in form of personal identification number, mobile code, or biometrics identifier.

Conclusion

Contactless payment has long before now been accepted as a preferred mode of payment in  technologically advanced climes. It is, therefore, commendable to see that that the CBN has formally accepted contactless payments as a mode of payment in Nigeria.

It is however important to note that the Draft Guidelines is silent on the transaction and daily limit for contactless payments. As the Guidelines are still in draft form, we expect that this grey area will be clarified  in the final guidelines as this may determine the usefulness and the level of acceptance  of contactless payments in Nigeria.

NIGERIA DATA PROTECTION BUREAU; COMPLIANCE DIRECTIVES

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By Aderonke Alex-Adedipe and Arisoyin Adedolapo

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In February 2022, the Nigeria Data Protection Bureau (the “NDPB”), was established by the Federal Government as the principal data protection regulatory body to implement the objectives of the Nigeria Data Protection Regulation 2019 (“NDPR”), replacing the National Information Technology Development Agency (NITDA).

In furtherance of its objectives, the NDPB on October 5, 2022, issued a compliance directive (the “Directive”) to organisations that collect and or process personal data of Nigerians. (“Regulated Entities”). The Directive mandates Regulated Entities to comply with its provisions on or before November 25, 2022, in order to be included in the National Data Protection Adequacy Programme (“NADPAP”) Whitelist.

This article highlights the compliance requirements of the NDPB as provided in the Directive.

What is the National Data Protection Adequacy Programme (NADPAP)?

The NADPAP is a programme established by the NDPB to create more awareness on the responsibilities of data controllers/processors under the NDPR.  The NDPB through this programme seeks to put together a Whitelist of Regulated Entities in Nigeria which are compliant with the requirements of the NDPR. These Regulated Entities will be published on the NDPB website, in major newspapers, and will be shared with local and international establishments to serve as a reference in relevant transactions.

Regulated Entities are expected to comply with the requirements of the Directive on or before November 25, 2022, to be included in the NDPB’s publication.

What are the Compliance requirements under NADPAP?

i. Notification: Regulated Entities should notify the NDPB on or before November 25, 2022, of the technical and organisational measures it is taking to ensure data privacy and data protection.

ii. Key steps to be taken to avoid legal liabilities: The Directive highlights some key steps to be taken by Regulated Entities in order to avoid legal liabilities and ensure they meet up with the minimum required standard of care required under the NDPR. Regulated Entities are required to: (i) read and understand the NDPR; (ii) develop and implement a privacy policy that is consistent with the NDPR; (iii) notify their employees, customers, and online visitors of their privacy policy; and (iv) designate at least one or two members of staff as Data Protection Contacts (DPCs).

iii. Penalties attached to non-compliance: The Directive reiterates the resulting penalties for non-compliance with the NDPR, which include: payment of a fine of 2% of the annual gross revenue of the preceding year or 10 (ten) million naira (whichever is greater), in the case of a data controller dealing with more than 10,000 (ten thousand) data subjects, and payment of a fine of 1% of the annual gross revenue of the preceding year or 2 (two) million naira (whichever is greater), in the case of a data controller dealing with less than 10,000 (ten thousand) data subjects.

iv. Oversight: Regulated Entities are required to ensure that their service providers (i.e agents, licensees, contractors etc.) comply with the NDPR.

v. Free induction course: Regulated Entities are expected to forward the names of their DPCs (not more than three) to the NDPB for a free induction course in Data Protection Regulation Compliance for Nigeria and the ECOWAS via email to info@ndpb.gov.ng.

Conclusion

From the antecedents of the NDPB since its establishment, it is evident that its mandate to ensure compliance with the NDPR has been prioritized. It is, therefore, important for all Regulated Entities to liaise with relevant Data Protection Compliance Organisations to ensure full compliance with the provisions of the NDPR and avoid the penalties of non-compliance.