SNAPSHOT OF TAXES APPLICABLE TO TECHNOLOGY COMPANIES

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By Seun Timi-Koleolu and Eustace Aroh

 

Introduction

For most companies and business owners, the tax regime in Nigeria appears complex due to the maze of laws and regulations. Companies run the risk of penalties where they fail to comply. We have set out below a table of applicable taxes to technology companies and startups.

  Tax Tax rate and filing date Principal law Scope of tax Incentive/exceptions
1 Companies Income Tax (CIT) 30% of the taxable profit

To be filed on or before June 30 of the next year.

 Companies Income Tax Act This tax is payable by any company with significant economic presence, that generates income from Nigeria.

Further to the Significant Economic Presence Order 2020, a non-resident company providing digital service will be deemed to have significant economic presence where it: (i) derives a gross turnover or income exceeding N25 million; (ii)uses a Nigerian domain name or registers a website in Nigeria; or (iii) has a purposeful and sustained interaction with persons in Nigeria by customizing its platform to target persons in Nigeria.

 ·Small companies (turnover of less than N25 million) and Medium size companies (turnover between N20 – 100 million) may pay 0% and 20% respectively.

·Companies that fall under Pioneer status may obtain tax holiday of up to 5 years. Please click here to read our article on Pioneer Status.
2 Tertiary Education Tax (TET) 2.5% of the taxable profit

There is no specific date but in practice, it is usually filed with the CIT.

 Tertiary Education Trust Fund Act This tax is payable by every company registered in Nigeria. •Non-resident companies are exempted.

•Small companies (as defined above) are also exempted.
3 National Information Technology Development Fund (NITDF) Levy or Information Technology Tax 1% of profit before tax

Payable within 60 days of the notice of assessment by the Federal Inland Revenue Service (FIRS). Though in practice, it is self-assessed and paid along side the CIT.

 National Information Technology Development Agency Act This levy is payable by companies with over 100 million turnover in the following sectors:

Telcos; cyber and internet service providers; pension companies; financial institutions; and insurance companies.

 Companies with turnover less than N100 million are exempted
4 Police Trust Fund 0.005% of the net profit.

To be filed on or before June 30 of the next year.

 Nigerian Police Trust Fund Act This levy is imposed on all companies operating in Nigeria.  –
5 National Agency for Science and Engineering Infrastructure Levy 0.25% of the profit before tax.

There is no specific filing date but in practice, it is usually filed with the CIT.

 National Agency for Science and Engineering Infrastructure Act This imposes a levy on companies with turnover of over N100 million in banking, ICT, aviation, maritime, or oil and gas sector Companies with turnover less than N100 million are exempt.
6 Value Added Tax 7.5%

To be filed on or before the 21st of the following month.

 Value Added Tax Act This is a tax imposed on good and services produced or imported into Nigeria. To read the list of the goods and services exempted from VAT, please click here.
7 Withholding Tax (WHT) Dividends, Interest, rents (10%)

Royalties (10% – Companies’ 5% – individuals)

Commission, technical or service fees (10% – Companies’ 5% – individuals)

Contracts outside the usual business of the company (5%)

Director fees (10%)

Filing should be done within 21 days (when withheld from companies) or 30 days (when withheld from individuals) after the withholding tax obligation arises.

 Companies Income Tax Act; and Personal Income Tax Act This mandates companies to withhold a percentage of the fees payable as dividends, commission etc, and remit same to the tax authority.  –

Conclusion

It is important to note that the list above is not exhaustive. In addition to the taxes above, certain sector specific levies may apply depending on the technology company’s sector of operation. Technology companies and startups may also be required to make social security contributions (such as Employee Compensation Scheme, Industrial Training Fund Contributions, etc) and also pay other levies imposed by state or local government authorities.

Furthermore, technology companies processing personal data are required to engage a licensed Data Protection Compliance Organisation (DPCO); submit to a data protection audit; and file the audit report with the Nigeria Data Protection Bureau on or before March 15 of the next year.

Please not that Pavestones is a licensed DPCO. For more information on specific tax obligations and data protection audit filing, please contact Pavestones at info@pavestoneslegal.com

KEY PROVISIONS IN THE MONEY LAUNDERING (PREVENTION AND PROHIBITION) ACT, 2022

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By Aderonke Alex-Adedipe and Adedolapo Arisoyin

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Introduction

In recent times, startups and financial servicing companies around the world have been sanctioned for breach of money laundering regulations. The use of digital platforms for the concealment of origin of funds obtained from illicit activities is also on the rise, which has necessitated the establishment of stringent regulations with respect to financial transactions.

On May 17, 2022, the President of the Federal Republic of Nigeria signed the Money Laundering (Prevention and Prohibition) Act, 2022 into law (the “Act”). The Act repeals The Money Laundering (Prohibition) Act, 2011.

The Act sets out a more comprehensive and up-to-date legal framework for the prevention and prohibition of money laundering in Nigeria.

In this article, we highlight some of the key provisions in the Act as a guide to ensure compliance.

Objectives of the Act

The objectives of the Act include strengthening and expanding the existing system for combating money laundering and related offences and making adequate provisions to prohibit money laundering activities.

Entities subject to the Act

The Act applies to all Financial Institutions (“FIs”) and Designated Non-Financial Businesses and Professions (“DFBPs”). FIs according to the Act include banks, corporates, or non-corporates carrying on the business of investment and securities, virtual asset service providers, bureau de changes, finance companies, and such other businesses as the Central Bank or other appropriate regulatory authorities may designate.

The DFBPs category appears to be broad and encompasses organizations operating in various industries including service providers and professionals, consultants, automotive dealers, businesses in the hospitality industry, supermarkets, and such other businesses and professions as may be designated by the Minister for Trade and Investment.

Salient Provisions in the Act

i. Limitation on cash payments:  Individuals and corporates are required to make and accept cash payments exceeding a certain threshold through FIs. The threshold value for individuals is the sum of N5,000,000 or its equivalent, and the sum of N10,000,000 or its equivalent, in the case of a corporate.  By implication, transactions exceeding this threshold are to be conducted mandatorily through FIs.

ii. Identification of customers: FIs and DFBPs are required to identify their customers, and persons purporting to act on behalf of their customers. FIs and DFBPs are also expected to undertake customer due diligence measures when establishing business relationships and carrying out transactions that involve wire transfers or where there is a suspicion of money laundering.

iii. Duty to report international transfer or transportation of funds, securities and cash: Transfer(s) of funds or securities to or from foreign countries by individuals or corporates exceeding US$10,000 or its equivalent are to be reported to the Nigerian Financial Intelligent Unit (“NFIU”), the Central Bank of Nigeria and/or the Securities and Exchange Commission (as the case may be) in writing within one day from the date of the transaction. Transportation of cash or negotiable instruments in excess of US$10,000 or its equivalent by individuals in or out of Nigeria are also required to be declared to the Nigerian Customs Service.

iv. Duty to report suspicious transactions: FIs and DFPBs are obligated to report any suspicious transaction within twenty-four (24) hours after such transaction and submit a detailed report of such suspicious transaction. Suspicious transactions according to the Act include transactions that are unjustifiably and unreasonably frequent or which in the opinion of the FI or DFPB involve the proceeds of a criminal activity, unlawful act, money-laundering, or terrorist financing.

v. Powers to stop transactions/block funds: The Act provides that the NFIU or the Economic and Financial Crimes Commission (EFCC) may place a stop order of seventy-two (72) hours (i.e stoppage period) on an account or transaction, if it is discovered to be involved in any unlawful act. Transactions or funds may be blocked in instances where it is not possible to ascertain the origin of the funds.

vi. Liability of directors and employees of FIs and DFBPs:  Where funds are blocked by order of the court, due to an impossibility to ascertain its origins, the directors, and employees of FIs and DFBPs may become liable to criminal proceedings for offences arising from such transactions where there is evidence of a conspiracy with the owner of such funds.

vii. Virtual Assets: Virtual asset service providers are regarded as FI’s by the Act. Interestingly, the Act also recognizes virtual assets as a medium of exchange and provides that virtual assets include any digital representation of value that can be used for payment or investment purposes.

viii. Enhanced due diligence for politically exposed persons: FI’s and DNFB’s are obligated to conduct enhanced due diligence and take reasonable measures to establish the source of wealth and source of funds of customers who fall within this category while establishing business relationships.

ix. Mandatory Disclosure by Legal Practitioners: The Act categorizes the legal profession as a DFBP and stipulates that the rule of attorney-client privilege and confidentiality will not apply to financial transactions that relate to the purchase or sale of property and or business, and the management of money, trusts and assets belonging to clients.

x. Identification and Assessment of New Products, Technologies, and Business Practices: FIs and DFBPs are expected to identify and assess new products and business practices for money laundering and terrorism financing risks which may arise from the development and use of these products, and or technologies and implement measures to manage and mitigate those risks.

xi. Power to obtain records: A competent authority, which includes the NFIU, the SCUML and other regulatory authorities as designated by the Act may demand, obtain, and inspect the books and records of an FI or DFBP to confirm compliance with the provisions of this Act.

xii. Penalties for non-compliance: An individual who contravenes the provisions of the Act is liable on conviction to imprisonment for a minimum term of four (4) years, and a maximum term of fourteen (14) years or a fine of not less than five times the value of the proceeds of the crime or both. A corporate body on the other hand is liable on conviction to a fine of not less than five times the value of the funds or the properties acquired as a result of the offence committed, and their licenses or certificates may also be withdrawn or revoked by the appropriate regulators.

Conclusion

The enactment of the Act is commendable as it seeks to ensure prudent financial transactions by entities and individuals. The importance of compliance with the Act, can also not be overemphasized. Therefore it is necessary that FIs and DFBPs implement effective compliance strategies to ensure adherence with the Act in order to avoid regulatory sanctions.

 

COMPETITION / ANTI-TRUST REGULATION IN NIGERIA: RESTRICTIVE AGREEMENTS

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By Seun Timi-Koleolu and Feyijuwa Akinyanmi

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Introduction

The Federal Competition and Consumer Protection Act (“FCCPA”), 2018 is generally the primary legislation for the regulation of competition and protection of consumers in Nigeria. One of the salient objectives of the FCCPA is to prohibit restrictive or unfair business practices that prevent or restrict competition (as captured in Part VIII (Section 59-69) of the FCCPA).

In furtherance of the provisions of the FCCPA, the Federal Competition and Consumer Protection Commission (“FCCPC”) released the Restrictive Agreement and Trade Practices Regulations, 2022 (“Regulations”) which provides a framework for the implementation of the provisions of the FCCPA on restrictive agreements.

We have highlighted below some notable points regarding the regulation of restrictive agreements in Nigeria.

1. What are Restrictive Agreements?

Restrictive Agreements under the FCCPA are agreements that prevent, restrict or distort competition in any market. This can be done through price fixing, market allocation, limitation of production/ distribution of goods and services, collusive tendering, and tied selling. Agreements that involve any of the above activities are by virtue of the FCCPA, generally unlawful and have no legal effect.

2. What is the criteria for determining whether an agreement is restrictive?

An agreement would be deemed restrictive where the purpose of the agreement is to restrict competition (purpose-based restriction of competition) or where the effect of such agreement restricts competition (effect-based restriction of competition).

a) Purpose-based Restrictive Agreements

According to the Regulations, in determining whether an agreement is purpose-based restrictive, the FCCPC will consider: the content and objectives of the agreement; the actual conduct of the parties to the agreement; and the legal and economic context in which the agreement is applied. The FCCPC may also consider the subjective intention of a party to the agreement where the implementation of the agreement reveals a purpose-based restriction of competition.

b) Effect-based Restrictive Agreements

In determining whether the effects of an agreement is restrictive, the FCCPC will consider the actual and potential effects of the agreement. In identifying Effect- based restrictive agreements, the Regulation provides that such agreements:

i. should have or be likely to have an appreciable adverse effect on at least one parameter of competition in the market eg price, output, product quality, product variety or innovation;

ii. appreciably reduce competition between the parties to the agreement or between any of the parties and a third party, by reducing the party’s decision-making independence;

iii)   should enable the parties to profitably raise prices or reduce output, product quality, product variety or innovation.

The Regulations also provide that the FCCPC would consider: the nature and context of the agreement; the extent to which the parties to the agreement possess some degree of market power; the extent to which the agreement contributes to the creation, maintenance or strengthening of their market power e.t.c., in determining whether the effects of the agreement is restrictive.

3.What are the Criteria for Obtaining an Exemption to Execute Restrictive Agreements?

A restrictive agreement will not be deemed to be illegal and void where entry into such an agreement has been authorized by the FCCPC. According to the FCCPA and the Regulations, the FCCPC is only empowered to grant such authorisations where all the of conditions set out below are met.

a)The agreement is required to contribute to the improvement of production or distribution of goods and services or the promotion of technical or economic progress;

b)Consumers must receive a fair share of the resulting benefits of (a) above;

c)The restrictions imposed in the agreement should be limited to those which are indispensable to the attainment of the objectives in (a) above; and

d)The agreement should not permit the possibility of eliminating competition in respect of a substantial part of the goods and services concerned.

It is important to note that the burden of proving that the restrictive agreement complies with the a-d above rests on the party applying for the authorization of the restrictive agreement.

4. How Can a Party to a Contemplated Restrictive Agreement Obtain an Exemption?

Parties to a contemplated agreement can apply for an exemption by submitting an application to the FCCPC for its decision as to whether the agreement is restrictive and including a request for exemption. The applicant will also be required to file a copy of the contemplated agreement or a document that provides full details of the agreement.

5. How can Parties ensure that their Contemplated Agreements are not Restrictive?

Parties to an agreement that suspect, or are of the opinion that their contemplated agreement infringes on the provision of the FCCPA concerning restrictive agreements, are by the Regulations permitted to apply to the FCCPC for an assessment of the contemplated agreement. This can be done by submitting a notification to the FCCPC in respect of the agreement in addition to a copy of the agreement or a document containing full details of the agreement and supporting information on the agreement. The FCCPC is required to provide guidance to the applicant as to whether the agreement is a restrictive agreement and prohibited within 40 days of the application.

Conclusion

The provisions of the FCCPA and the Regulations on restrictive agreements are useful in developing Nigeria’s anti-trust legislation and entrenching fair market practices in support of  economic growth. A useful point to note about the regulations is that it provides detailed guidelines on how to determine restrictive agreements and the criteria for obtaining exemptions, thereby limiting the discretionary powers of the FCCPC.