Introduction

Startups wishing to operate with ease and avoid sanctions from regulators must pay attention to compliance and ensure that they understand regulations in countries in which they operate.

A few startups in various jurisdictions have suffered reputational damages as a result of failure to understand regulations and properly comply.

In view of this, and to support startups, we have set out below a preliminary compliance checklist for startups operating in Nigeria.

Regulatory Authority/

Regulation

 Requirement Details of requirement Timeline Penalty for non-compliance
Corporate Affairs Commission

Companies and Allied Matters Act (CAMA)

 - Incorporation and filing of annual returns Startups are required to:
i) be incorporated in Nigeria; andii) file annual returns regularly.		 Startups are required to:

i) incorporate their company before commencing business in Nigeria; and

ii) file their annual returns within 18 months of incorporation of the company in Nigeria and

subsequently on an annual basis.

 Startups who fail to file their annual returns shall be required to Pay an additional N3,000 or N5,000 fine for each year of non-compliance depending on whether the company is a small or large company.
Nigeria Social Insurance Trust Fund (NSITF);

National Pension Commission (PENCOM).

Employee Compensation Act, 2020

Pension Reform Act (PRA), 2014

 - Employment matters Startups are required to:

i) contribute 1% of their employee monthly payroll to NSITF; and

ii) upon the employment of 3 or more employees deduct and remit monthly pension contribution (employee - 8% and employer -10%).

 Startups are required to remit:

i) the 1% contribution to the NSITF within 2 years of commencement of its operations, and subsequently every year; and

ii) pension contribution with an approved Pension Funds Administrator (PFA) not later than 7 days of payment of salary every month.

 Startups who fail to remit the statutory contribution to NSITF, shall be required to pay a fine of at least 2% of the amount due to be remitted, in addition to the amount to be paid.

Penalties for failure to remit pension contribution by a startup varies from cautions, monetary penalty to imprisonment, depending on the duration of non-compliance.
Federal Inland Revenue Service (FIRS); State Inland Revenue Service (SIRS)

Finance Act, 2019 & 2020; Companies Income Tax (CIT) ; Value Added Tax (VAT).

 - Taxation Startups are required to file and remit:

i) Companies Income Tax; and

ii) Value Added Tax

 Startups are required to:

i) file CIT within 18 months of incorporation, and subsequently on or before June 30 of every year; and

ii)remit VAT monthly to the FIRS on or before the 21st day of every month.

 Failure to:

i) file CIT attracts a penalty of N25,000 for the first month and N5,000 for each subsequent month; and

ii) remit VAT attracts a payment of fine of 5,000 for every month of default.
National Information Technology Development Agency (NITDA)

Nigerian Data Protection Regulation (NDPR) 2019

 -Data Protection Startups that process data of up to 1,000 data subjects within 6 months are required to:

i) submit to an annual audit; and

ii) file the report of such audit, amongst other requirements.

 The audit report is to be filed not later than the 15th day of March of every year.

(Please note that NITDA at its discretion could extend the deadline for submission of the report.)

 Payment of fine of 2% of the annual gross revenue of the preceding year or payment of 10 million naira, whichever is greater, depending on the number of data subjects dealt with.
Federal Ministry of Industry, Trade and Investments

Trademarks Act, Cap T13, Laws of the Federation of Nigeria

 - Brand Protection Register their intangible assets which include: brand names and marks; patents; and copyrights. Trademark registrations are valid for 7 years and renewable subsequently every 14 years. Although there is no penalty for non-compliance, it is essential that startups protect their trade/brand names and marks by registering them so as to enjoy a priority status on such marks.
Financial Reporting Council of Nigeria

The Nigerian Code of Corporate Governance 2018

 - Corporate Governance Set up a board of directors comprising of a sufficient size to effectively undertake and fulfil its business and to constitute a quorum. It is good practice for startups to set up a board of directors consisting of experienced and knowledgeable persons to assist in overseeing its affairs and providing advise where necessary, as this boosts investor confidence.


It is important to note that certain licenses and permits are required to successfully commence operations in specific industries. A few of these are set out below.

  1. Some licenses required to operate in the Fintech sector include: switching and processing license, mobile money operator license, digital crowdfunding intermediary license, digital banking license t.c.
  2. Some licenses required to operate in the Insuretech sector include: Web aggregators license, micro insurers license; life insurers license; general insurers license etc.

Conclusion

The consequences of non-compliance with stipulated regulations in Nigeria may be rather steep, as it may hinder the smooth operations and growth of a startup.

It is important that startups understand the regulatory terrain it wishes to operate in, take necessary measures to ensure compliance and engage the services of a lawyer to advise on the regulatory requirements of the license the startup requires to operate in the country it wishes to set up.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.