Posts

Renewable Energy: Requirements to Operate a Solar Business in Nigeria

/in /by

BY SEUN TIMI-KOLEOLU AND PROMISE ITAH

Introduction

Renewable energy is rapidly transforming the global power landscape, with solar energy emerging as a key solution to electricity challenges. In Nigeria, where millions of homes and businesses face unreliable power supply, the demand for alternative energy sources has surged. Among other renewable energy sources — such as hydropower, wind energy, and geothermal energy—there is a rapid and growing reliance on solar energy, which presents immense opportunities for businesses looking to provide sustainable power solutions. It is therefore essential, in order to navigate this expanding market in Nigeria, for businesses to understand the legal and regulatory framework governing operations in the solar energy sector.

In this newsletter, we highlight key regulatory considerations to operate a solar energy business in Nigerian.

Key Regulatory Considerations

For businesses looking to set up operations in Nigeria, the following key requirements must be met:

1. Business Registration

All businesses must first register with the Corporate Affairs Commission (CAC) to legally operate in Nigeria. This process includes choosing a name, submitting necessary documentation, and paying registration fees. The CAC issues a certificate evidencing registration, which is required to open a business bank account and for various other regulatory processes. For other considerations on business registration and available business structures, please see our newsletter on Frequently Asked Questions (FAQ) here. For foreigners intending to set up business in Nigeria, please see our newsletter providing guidance here.

2. Importer/Exporter Number from Nigerian Customs Service

To import or export solar products, businesses must register with the Nigerian Customs Service (NCS) and obtain an Importer/Exporter Number (IEN). This number is essential for proper documentation and clearance of goods through Nigerian ports.

Required documents to accompany application for registration with the NCS include: Certificate of Incorporation, Tax Identification Number (TIN) from the Federal Inland Revenue Service (FIRS), Bank Reference Letter, Identification of business owners or directors, and Company contact information.

The process typically takes 1-2 weeks, and the applicable fees may vary.

3. Standards Organisation of Nigeria Certification for Solar Products

Solar products must undergo certification by the Standards Organisation of Nigeria (SON) through the SON Conformity Assessment Programmes. This ensures the products meet local quality and safety standards.

Certifications:

· Mandatory Conformity Assessment Programme (MANCAP): This is a quality assurance initiative established by SON to ensure that locally manufactured products meet the required quality and safety standards before introducing the product to the market. A MANCAP certificate and MANCAP logo is issued to a manufacturer by SON upon application, after formal inspection and product testing have been conducted by SON. A MANCAP certificate is valid for three years, after which the product will have to undergo recertification.

Required Documents for SON Registration include CAC certificate, picture of the product, power of attorney (if you are an importer), manufacturer’s agreement (if you are an importer), trademark certificate (if you have a brand name).

Fees and timelines vary based on product type and completeness of documentation.

· Product Certificate: For products to be imported into Nigeria, the first step to certification with SON in Nigeria is obtaining the product certificate from the manufacturing country. The product certificate confirms that the product meets the required quality standards. It contains information relating to the product, the testing and details of the product manufacturer.

· SON Conformity Assessment Programme (SONCAP): Upon arrival in Nigeria, imported products must be registered with SON. When the registration of the product is completed and successful, a SONCAP Certificate will be issued to confirm compliance with the required quality and safety standards.

Required Documents for SON Registration include: duly completed application form, valid product certificate, company certificate of incorporation, photographs of the product, manufacturer’s agreement, trademark certificate (if applicable), list of items to be imported and sample proforma invoice.

The SONCAP certificate is issued after product inspection and payment of fees. Fees and timelines vary based on product type and completeness of documentation.

4. Generating Set Import Clearance from the Nigerian Electricity Regulatory Commission

To be able to import solar-powered generators, clearance certificate must be obtained from Nigerian Electricity Regulatory Commission (NERC). The clearance certificate is valid for six months and can be renewed upon payment of renewal fees.

Required information and documents for obtaining the clearance certificate include: name of applicant and quantity of generators to be imported; noise level (not more than 35Db) and pollution control; make of generators as well as the technical and environmental rating, purpose of importation; country of origin and capacity of the generator; copy of the Certificate of Incorporation; three years Tax Clearance Certificate; Value Added Tax registration certificate, commercial invoice/proforma invoice; SONCAP Certificate; and proof of conformity with extant environmental regulations (emissions, noise etc).

The associated fees are dependent on the size (kVA) of the generating set. The timeline for the issuance of the clearance certificate is dependent on the availability of the required documents and NERC’s satisfaction with the application.

Other Regulatory Considerations

In addition to the key regulatory considerations outlined above, other regulatory factors to be considered include:

· Import Duty and Tariffs: While solar panels are exempt from import duties, other solar energy products may be subject to duties unless exempted.

· Customs Clearance: Imported solar products must undergo clearance at Nigerian ports. Documents required for customs clearance include Bill of Lading, Commercial Invoice, Certificate of Origin, and Packing List.

· Environmental Impact Assessment (EIA): For large-scale solar projects, an EIA must be obtained from the National Environmental Standards and Regulations Enforcement Agency (NESREA).

· Electrical Safety and Installation Standards: Businesses engaging in the installation and maintenance of solar energy products must have a qualified engineer who will oversee solar installations to ensure compliance with safety regulations.

· Electricity Licensing: NERC license must be obtained before businesses can generate solar power exceeding 1 MW.

Conclusion

As solar energy becomes a key solution to Nigeria’s power challenges, businesses in the sector must navigate essential regulatory requirements. By understanding and adhering to these legal frameworks, businesses can effectively tap into the potential of the solar energy sector and contribute to a sustainable energy future. The foregoing is, however, not exhaustive, and it is advised that businesses stay up to date on regulatory and compliance requirements for their operations.

AI ADOPTION IN NIGERIA: LEGAL CONSIDERATIONS FOR NIGERIAN BUSINESSES

/in /by

BY ADERONKE ALEX-ADEDIPE AND QASIM OGUNJIMI

AI ADOPTION IN NIGERIA LEGAL CONSIDERATIONS FOR NIGERIAN BUSINESSES

INTRODUCTION

As artificial intelligence (AI) continues to revolutionize industries worldwide, its adoption among Nigerian businesses is gaining significant momentum. In Nigeria, businesses across various sectors, including finance, healthcare, and digital services, are increasingly adopting AI technologies to improve operational efficiency, drive innovation, and gain a competitive edge in both local and global markets. While the benefits of AI adoption are vast and transformative, they also bring forth significant legal and governance challenges. The absence of comprehensive regulatory frameworks, concerns over data privacy and protection, and the need for ethical guidelines present challenges that Nigerian businesses must navigate carefully when adopting AI.
This newsletter highlights the legal considerations surrounding AI adoption; the importance of robust governance, accountability, and ethical practices for businesses in Nigeria and beyond.

Legal Considerations for AI Adoption
To effectively navigate the legal aspects of AI adoption, Nigerian businesses should consider these major factors;

1. Regulatory Compliance:

Despite the absence of specific AI regulations, various existing laws may indirectly influence AI deployment and use in Nigeria. Some of the provisions of these regulations are analysed below;

Data Protection: For example, the Nigerian Data Protection Act (NDPA) provides that a data subject shall not be subject to a decision based solely on automated processing of personal data except where there is human intervention, and the logic of the decision made is capable of being contested. The implication of this provision is that entities using AI to process personal data must ensure human oversight in their process. Additionally, the Nigeria Data Protection Commission (NDPC) has also issued a draft General Application and Implementation Directive (GAID), which requires data controllers or processors using emerging technologies, including AI, for personal data processing to consider the NDPA, public policy, and other regulatory instruments. When using emerging technologies, the GAID requires data controllers and processors pay particular attention to the various rights of data subjects and the implementation of privacy by design.

Consumer Protection: Similarly, the Federal Competition and Consumer Protection Act (FCCPA), which aims to prevent unfair trading practices and protect consumers, applies to businesses using AI in marketing or customer interactions. For instance, businesses employing AI-driven targeted marketing strategies must ensure that the algorithms do not engage in deceptive practices that mislead consumers about product features, pricing, or availability. Additionally, AI systems that automate customer service interactions must be designed to treat all customers equitably. If an AI system inadvertently discriminates against certain groups—whether through biased training data or algorithmic errors—it could lead to unfair treatment of consumers, violating the principles of the FCCPA. Thus, businesses must implement measures to identify and rectify biases within their AI systems to ensure compliance with FCCPA.

Digital Advisory: The Securities and Exchange Commission (SEC) Rules on Robo-Advisory Services (the “SEC Rules”) seeks to regulate digital advisory services- i.e the provision of investment advice using automated, algorithm-based tools which are client-facing, with little or no human adviser interaction in the advisory process. These rules mandate that Robo-Advisors (i.e a person who provides digital advisory services) implement measures to mitigate bias in their algorithms and ensure that clients are fully informed about the assumptions, limitations, and risks associated with the AI technologies used in providing advisory services.

In summary, while specific AI regulations are still forthcoming, businesses must comply with the NDPA, FCCPA and other applicable laws when developing and deploying AI technologies. Engaging legal counsel to navigate these complexities can significantly help in ensuring compliance and responsible AI adoption.

2. Contractual Framework: When integrating AI technologies into their system, businesses must establish clear contractual framework to govern their relationship with AI developers or service providers. This framework is essential for mitigating risks and protecting the interests of all parties involved. Some of the key components of the contracts include defining liability for any malfunctions or errors, and specifying ownership rights regarding data, algorithms, and any outputs generated by the AI systems. Additionally, businesses should outline performance expectations in service level agreements (SLAs), covering aspects such as accuracy, reliability, and compliance with applicable regulations.

3. Governance Framework: Implementing a comprehensive governance framework is essential for organizations adopting AI technologies, as it establishes the structures and processes needed to manage risks and ensure compliance with applicable laws and international best practices. This framework should include policies that outline the responsible use of AI, and processes to regularly evaluate the functionality and effectiveness of AI systems. Another component of this governance framework involves conducting regular risk assessments to identify vulnerabilities within AI systems and evaluate the potential impact of such vulnerabilities vis-a-vis compliance requirements.

4. Transparency and Explainability: Transparency is a fundamental principle that organizations must prioritize when adopting AI technologies, particularly as these systems increasingly influence decision-making processes. Businesses must ensure that their operations involving AI are clear and understandable to stakeholders, including consumers, regulators, and employees. For example, under the SEC Rules, Robo Advisers are required to disclose, in writing, to their clients; assumptions, limitations, and risks of the algorithms; circumstances under which the Robo Adviser may override the algorithms or temporarily halt the Robo Advisory Service; and any material adjustments to the algorithms

Conclusion
In conclusion, as Nigerian businesses increasingly embrace AI technologies, understanding the associated legal considerations is crucial for successful adoption. With focus on the legal considerations explored in this newsletter, businesses may leverage the benefits of AI while maintaining regulatory compliance, upholding ethical standards and safeguarding their reputations.

REGULATORY UPDATE: THE NEW WITHHOLDING TAX REGIME (DEDUCTION OF TAX AT SOURCE REGULATIONS 2024)

/in /by

By Seun Timi-Koleolu and Kofoworola Ayoola

DOWNLOAD PUBLICATION

Introduction

Withholding Tax (WHT) is an advance payment of income tax that is deductible at source on specific transactions. In simple terms, where Party A and B enter a transaction for which payment is to be received and income tax is payable, Party B is required under the law to deduct a percentage before payment to Party A for remittance to the tax authority as an advance payment of income tax for Party A. Amounts withheld can be applied as tax credit during tax return filings to reduce the overall income tax liability of Party A.

The concept of WHT was introduced into Nigeria’s tax system in 1977 to curb tax evasion, reduce tax leakages and to gain insights on the commercial activities of resident and non-resident businesses. Prior to now, the WHT regime presented challenges for businesses due to ambiguities in applicable provisions of law, burdensome compliance requirements, irregularity of the WHT credit system and inconsistent practices by tax authorities. Recognizing this, the Ministry of Finance recently issued the Deduction of Tax at Source (Withholding Tax) Regulations 2024 (the “Regulations”), effective 1st of July 2024. These regulations aim to streamline the withholding tax process in Nigeria, making it more business-friendly and efficient.

In this newsletter, we highlight the key changes and the benefits of the new Regulations for businesses.

1. What is Withholding Tax?

WHT is not another form of tax, rather it is an advance payment of income tax deducted at various rates, now ranging from 2% to 20% depending on the transaction. WHT cannot be used to offset any other type of tax liability, except income tax liabilities. Also, WHT is first used in the year of assessment to which an income relates before it can be used to settle future tax liabilities.

2. What are the Transactions Subject to WHT and Applicable Rates?

The transactions subject to WHT and the applicable rates are as follows:

Corporate Recipients Non-Corporate Recipients
Transactions Resident Non-resident Resident Non-resident
Dividend, Interest 10% 10% 10% 10%
Royalty 10% 10% 5% 5%
Rent, Hire or Lease 10% 10% 10% 10%
Commission, consultancy, technical, management, and professional fees 5% 10% 5% 10%
Supply of goods or materials other than by the manufacturer or producer 2% N/A 2% N/A
Co-location and telecommunication tower services 2% 5% 2% 5%
Supply or rendering of services other than those specifically listed in the Schedule 2% 5% 2% 5%
Construction of road, bridges, building and power plants 2% 5% 2% 5%
Any other form of construction and related activities 5% 10% 5% 10%
Brokerage fee 5% 10% 5% 10%
Directors’ fee N/A N/A 15% 20%
Compensation for loss of employment N/A N/A 10% 10%
Entertainers and sport persons N/A 15% N/A 15%
Winnings from lottery, gaming, reality shows, etc. N/A N/A 5% 15%

3. What is the Scope of Application of the Regulations?

The new Regulations will apply to all WHT payments made under the following laws:

● Capital Gains Tax Act (CGTA)
● Companies Income Tax Act (CITA)
● Petroleum Tax Profits Tax Act
● Personal Income Tax Act (PITA)

4. What Transactions are exempted from WHT?

A few transactions exempted from WHT are: distributions or dividend payments to a real estate investment trust or real estate investment company; across-the-counter transactions; interest and fees payable to a Nigerian bank through direct debit of funds domiciled with the bank; goods/materials manufactured or produced by a supplier; imported goods from a foreign supplier with no taxable presence in Nigeria; winnings from a game of chance or reality show exclusively promoting entrepreneurship, academic, technological or scientific innovation, amongst other transactions listed in the new regulation.

5. What are the Key Changes and Benefits for Businesses under the Regulations?

a. Clear Unified Rules Guiding WHT Implementation

Prior to the issuance of the Regulations, businesses struggled to understand their withholding tax obligations as the rules guiding the implementation of WHT in Nigeria were ambiguous and fragmented. Although WHT provisions are still contained in various Acts, the Regulations now provide clear and simplified rules for its implementation.

b. Clarification on Persons Required to Deduct at Source

The Regulations introduce a single, clear list of entities required to deduct WHT at specific rates on eligible transactions, explicitly excluding individuals. This list applies uniformly across all Income Tax Acts covered by the Regulations. They are:

  • body corporate or unincorporate, other than individuals
  • governments, and their Ministries, Departments and Agencies (MDAs)
  • statutory bodies
  • public authorities
  • institutions, organizations, establishments and enterprises
  • payment agents on behalf of those listed above.

c. Exemption of Small and Medium Enterprises (SMEs) and Farmers from WHT Compliance

Section 2(2) of the Regulations exempts small companies and unincorporated bodies from the requirements to deduct WHT from any transaction, provided however that the value of the transaction during the relevant calendar month, is not above Two Million Naira and the supplier they are dealing with has a valid Tax Identification Number (TIN).

d. Improved Utilization of Tax Credits

Previously, entities from whose payments WHT had been deducted (“Tax Beneficiaries”) could not claim WHT tax credits from the Federal Inland Revenue Service (FIRS) against their eventual tax liabilities if the person who deducted WHT from the payments (the “Tax Agent”) failed to remit the tax to the authorities. However, Section 6(3) of the Regulations now permit Tax Beneficiaries to claim WHT tax credits through receipts issued by Tax Agents, regardless of whether the agents have remitted the deducted amounts. These unremitted amounts become the tax liability of the agents and are recoverable with applicable penalties and interest.

e. WHT to Function as an Advance Tax Payment and not an Additional Contract Cost

While it is common practice for contracting parties to adjust negotiated contract price upwards to account for anticipated WHT deductions, in a bid to shift the burden of WHT payment to the other party to the contract (i.e. Gross Up provisions in contracts), the Regulations now expressly state that a WHT payment should not be treated as an additional cost of a contract or transaction and therefore should not be included in the contract price as an additional cost.

Conclusion

The Withholding Tax regime has been the most complex aspect of tax compliance in Nigeria. The new Deduction of Tax at Source (Withholding Tax) Regulations 2024, represent a significant step forward for the tax authorities to address long-standing challenges faced by businesses in Nigeria. While more work remains to be done, particularly with respect to some ambiguities still within the WHT regime, we expect that the implementation of these Regulations will foster a more business-friendly environment, allowing businesses to thrive in Nigeria.

CONTACTLESS PAYMENT METHODS – THE REGULATION OF QUICK RESPONSE (QR) CODES IN NIGERIA

/in /by

By Seun Timi-Koleolu and Eustace Aroh

Introduction

A cashless world was hard to imagine in the 80s and 90s (at least for most of us). It was unimaginable for you to successfully make payments, without cash, a debit or a credit card. What exactly were you to use then?! Right before our eyes, the world began to change, the mobile phone became more than a phone, it became your everything; your notepad, your office, your camera and your payment device (with the use of Quick Response [QR] Codes and Near Field Communication [NFC] tags).

The use of QR Codes as a payment method was introduced by Alipay in 2011 and became a widely used method of payment in China. NFC tags (which are chips built into smartphones) were used in countries like the United Kingdom first.

In Nigeria, QR Codes as a payment method is gradually gaining traction. Fintech companies such as Paystack and Flutterwave now offer sellers and service providers the ability to receive payment by generating and printing or sending a QR Code to their customers even over social media platforms such as Facebook. Many of the traditional financial institutions (such as First Bank and Guaranty Trust Bank) have updated their mobile applications to enable Customers utilize QR Codes as a payment method.

To properly regulate the use of QR Codes as a payment means in Nigeria, the Central Bank of Nigeria (CBN) on January 13, 2021, issued a Framework for QR Code Payments in Nigeria (“Framework”). We have highlighted some salient provisions of the Framework below.

Who are the Participants?

The major participants to a QR Code transaction as stated in the Framework are:

  1. The Merchant – this is the store owner, seller or service provider that has requested for payment through a QR Code.
  2. The Customer – this is the individual who is to pay the Merchant using the QR Code.
  3. The Issuer – this is the financial institution of the Customer.
  4. The Acquirer – this is the financial institution of the Merchant.
What are their Obligations?
  1. Where a Merchant elects to receive payment through QR Codes, he can only display QR Codes approved in Nigeria.
  2. The Merchant is also expected to comply with all extant CBN regulations and the rules of the Acquirer.
  3. The Customer is expected to use the QR Code application (provided by its financial institution i.e. the Issuer) without modifications and adhere to any security protocol of the Issuer.
  4. The Issuer is required to provide the Customer, upon request, with a QR Code Payment application that complies with the QR Code regulations; and ensure that all Customers update the application within 14 days of deployment of an update or patch.
  5. Issuers are also required to send a quarterly risk management assessment report to the Director, Payments System Management Department, CBN.
  6. The Acquirer is expected to ensure the proper use of the QR codes at the Merchant’s location or platform; and ensure the technology and protocol used for QR code conforms with the QR Code payment regulations.
  7. The value of each QR Code transaction must be delivered by the Acquirer to the Merchant within a day after the transaction.
  8. Both the Acquirer and the Issuer are to ensure the security of their system in such transactions.
  9. Where a switch or payment service provider is involved, they are required to facilitate interoperability between the Issuer and Acquirer and comply with the Framework and other CBN regulations on electronic payments.
Other Provisions of the Framework

The Framework adopts the Merchant-presented mode specification for Nigeria (as opposed to the customer-presented mode) which means the Merchant has to present the QR Code for buyers to scan in order to conclude the payment transaction.
Please also note that the Nigeria Inter-Bank Settlement System Plc (as the Payment Terminal Service Aggregator) is to certify QR Codes, the payment applications, updates and patches.

Conclusion

Payment with the use of QR Codes in Nigeria is gradually becoming the preferred choice for businesses in Nigeria as it is an affordable alternative to utilizing POS solutions. The issuance of the Framework is a positive step to encourage innovation in financial services and promote the secured use of QR Codes in Nigeria