THE LEGAL AND TAX IMPLICATIONS OF CARRYING ON A BUSINESS IN NIGERIA
There are comments circulating the Nigerian space that the Federal Government want to compel all business owners, entertainers, content creators including all those making money through TikTok, YouTube, and other social media to register their businesses and pay tax accordingly. This is raising concerns. There is even a conspiracy theory that this is part of government plan that is “not letting the poor breath.” The question is, can the government force you to register your business?
The registration of business is compulsory under the provisions of the Companies and Allied Matters Act (CAMA) as amended to date. Section 863 (1) of (CAMA), stipulates that: “A person or association of persons shall not carry on business in Nigeria as a company, limited liability partnership, limited partnership or under a business name without being registered under this Act”.
Section 862 (2) provides the punishment for the contravention of the business registration requirement as follows: “If an individual, corporation or association of persons required under this Act to be registered carries on business without registration or under a name registration of which has been refused or cancelled under this Act, the individual, corporation or every partner in the firm commits an offence and is liable on conviction to a fine prescribed in the Commission’s regulations from time to time, of N200.00 for every day during which the default continues, and the Court shall order a statement of the required particulars for the registration of the business to be furnished to the Commission for registration within such time as may be specified in the order”.
Therefore, imagine a twitter influencer, social media content creator, Nollywood actor etc who had been making money since March 2020 by April 2024, he would have been in business for about four (4) years, excluding the 28 days allowed by law. By a strict application of the provision of CAMA, the individual would have accumulated a fine of about N292,000.
The next question is: as a business owner, what taxes are you meant to pay? The following taxes are compulsory for every business owner in Nigeria:
1 Value Added Tax (VAT) – This is calculated with effect from February 1, 2020 as 7.5% of the amount a business owner is charging for goods or services supplied or provided. It is the customers of the business that should pay the VAT. There is an exception to this rule for businesses whose turnover is less than N25 million per year. A business owner (known as a taxable person) is required on commencement of business to register with the Federal Inland Revenue Service (FIRS) for VAT tax. Failure to register attracts a penalty of N50,000 in the first month in which the failure occurs, and N25,000 for each subsequent month in which the failure continues. It is compulsory that the business owner must make a return and remit the amount of VAT charged and collected on or before the 21st day of the following month. If a taxable person does not remit the tax within the time specified, a sum equal to 10 percent of the tax not remitted and interest at the prevailing Central Bank of Nigeria minimum re-discount rate, shall, be added to the tax not remitted and the provisions of this Act relating to collection and recovery of unremitted tax, penalty and interest shall apply.
2 Company Income Tax (CIT): For all limited liability companies, they are required to pay tax at the rate of 20% if their revenue is less than N100 million and 30% if the revenue is from N100 million and above. However, if your revenue is less than N25 million, you are exempted from the payment of Company Income Tax (CIT).
3 Personal Income Tax (PIT): If you are not a limited liability company but carry on business with Business Name registration or partnership, you are required to pay personal income tax based on profit made from the business. The tax is payable to the State in which you reside except if you are in Abuja, then you make payment to FCT- Inland Revenue Service.
4 Withholding Tax (WHT): Whether you are a limited liability company, partnership or a business name, you are required to withhold that appropriate rate a tax called Withholding Tax (WHT) from every payment in respect of normal contract awards, construction contracts, rent, interests, dividends, hire of equipment, commissions, management fees, etc. The tax withhold are required to the remitted to Federal Inland Revenue Service (FIRS) or State Tax Authority where the business owner resides. The penalty for failure to deduct or remit tax is 10% of the amount not deducted/remitted plus interests at the prevailing Central Bank of Nigeria (CBN) prevailing interest rates. The period for filing WHT returns is 21 days after the duty to deduct arose for deductions from companies.
To avoid tax evasion which is criminal according to relevant laws in Nigeria. It is vital to also consider (a) How do you pay your tax? (b) How do you know the tax to pay? Please hire a tax consultant and focus on your own business. Do not wait until the government starts knocking on your door before you register your business with Corporate Affairs Commission (CAC) or before you pay your VAT, CIT, PIT or WHT. Do not call it witch hunting or oppression if the government seeks you out. It is your civic responsibility as a citizen of Nigeria, or a non-resident company doing business in Nigeria to register and pay the appropriate taxes.
OR&C Tax Consultants will be more than happy to help you comply with appropriate Nigerian tax laws as well as guide and defend you during Tax Audit or investigation by appropriate Tax Authorities. Visit our website www.orandcconsultants.com for our contact. You also download OR&C Nigeria Tax Summary in any language of your choice @ www.orandcconsultants.com/shop/
