Tax is one certain obligation for every company doing business in Nigeria. Tax may be a burden, but we have “rest stops” on the journey to paying taxes (i mean “tax incentives”).
This article describes some of the tax incentives available to incorporated companies in different industries in Nigeria. In a subsequent article, we will examine the incentives for unincorporated entities.
The agricultural industry currently has the following tax incentives:
• An agricultural company with turnover of less than ₦1 million will pay CIT at 20% (instead of 30%) for the first five years
• Exemption from minimum tax
• Non-restriction of the capital allowance claimable on purchased property, plant and equipment
• 10% Investment Allowance on plant and machinery
A lot of manufacturing activities are under the pioneer industries and products. However, the companies in the manufacturing sector still have other tax incentives.
• A manufacturing company with turnover of less than ₦1 million will pay CIT at 20% (instead of 30%) for the first five years
• Rural Investment Allowance of between 15% and 100% of the cost incurred in providing facilities/infrastructure in rural areas
• 15% Investment Tax Credit on replacement of obsolete plant and machinery
• 10% Investment Allowance on plant and machinery
• Accelerated capital allowance of 95% in the first year of replacement of industrial plant and machinery.
• Gas Utilisation (Downstream Operations)
Enhanced investment allowance of 35% on assets acquired, or a 3-year tax holiday which is renewable for 2 years if there is satisfactory performance.
An annual allowance of 90% plus an additional investment allowance of 15% after the tax-free period. A company will not be entitled to the 15% investment allowance if it opts for the enhanced allowance.
Tax free dividends during the tax holiday, subject to certain conditions
Plant, machinery and equipment that are purchased for gas utilisation are exempted from value added tax (VAT)
Profit from gas utilisation operations is subject to tax under the CIT Act
Pre-production costs and investment required to separate crude oil and gas from the reservoir are tax deductible expenses
• Gas Utilisation (Upstream Operations)
Capital investment on facilities and equipment required to deliver associated gas in usable form is treated as part of the capital investment for oil and gas development
Investment required to refine crude oil and gas extracted from the reservoir into usable products is also considered part of oil field development
Gas transferred from a Natural Gas Liquid facility to the gas-to-liquids facilities is subject to 0% Petroleum Profits Tax and 0% royalty.
• A company engaged in wholly export trade with turnover of less than ₦1 million will pay CIT at 20% (instead of 30%) for the first five years
• Export Expansion Grant
• The profits of a company whose supplies are exclusively inputs to the manufacturing of products for export are exempt from CIT
• The profits of a company established within an export processing zone is exempt from CIT
• Tax-free dividends from investment in wholly-export-oriented business
• A mining company with turnover of less than ₦1 million will pay CIT at 20% (instead of 30%) for the first five years
• A new company engaged in the mining of solid minerals will enjoy a tax holiday of three years
• Plant, machinery, equipment and accessories imported exclusively for mining operations in Nigeria are exempted from customs and import duties
• 25% of incomes in convertible currencies derived from tourists by a hotel is exempted from tax, subject to certain conditions
• Interest payable on any loan granted by a bank for the purpose of manufacturing goods for export are exempted from tax
• Interest earned from agricultural loans are exempted from tax subject to certain conditions
• Companies engaged in research and development activities for commercialization are entitled to 20% investment tax credit
• Companies with approved business in the free trade/export processing zones are exempted from tax
• New companies are exempted from minimum tax
• Income from investment in bonds and treasury bills is exempted from tax
• Interest earned on foreign currency domiciliary account in Nigeria is exempted from tax
• Beneficiary’s Investment (dividend, rent, interest and royalty) income derived from outside Nigeria and brought into Nigeria through government-approved channels are exempted from tax.
I encourage companies in different industries to take advantage of these tax incentives. It is important that you engage with a tax professional to confirm your eligibility and the application process (if any) for enjoying these incentives.
It has been said that “no business can succeed in any great degree without being organised”- this is the truth that many failed Businesses have not mastered.
Unfortunately too, it is not all registered companies that have had the opportunity of being advised on the things that every company must take note of after becoming registered.
Many of my business students have been sparked to start their company as soon as they understood the details needed to start one, but not all of them waited to find out the details that are needed to give their company that solid foundation that will give them an organised outlook.
The tips that I will give to you in this article may be totally new, while some will come to you as a reminder, if you will put everything in place to comply with them, they will strengthen your hands to become a master Potter modelling the business ideas that you want and growing it into a reality.
Comments are welcome, and questions may be directed to my email address firstname.lastname@example.org. Enjoy!
TIP NO 1:
As soon as you register your company, purchase a standard notebook to record the details of the members of your new company.
Put in the layman sense, your members are otherwise known as the co-owners of the company.
You can title the notebook as “Register of Members of ……. (Insert your company’s name)”.
The records of each member should include their names, address, extent of ownership in the company, date on which each person became a member, date on which the person ceased to be a member (i.e. where the person has ceased to be a member).
There are other technical details that you must bear in mind. For instance, the kind of entry that will be in your Register of Member for a Company Limited by Shares may be affected by whether or not each member has paid for the unit of shares owned by him/her. In the event too that you have converted your shares into stock with proper notice to the Cooperate Affairs Commission, your Register is supposed to show the details of the stock and not shares.
You must take inventory of the members that started the company within 28 days of registering your company, and you must take inventory of all subsequent members within 28 days of the conclusion of agreement for them to become members. Where a person ceases to be a member, you must take record of that fact within 28 days too.
You may decide to keep your Members’ Register at your registered office, or in another office of your company (if that is the place where you make up the content of the Register), otherwise, you can keep it with your Legal Adviser/ Solicitor particularly if he/she is responsible for using his/her professional competence to manage the Register on behalf of your company.
If you prefer to keep the Register at an office other than your registered office, or with your Legal Adviser/Solicitor, make sure that either your company secretary or your Solicitor notifies the Corporate Affairs Commission of the place where the Register is kept within 28 days of the company’s decision.
TIP NO 2:
Where your company has more than 50 members (maybe because there are members that are joint holders of your company’s shares or for some other reasons), you may either choose to keep an Index of the members of your company in your Register of Members, or buy a separate Standard Notebook to take inventory of the Index of members.
The index of your company will contain the alphabetic list of the names of the members of your company and must, at all times, be kept at the same place with the Register of Members.
Where you make any alteration in your company’s Register of Members which makes it necessary that a consequential alteration be made in your Index of Members, you must make the consequential alteration within 14 days after the date on which the alteration is made in the register of members.
TIP NO 3:
Your company must hold its first annual general meeting within 18 months of its registration, and within every 15 months thereafter.
An “Annual General Meeting” is the yearly general meeting of the members of a company to deliberate on the businesses of the company. By implication, the following people are entitled to receive notice of your company’s general meeting:
• Every member
• Every person upon whom the ownership of a share devolves by reason of law
• Every director of your company
• Every auditor for the time being of your company
• Your company Secretary
At the Annual General Meeting, your company may present the financial statements for the year ending, present directors and auditors’ report, elect new directors in place of those retiring, appoint members of Audit Committee, declare dividends, and fix remuneration for company’s auditor etc.
Every member is entitled to a 21 days’ notice prior to the day of meeting. A shorter notice may be valid if only all the members entitled to attend and vote at the meeting agreed for a shorter date.
You may opt to engage your solicitor to prepare the notice of meeting to be sent to the members of your company or otherwise get your company secretary to prepare it.
As a guide, here are the details that your Notice of Meeting must specify:
• the venue of meeting
• the date and time of meeting, and
• the nature of issues to be dealt with at the meeting
There are other technical details that may have to be stated in the Notice of Meeting; for instance, where your meeting is meant to consider a special resolution, the terms of the resolution must be stated in the Notice of Meeting.
In a similar vein, you are not allowed to discuss any issue which you have not stated in your letter of notice of general meeting, and failure to give notice of your company’s general meeting will invalidate the meeting unless the failure was an accidental omission on the part of the person(s) giving the notice.
It is therefore necessary that you seek proper legal advice while planning to hold the annual general meeting of your company. You may contact me for further information or explanation, and you may likewise contact your Solicitor for additional assistance or information.
TIP NO 4:
Your company must keep minutes of its meetings. To do this effectively, I will suggest that you dedicate special notebooks for that purpose so that your minutes can be sequential and orderly.
The meetings which the Corporate Affairs Commission envisages that your company should take record of are:
• Proceedings of all General Meetings
• Proceedings of Meetings of Directors
• Proceedings of Meetings of Managers (where there are Managers)
TIP NO 5:
Your company must have at least two (2) directors.
Anytime the number of directors fall below two, your company must appoint new directors within one month, otherwise, it will be illegal to continue doing business after one month of refusal to appoint a director.
The power to appoint the directors reside in the members of your company and it may be exercised at the Annual General Meeting of the company.
TIP NO 6:
The first meeting of your board of directors must be held not later than 6 months after you register your company. All other meetings may be held at any time whatsoever.
Any issue that is to be resolved at the Board of Directors’ meeting must be decided by a majority vote, and if there is an equality of votes, the chairman may have a second vote.
TIP NO 7:
You must buy a standard notebook to take record of your company’s directors and secretaries.
The notebook may be headed “Register of the Directors and Secretaries of ………………………………………. (Insert the name of your company)”
The notebook is to be kept at your company’s registered office, and will take note of the following:
• Full names of Director/ Secretary
• Any former name (s) or surname
• Residential address
• Business Occupation
• Details of any other directorships held by him/her
• Date of Birth
• Where your Company’s secretarial duties are outsourced to a Law Firm or Corporation, the details of the registered name and registered address or head office must be noted.
Your company is expected to file its first update with the corporate affairs commission within 14 days from the day it is registered with the corporate affairs commission, and 14 days after every subsequent change.
The Register of the Directors and Secretaries of your company is supposed to be accessible to the public.
TIP NO 8:
Where your company changes its registered address, you must notify the Corporate Affairs Commission within fourteen days of such change.
Your Company Secretary may purchase and file the appropriate form for that purpose, or otherwise, engage a competent Solicitor to assist with the process.
TIP NO 9:
One of the things that you need to do after registration is to impress your company’s name and “Registered Company Number” (i.e. “RC No”) on every form of your company’s correspondence.
Unfortunately, this aspect of company obligation is usually overlooked by business owners and investors, and where the name of the company is stated, the “RC No” is often left out.
In more specific terms, you must paint or affix (and keep painted and affixed) your company’s name and “RC No” in a very clear manner on the outside of your office, on every of your company’s business letters, notices, advertisements, all official publications of the company, its bills of exchange, promissory notes, endorsements, cheques, bills or parcels, invoices, receipts, letters of credit, orders for money or goods purported to be signed by or on behalf of the company, and on the company’s metallic seal.
TIP NO 10:
Your company must prepare and submit to the Corporate Affairs Commission an annual report on matters specified in the Companies and Allied Matters Act which are applicable to your company.
The annual report is otherwise known as ANNUAL RETURNS, and if you are operating a limited company, It will usually contain your company’s registered address, address of place where the register of members is kept, summary of share capital and debenture, particulars of indebtedness of your company (if any), list of past and present members of your company, balance sheet, auditor’s report, and profit and loss account etc.
Keeping your annual returns up to date with the Corporate Affairs Commission is about the most important obligation that you must keep up with as soon as you register your company, and considering the technical nature of the task, it is important that your company secretary should be given the necessary training to handle the task, or otherwise, same should be outsourced to a Professional to handle.
TIP NO 11:
Register your company for Tax Identification Number and Value Added Tax at the Federal Inland Revenue Services (FIRS).
To apply for TIN and VAT, you may have to design your company letterhead, rubber stamp/metallic seal, and company logo.
You can reach me for further enlightenment on tax compliance in Nigeria.
Here, let me get back to the title of this article “11 simple tips to grow your new company”.
That title came to mind because I have seen many Businesses crumble not because they were bereaved of ideas, or money, but because they did not have somebody to put them through on their legal obligations, and as soon as they started getting penalised, they had to forfeit operating the company as it was too late to comply.
You have an opportunity to get the basic things right if you master the content of this article.
HOW TO ENJOY PIONEER STATUS INCENTIVE IN NIGERIA
Pioneer status is a fiscal incentive provided under the Industrial Development (Income Tax Relief) Act, Cap I7, Laws of the Federation of Nigeria, 2004 (IDA). Under the incentive, companies operating in designated pioneer industries or producing pioneer products, which apply for and are granted pioneer status, are entitled to income tax holiday for up to three (3) – five (5) years in the first instance, renewable for an additional maximum period of two (2) years. In addition to income tax holiday, pioneer companies enjoy other benefits such as the exemption of dividends paid out of pioneer profits from withholding tax.
The review of the pioneer status incentive (PSI); an incentive administered by Nigerian Investment Promotion Council (NIPC), led to the suspension of the PSI scheme since September 2015. However, on 7 August 2017, the Minister for Industry, Trade and Investment, Mr. Okechukwu Enelamah, lifted the suspension on the PSI scheme and also announced the approval of addition of 27 new industries and products to the list of pioneer industries. Similarly, the new PSI guidelines and process chart (“the guidelines”) which the NIPC had earlier released on its website was approved.
This article explains the details of the new guidelines and how companies can take advantage of this incentive.
• Approval of additional 27 industries
The approved list of 27 industries focuses on emerging industries in Nigeria such as e-commerce companies, software development, video and television production, real estate investment vehicles and manufacturing of machinery, among others. The Minister also stated that mineral oil prospecting and cement are no longer part of the list of pioneer industries.
Click here to download a copy of the new 27 industries. The full list can be accessed on NIPC’s website
• Required documents for PSI applications
The guidelines require PSI applicants to submit a copy of the following documents in addition to that required under the former guidelines:
– Applicant’s pension compliance certificate
– Nigerian Social Trust Insurance Fund (NSITF) registration certificate
– Industrial Training Fund (ITF) compliance certificate
– Regulatory license(s) to operate in the sector or business activity (where applicable)
– Approval letter received for any incentives/waivers/concessions/grants from other government agencies (where applicable)
– Applicant’s sustainability policy
• Applicable fees
We have outlined in the table below the change in the applicable fees under the old and new guidelines.
Under the old guidelines, the 2% projected tax savings was paid before the issuance of the pioneer certificate and was not refundable regardless of whether the company makes a profit or loss during the pioneer period. However, under the new guidelines, applicants pay 1% of the actual pioneer profits at the end of a year in which the company makes a profit. Therefore, applicants are better off under the new regime in this instance.
On the other hand, under the new regime, applicants will now pay an additional ₦3million to enjoy PSI in their initial application.
• Timeline for PSI application process
The process flowchart introduced by the Minister proposes definite timeline for application and processing of PSI. Based on the process flowchart, the time required to apply and obtain an approval in principle is 18 weeks while to apply for a production day certificate (which comes after an approval in principle) and obtain the PSI certificate is 7 weeks.
In total, an applicant should expect to receive the PSI certificate in 25 weeks (about 6 months) from the date of application. In addition, the time required to obtain a PSI extension certificate is 15 weeks.
• Annual Performance Report and Impact Assessment
According to the guidelines, beneficiaries of PSI are now required to submit a performance report annually to NIPC not later than 30 June of the following calendar year. The report is expected to contain the company’s financial statements, evidence of payment of the annual service charge and other information as provided in the guidelines.
Failure to submit the annual performance report for any year, after two reminders, will result in the PSI certificate being cancelled, removal of the company’s name from the list of beneficiaries and notification to FIRS to collect the tax for the period the report was not filed and the remaining pioneer period initially granted.
A periodic impact assessment would also be carried out by NIPC during the period that a company enjoys the PSI incentive. The purpose of the impact assessment is to measure the effectiveness of the incentive and to evaluate the utilization of the saving accruing from the incentives.
Going forward, the Federal Executive Council has agreed that the pioneer list would be reviewed every two years in order to ensure that the Federal Government (FG) is responsive to changing economic environment. Based on FG’s commitment to the promotion of transparency and efficiency in the PSI process, we hope that the new PSI application and approval process would follow the provisions of the Guidelines to prevent abuse of the incentive.
Quoted as we understand it, section 573 of the Companies and Allied Matters Act says that:
You do not have to register your business name if:
(a) As a firm, your firm’s name is the combination of the surname of all partners, or the surnames and their other names.
(b) Your individual business is operated in your real names
(c) Your Company (i.e. LTD, PLC, GTE, and ULTD) decides to operate a business name that does not consist of any addition to its corporate name
The following instances are additionally allowed:
(a) Situation where the word added is merely to show that the business operates in succession to a former owner. This is common in family businesses.
(b) Situations where the partners have the same surname and “s” is added at the end of the last surname. For instance Akinyele & Akinyele’s Firm
(c) The business is carried on by a receiver or manager appointed by any court.
In summary, you do not have to register your business name if you are using your actual names- your surname with or without your other true names or initials of those names to run your business.
Furthermore, if there is an addition that merely indicates that the business is carried on in succession to a former owner of the business; or where two or more partner have the same surname and decided to add an “s” at the end of that surname; or where the business is carried on by a receiver or manager appointed by any court, registration will not be necessary.
It is understandable that you can do business in your natural names because you are a legal person by reason of your natural names (particularly if you are 18 years or above). So, I as EYITAYO OGUNYEMI could decide to have a legal retainership with your company in my natural names. If I however operate as “Law Accent”, I need to register it because it is not my natural name.
It is not surprising that a person that does business in a name other than a natural name must register because there is a need for the public to put a face to anybody behind transactions done in unnatural names.
Here are however some reasons that may necessitate that you register your business name either ways:
Banks usually request for certificate of business registration before opening a corporate account for corporate clients. By implication, you may not be able to open a corporate account.
Foreign investors prefer to deal with entities that are registered with government agencies, and that begins with the Corporate Affairs Commission.
It is almost impracticable to have your name alone (without any addition) for a business name. For example “Eyitayo Ogunyemi”- looks quite absurd without any addition like “Law Office of Eyitayo Ogunyemi” “Eyitayo Ogunyemi & Co” etc. It is however assumed under this heading that the law will be reviewed to capture this situation because the law ought not to be construed in such a way as to demand the impossible.
You may therefore conclude on registering your business name notwithstanding the leverage allowed by the law as this puts your business in a prime position for opportunities.