DIY Compliance Guide for Local Businesses

Statutory and Regulatory Compliance in Nigeria can sometimes be a herculean task especially for small and medium scale business in Nigeria. Also for Foreign Businesses that are not familiar with doing business in Nigeria. Sidebrief on Saturday, 22nd June 2019 had a workshop in collaboration with Ventures Dialogue, FCMB, Lead Space, and Foodie In Lagos to educate Founders and Business Owners on how to run a business that complies with the statutory and regulatory framework in Nigeria. We have produced below the compliance insert that was included in the Workbook that was made available to participants to help businesses seeking to stay compliant.


DIY COMPLIANCE GUIDE FOR LOCAL BUSINESSES IN NIGERIA


Over the last few years, the spate of regulatory actions against businesses has grown increasingly as companies have had to pay billions to settle fines imposed for various regulatory breaches. As NIgerian companies combat regulators, their global counterparts are also not spared in the tidal wave of regulatory sanctions. According to data from the Boston Consulting Group, banks globally have paid over $321 billion in fines between 2008 - 2018.


Locally, companies in Nigeria have been subject to various fines and penalties for regulatory infractions. In 2015, the Nigerian Communications Commission (NCC) imposed fines of over $5.2 billion on companies in the telecoms sector; in 2016 the Central Bank of Nigeria fined four banks for various regulatory breaches in excess of ₦4 billion; the Corporate Affairs Commission (CAC) deregistered over 38,000 companies for failure to file; and the Lagos State Government has frequently cracked down on motorcycle hailing apps like Gokada and Max.ng operating in Nigeria’s commercial capital.


As big companies continue to pay huge amounts in fines and penalties, small companies and SMEs have also had to face shutdowns, seizures, extortions and regulatory barriers to market entry due to compliance barriers to doing business locally.  With a business environment that is overly regulated with diverse regulators, there are potentially over 1000 types of licenses, permits or approvals and well over 100 fillings and returns for businesses to waddle through, in a market filled with over 250 federal, state and local regulators.


Due to the vast number of regulatory agencies and compliance regulations in Nigeria, a lot of businesses find it difficult to keep up. They are often caught unawares or unprepared, sometimes even ignorant of compliance requirements until it is too late (fines and penalties, or even shutdowns and seizures then apply). To enable small businesses understand compliance, we have created a step by step guide that helps businesses create a DIY grid to identify their compliance requirements in four (4) steps:

EASY DIY COMPLIANCE IN NIGERIA


STEP I - IDENTIFY COMPLIANCE REQUIREMENTS FOR YOUR BUSINESS ACTIVITIES

Every business operating locally is typically required to comply with some or all of three (3) broad categories of regulatory requirements. This usually comprises of the general compliance requirements, the core compliance requirements and the peripheral business requirements, which are considered below: -


  • General compliance requirements


This comprises of regulatory requirements that are applicable to all local businesses, regardless of size, activities or location. This includes, amongst others, registration of businesses with the CAC, registration with tax authorities, registration of business premises, registration of trademarks (optional), registration with trust funds etc.

  • Core business requirements


These are the most vital compliance requirements for any business, as they are sectoral requirements prescribed by the regulators overseeing the business activity being undertaken by an enterprise. These are considered core requirements as undertaking business without these requirements will be in breach of sectoral regulations. Compliance requirements that falls within this category includes those obtained from sectoral regulators like NAFDAC, SON, CBN, PENCOM, SEC etc.

  • Peripheral business requirement


Certain requirements are not core to business operations but required for ancillary activities and operations of the company. These include requirements like signage permits, premises permit, advertising and branding permits, waste management registration, and fire department certificate etc.

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STEP 2 - IDENTIFY APPLICABLE TIERS OF COMPLIANCE IN NIGERIA


Nigeria operates a federal system with three (3) tiers of government - federal, state and local government, each with a sphere of influence (laws, policies and regulations). It is often required that businesses have to comply with regulatory requirements from each of the government tiers that constitutes the federation, hence each of the categories of requirements identified above may apply to businesses across one or more tiers of government.  Each tier of governance is considered below: -


  • Federal regulations

    The first tier of compliance that businesses (local or international) have to contend with are those prescribed under federal regulations. The application and scope is wider and non-compliance is more limiting. This is typically the start-off point for compliance in Nigeria. Categories of requirements under this class includes registration of business entities with the CAC, registration for corporate tax remittances with the FIRS, registration and remittances to the NSITF, registration and remittances to the ITF and registration and remittances of the NITDA Levy etc.

 

  • State regulations

    The second tier of compliance for businesses are those prescribed by state governments and their various regulatory arms. It is not uncommon to find that there is always a need to obtain permits from more than one state regulator for a business activity, further complicating the mix of permits required. Typical compliance requirements include registration of partnerships and cooperatives, procurement of building permits and approvals from the State’s Building Control Agency, business premises permit from the State’s Internal Revenue Service, fire safety certificate from the State’s Fire Service, tax registration with State Internal Revenue Service, registration with the State Signage and Advertisement Agency.


  • Local regulations

    The local governments in each state also (including, local council development areas) prescribe certain compliance requirements, such as tenement rates, motor park levies, signboard and advertisement rates. These are typically peripheral compliance requirements with defaults resulting in fines and penalties.


STEP 3 - IDENTIFY THE TYPES OF REMITTANCES 


There are different types of remittances that must be made to these three tiers of government agencies by businesses and individuals. To help businesses properly assess the types of remittances, taxes, levies and duties they are subject to, we categorize remittances under three (3) broad headers: -

 

  • Remittances by entities

    Registered entities are required to remit different types of taxies, levies and contributions to regulatory bodies. This includes generally applicable taxes and levies like CIT, TET, ITF and NSITF, as well as sector specific levies like NITDA levies.

  • Remittances by individuals

    Individual employees and business owners are required to remit personal taxes on income they earn to the relevant state tax authorities.

 

  • Remittances by transactions

Some remittances and taxes are due and chargeable on transactions undertaken by a business. This includes taxes like VAT, WHT and CGT, as well as stamp duties, charges and consent fees on relevant transactions.

STEP 4 - KNOW THE FREQUENCY OF COMPLIANCE IN NIGERIA


For each tier of compliance level, there are distinct differences in the frequency of compliance requirements. Whilst some requirements are to be met once, others are to be frequently observed with renewals, returns and assessments. The broad categorizations based on frequency are: -


  • One-Off requirements

    There are certain compliance requirements that are expected to be procured once in the life of a business, unless there is a change in business objects or status. This could range from core business licenses by the regulators overseeing the sector, such as the CBN, PENCOM, NIPC, NOTAP and other licenses, such as those required to operate schools, hotels, casinos and lotteries.

  • Recurrent requirements

    Business are typically required to meet up with recurrent requirements to maintain their compliance status, after fulfilling their one-off compliance needs. These renewals are usually periodic and compliance documentations are typically filed. The majority of regulatory compliance pitfalls can be found here, as this category includes filings, returns, assessments and renewals required from several bodies across all tiers of governance.

 

SETTING BRICKS - KEY NOTES TO GETTING COMPLIANCE RIGHT

  • Permits, approvals and licensing requirements can be industry specific and the fact that your company has complied with the general ones does not exempt it from specifics. There are certain highly regulated industries which have a lot of government and regulatory oversight. The founders must stay on top of their game in terms of compliance.

  • Though many permits are recurrent and figuring out what regulations apply to your start-up can be daunting, setting the foundation is key especially if you are looking at scaling.

  • Watch for milestones as your business will only be required to comply with some requirements as your employee count increases and your annual turnover rises.
  • It is always the best tactic to go after the tax man rather than being in a cat chase with the tax authority.

  • No time should be wasted in making sure all critical intellectual property are registered in the name of the company.
  • Non-compliance can hurt your fundraising attempts as due diligence will be undertaken on your business by investors, which will consider regulatory and compliance risks.

  • Obtaining licenses, permits and approvals can be a herculean task, between documentary requirements and tight timelines, bureaucracy and high cost. Start early, take first steps then consolidate and stay up to date.
  • There are no day-offs, always ensure that your company is conducting its business and operations in full compliance with all regulations

  • The fact that your venture is small and has not scaled or isn’t making traction in terms of profit does not make it an exception to the general rule - even one-man retail stores get locked up.

SIDEBRIEF


Sidebrief is a private one-stop shop that helps businesses and start-ups manage statutory and regulatory compliance, engage with regulators and stakeholders and automate recurrent compliance process. We understand that ease of doing business in Nigeria can be an illusion, but we are helping to change the narrative by letting businesses focus on their customers, whilst we focus on their compliance in Nigeria.

We are happy to discuss how we may help your business.

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