Startups that want to operate with ease need to avoid fines and sanctions from regulators. Several startups in different jurisdictions have suffered reputational damage and have also missed out on benefits essential to their growth due to their failure to understand the regulation and ensure compliance accordingly.
Regulatory compliance is key for the following reasons:
- Non-compliance is more expensive. Businesses that avoid compliance are at risk of fines and sanctions which cost a lot of money to regularize. In the past year. They end up paying the requisite fees, charges or pay cost of compliance at a higher price which could have been avoided if done at the right time.
- The regulatory landscape is constantly changing. Regulatory compliance will not sort itself out. The more it changes, the more risk of ability to comply. Laws are constantly changing and these changes impact the way businesses are being done. Staying on top of regulatory compliance helps companies stay ahead of competitors and potential fines that may apply.
- Employees whose daily routine requires compliance need to be kept updated about every change in how they do their work. This may be the game changer for companies. It may make or mar a company therefore it’s important to keep your employees informed.
- Regulatory compliance protects companies, employees and the consumer. Regulatory Compliance does not only exist as means to check businesses, it also helps protect businesses and all stakeholders. It helps businesses from making preventable errors that could cost them a fortune or endanger their employees.
Following the above, we have compiled a preliminary compliance checklist below for startups operating in Nigeria.
| Regulatory Authority/ Regulation | Requirement | Details of requirement | Timeline | Penalty for non- compliance |
| 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. | |
| 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; andii) 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; andii)remit VAT monthly to the FIRS on or before the 21st day of every month. |
Failure to: i) file CIT attracts a penalty of ₦25,000 for the first month and ₦5,000 for each subsequent month; andii) 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 |
-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. |
| 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; andii) 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. |
| Corporate Affairs Commission Companies and Allied Matters Act (CAMA) |
Incorporation and filing of annual returns | Startups are required to: i) be incorporated in Nigeria; and ii) file annual returns regularly . |
Startups are required to: i) incorporate their company before commencing business in Nigeria; andii) file their annual returns within 18 months of incorporation of the company in Nigeria and |
Startups who fail to file their annual returns shall be required to Pay an additional ₦3,000 or ₦5,000 fine for each year of non- compliance depending on whether the company is a small or large company. |
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.
- 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 etc.
- Some licenses required to operate in the Insurtech sector include: Web aggregators license, micro insurers license; life insurers license; general insurers license etc.
Conclusion
The outcomes of non-compliance with stipulated rules in Nigeria can be alternatively severe, as it can preclude the easy operations and increase of a startup.
It is crucial that startups apprehend the regulatory terrain it needs to perform in, take important measures to make sure compliance and engage the services of a legal professional.