A Trademark is a unique sign or mark that distinguishes the goods and services of one business from another. A mark can either be a device, brand, heading, label, ticket, name, signature, word, letter, numeral, or any combination thereof. Most businesses, companies or organizations have distinctive marks that sets them apart from other businesses.

The relevant law that governs Trademark in Nigeria is the Trademarks Act, Laws of the Federation of Nigeria 2004 (LFN 2004). This article explains the procedure for the registration of trademarks, enforcement, and remedies for the infringement of trademarks in Nigeria.

Requirements for Registration of Trademark:

1. Applicant’s details (i.e., name, signature, nationality, and address).
2. Details of the trademark.
3. A representation of the mark.
4. The classification of goods and/or services (Nigeria uses the Nice Classification of Goods and Services).
5. A signed Power of Attorney

Procedures for Registering a Trademark:

1. Availability search: The first step is to conduct an availability search at the Trademark Registry to ensure that there are no marks similar or in conflict with the proposed mark.
2. Application: If there are no conflicts, an application for trademark registration is filed at the Trademark Registry. After submission of the application form and payment of the necessary fees, the Registrar issues an Acknowledgement Letter confirming receipt of the application.
3. Acceptance: Where the application is approved on the grounds that the mark is distinctive, a Letter of Acceptance will be issued within one to three months by the Registrar of Trademarks.
4. Publication and Certification: Upon the acceptance of the application, the Registrar ensures the notice of the application is published in the Nigerian Trademark Journal. The purpose of this publication is to notify interested parties who may have objections to the application. The opposition period is two months from the date of publication. Where there are no objections or where an objection raised has been upheld, the Applicant may proceed to make an application for the issuance of Certificate of Registration and subsequently, a Certificate of Registration would be issued by the Registrar of Trademarks.

A trademark once registered is valid in Nigeria for an initial period of 7 years in the first instance and subsequent renewals are valid for 14 years.

Trademark Infringement

A trademark is infringed when a person without consent from the trademark owner uses the mark or an identical mark in a way that is likely to deceive the public or cause confusion. Where such rights are infringed upon, the proprietor can institute an action in court for the infringement of such trademark. The court with jurisdiction for trademark proceeding in Nigeria is the Federal High Court. The burden of proof lies on the Proprietor of the trademark to show that his right has been infringed upon. Section 5 (2) Trademarks Act provides that:

“without prejudice to the generality of the right to the use of a trade mark given by such registration as aforesaid, that right shall be deemed to be infringed by any person who, not being the proprietor of the trade mark or a registered user thereof using it by way of the permitted use, uses a mark identical with it or so nearly resembling it as to be likely to deceive or cause confusion, in the course of trade, in relation to any goods in respect of which it is registered.”

The owner of an unregistered trademark on the other hand may institute an action for passing off where there is an infringement.

Enforcement of Rights and Available Remedies

The owner of a registered trademark can enforce his rights through the any of the following options:

1. Filing an opposition within 60 days of the publication in the Trademark journal against the registration of an identical or similar trademark. This is done by filing a Notice of Opposition, the Respondent is required to file a counter statement and the matter will be determined by the Registrar as to whether registration of the mark will be entertained or not. The notice must be in writing and must contain the grounds for the opposition.
2. Making a formal application to the Trademark Registrar for the cancellation of the trademark. This however should be supported with evidence of prior registration of the mark by the proprietor.
3. Sending a cease and desist letter to the infringer to inform him of the trademark that is being infringed and warning him to stop further violations of the mark. Where such infringer refuses, a legal action can be instituted.
4. Apply for a search and seize order where the infringement is known to the proprietor of the Trademark. It allows the owner the opportunity to enter the premises of the infringer without notice to seize all infringing goods.

Where the owner of a trademark commences legal action for the enforcement of his exclusive right to a trademark, the following remedies may be available through the courts:

1. The owner of the trademark can seek damages for compensation for losses suffered in relation to infringement of the trademark especially when such infringement impacts negatively on the owner’s business. The evidence must show a direct causal relationship between the infringement and actual harm.
2. Injunctive reliefs may be sought and granted. The court could prevent the infringer from further using the mark or may restrict usage of the mark to certain areas or impose certain conditions for its usage.
3. An Anton Pillar order can be sought to give access to the owner to enter the premises where the infringed goods are kept and take possession of it.
4. The court can also grant an order of account of profit to recover all the profits made by the infringer from the unauthorized use of the Trademark where such act amounts to gross loss of profit on the part of the owner.

Conclusion

The benefits of trademark registration generally and in Nigeria cannot be overemphasized. The certificate of trademark registration issued by the Registrar, is irrefutable evidence of registration of a mark and confers a right on the owner to use the trademark to the exclusion of others. Not only is a registered trademark protected under the law, but it also protects the identity and goodwill of the brand. The owner of a registered trademark can equally assign or transfer his trademark to an individual or corporate entity and generate revenue from it. Any infringement of the registered trademark could be met by an enforcement action and the registered trademark owner could get injunctive order or damages against the infringer.

Please note that the contents of this article are for general guidance on the Subject Matter. It is NOT legal advice.

For further information or to see our other service offerings, please visit www.goldsmithsllp.com  or contact:

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A Payment Solution Service Providers (PSSP) licence is a financial licence within the payments system which is issued by the Central Bank of Nigeria (CBN). A PSSP licence authorizes the licensee to provide and operate payment processing gateway and portals, solution/application development, and merchant service aggregation and collections services. A  PSSP license does not provide the authorization to hold customers’ funds or create and issue wallets. PSSPs are predominantly Financial Technology (FinTech) companies that enable  and facilitate  online and offline payments solutions which include collections, check-out, biller aggregation and payout services.

The CBN is the regulatory authority that issues PSSP licenses in Nigeria. The CBN also provides constant regulatory oversight over the activities of PSSP licensees in Nigeria.

Who can Apply for a PSSP Licence in Nigeria

Only a company that is duly registered with the Corporate Affairs Commission (CAC) in Nigeria and also meets the minimum share capital requirements and other regulatory requirements of the CBN can apply for a PSSP licence in Nigeria.

The Process of Obtaining a PSSP Licence from the CBN in Nigeria

A PSSP licence is processed in two stages viz:

• Approval-in-Principle (AIP): This is the preliminary stage of obtaining a PSSP license. During this stage, an application is to be made to the CBN for the grant of the license and they are expected to give an Approval-in-Principle or reject the application. Where an AIP is given, it is only valid for a period of six months. The AIP does not authorize the applicant to commence operation but only allows the applicant to take steps towards obtaining the final licence.
• Final Licence: The applicant is required to consolidate the AIP stage by taking steps to ensure its readiness for commencement of operation, notifying the CBN of its readiness to commence operation, by paying and applying for final licence. Upon the grant of the final licence, the applicant can commence its operations.

The process of obtaining a PSSP licence from the AIP stage to the final licence stage involves the following:

1. Write an application letter for a PSSP license which is addressed to the Director, Payments Systems Management Department of the CBN.
2. The application letter is accompanied with the required documents which include:

• Certificate of incorporation of the company with the Corporate Affairs Commission (CAC), with a share capital of N100,000,000 (One Hundred Million Naira)
• Memorandum and Articles of Association of the company
• Form CAC 2A (Return of Allotment of shares)
• Form CAC 7A (Particulars of Directors)
• Tax Clearance Certificate (TCC) and Tax Identification Number (TIN) of the Company
• Company’s profile
• Details of ownership
• Board structure
• Business plan
• Information Technology policy
• Dispute resolution framework
• Necessary certifications such as Payment Card Industry Data Security Standard (PCIDSS), Payment Terminal Service Aggregator (PTSA), etc.
• Evidence of payment of the non-refundable application fee of N100,000 (One Hundred Thousand Naira).
• Evidence of the deposit of the refundable minimum capital of N100,000,000 (One Hundred Million Naira). This is required to be made in full (one lump sum) and in the name of the applicant.

3. The CBN assesses the application for the PSSP licence and the accompanying documents and if it is satisfied with the application, it proceeds to grant an Approval-in-Principle.

4. Upon obtaining AIP from the CBN, the applicant then makes payment of the licence fee of N1,000,000 (One Million Naira) to the CBN designated account and proceeds to apply for a final licence within six months of obtaining AIP.

5. The CBN inspects the registered place of business of the applicant company and its readiness to commence operation and proceeds to issue the final licence if it is satisfied with the outcome of its inspection.

Validity and Renewal of PSSP Licence

PSSP licence validity period is as determined by the CBN and renewable if the operations of the PSSP licensee is satisfactory to the CBN. Recently, CBN renewed Cellulant’s PSSP licence and this shows the satisfaction of the CBN with the services of the company in providing payment solutions in Nigeria. Thus, the renewal of a PSSP licence by the CBN is a vote of confidence on the operation of a PSSP licensee.

Conclusion

A Payment Solution Service Providers (PSSP) licence is an important licence within the Nigerian payment systems which enables the provision of financial services such as the operation of payment processing gateway and portals which is utilized by merchants to accept debit or credit card purchases from customers. A PSSP licensee provides both online and offline payment solutions. A PSSP licence is obtainable from the CBN by submitting an application to the CBN and paying the required application and license fees within the stipulated timelines.

Please note that the contents of this article are for general guidance on the Subject Matter. It is NOT legal advice.

For further information or to see our other service offerings, please visit www.goldsmithsllp.com  or contact:

The post How to Obtain a Payment Solution Service Providers Licence in Nigeria first appeared on Goldsmiths Solicitors.

2022 has been an incredibly busy and exciting year in the Nigerian legal and regulatory environment. There were major and far-reaching changes ushered in by the regulatory authorities particularly the Central Bank of Nigeria (CBN). There were also major developments relating to Banking and Finance, Competition and Consumer Protection, Startups, Capital Markets, Insolvency, etc. In this article, we have highlighted some of the major legal, regulatory, and judicial changes that occurred in 2022. This article is divided into four parts representing four quarters of the year. In each quarter, we deal with all the major legal changes that occurred therein.

1^st Quarter (January – March 2022)

A remarkable feature of the first quarter was the issuance of regulations/guidelines by the CBN. Within this period, the Electoral Act 2022 was also signed into law by the President. The new Electoral Act introduced important changes to the conduct of elections Nigeria. Below are some of the highlights of the 1^st quarter:

• The Central Bank of Nigeria (CBN) Guidelines on the Introduction of E-evaluator, e-invoicing for Import and Export in Nigeria. Although the Guidelines were issued in January, it became operative on 1 February 2022 and requires the submission of an electronic invoice authenticated by the Authorised Dealer Bank for all import and export operations. The electronic invoice replaces the usual hardcopy final invoice.
• On 11 January 2022, President Muhammadu Buhari approved the establishment of the Nigerian Diaspora Investment Trust Fund, a private sector investment window for Nigerians in the diaspora to support direct investments in the country.
• On 18 January 2022, the Lagos State Government introduced the Consolidated Informal Transport Sector Levy to harmonize the taxes paid by transporters to the state government.
• On 26 January 2022, the Federal High Court in the case of Attorney General of Rivers State v. Attorney General of Federation and 3 Others, invalidated deductions by the Federal Government from the Federation Account for funding the Nigeria Police Trust Fund.
• The Central Bank of Nigeria Operating Guidelines for RT200 Non-Oil Export Proceeds Repatriation Rebate Scheme. This is a programme designed and introduced by the CBN to incentivize exporters in the non-oil export sector with the goal of raising $200 billion in FX over the course of the next three years.
• The Central Bank of Nigeria Guidelines for Regulation and Supervision of Credit Guarantee Companies in Nigeria. The Guidelines seeks to ensure a conducive environment for Micro, Small and Medium Enterprises (MSMEs) to be able to access credit at low interest rates from banks and financial institutions. The requirements for obtaining a license and also the activities which are permitted and not permitted by the license are contained in the Guidelines.
• On 7 February 2022, the Lagos State Governor signed the Lagos State Real Estate Regulatory Authority Bill into Law. The law introduced significant changes to the real estate landscape in Lagos State by mandating the registration of real estate practitioners.
• Electoral Act (Amendment) Act 2022 (the Electoral Act). The new Electoral Act was signed into law on 25 February 2022 by President Muhammadu Buhari. The Electoral Act empowers the Independent National Electoral Commission (INEC) to transmit election results electronically. Section 84 (12) of the Act, prohibits appointees of government, government officials from holding office while vying or contesting at party primaries.
• On 4 March 2022, the CAC stated in a circular that schools and other institutions would no longer be registrable as business names. This means they can now only be registered as a company pursuant to the Companies and Allied Markets Act 2020.
• On 23 March 2022, the Nigerian Communications Commission (NCC) issued the License Framework for the Establishment of Mobile Virtual Network Operators in Nigeria.

2^nd Quarter (April – June 2022)

This quarter witnessed a high level of enactment of laws and the issuance of regulations by the regulatory authorities. Importantly, three laws were passed to deal with the issues of corruption and terrorism in Nigeria. One of these laws (Money Laundering [Prevention and Prohibition] Act 2022) prompted the issuance of a guidelines by the CBN to bring its AML/CFT regulations in compliance with the requirements of the new law. The Securities and Exchange Commission (SEC) also issued a guideline to regulate digital and virtual assets. Below are some of the highlights of the 2^nd quarter:

• On 6 April 2022, the President signed Executive Order 11 which mandates government to institutionalize maintenance of public buildings. The National Biotechnology Development Agency Act, 2022 was also signed on the same day. The law provides the legal framework for the established agency to carry out research and create public awareness in biotechnology to encourage private sector participation.
• On 24 April 2022, the Corporate Affairs Commission announced the approval of the Insolvency Regulations 2022 by the Minister of Industry, Trade and Development. The regulations govern insolvency proceedings under the Companies and Allied Matters Act 2020.
• On 12 May 2022, the President signed the Money Laundering (Prevention and Prohibition) Act, 2022, the Proceeds of Crime (Recovery and Management) Act, 2022, and the Terrorism (Prevention and Prohibition) Act, 2022.
• The Central Bank of Nigeria Exposure Draft Guidelines for Open Banking in Nigeria. These Guidelines are aimed at enhancing competition and innovation in the banking system. It established the principles for data sharing across the banking and the payments system and broadened the range of financial products and services available to bank customers.
• The Central Bank of Nigeria Guidelines for the Registration and Operation of Bank Neutral Cash Hubs (BNCH) in Nigeria. The Guidelines are aimed at  reducing the risks and cost borne in the course of cash management and to also enhance cash management efficiency. The registration of a BNCH is to be undertaken in two stages of obtaining CBN Approval-in-Principle and final approval. The BNCH are to be licensed to take deposit and disburse high volume cash on behalf of financial institutions but cannot carry out lending activities, receive or disburse foreign currency or sub-contract their operation.
• Revised Guidelines for the Operation of Non-Interest Financial Institutions’ Instruments by the Central Bank of Nigeria. These Guidelines replaced the 2012 Guidelines and were issued to regulate the issuance of non-interest instruments by Non-Interest Financial Institutions (NIFIs) while also stipulating the requirements and terms of operation for NIFIs.
• The Central Bank of Nigeria (Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation Financing of Weapons of Mass Destruction in Financial Institutions) Regulations, 2022. The CBN issued the Regulations to bring its regulations on anti-money laundering and combatting the financing of terrorism to be in compliance with the Money Laundering (Prevention and Prohibition) Act, 2022 and safeguard the financial institutions from being used for financial crimes.
• The Securities and Exchange Commission issued the Rules on the Issuance, Offering Platforms and Custody of Digital Assets. The Rules were issued by SEC on 13 May 2022 and provide for the issuance of digital assets, registration requirements for Digital Assets Offering Platforms (DAOPS) and Digital Assets Custodians (DAC) among others.
• On 25 May 2022, the Federal High Court in the case of Femi Davies v. National Broadcasting Commission, nullified the National Broadcasting Code (6^th Edition) through which the National Broadcasting Commission (NBC) sought to regulate the practice of advertising in Nigeria. The court held that it was beyond the power of the NBC to regulate advertisement.

3^rd Quarter (July – September 2022)

The regulatory authorities in the banking and finance sector, particularly the CBN, were very active in issuing one form of guidelines or the other. The Federal Competition and Consumer Protection Commission (FCCPC) issued a guideline to regulate the activities of digital money lenders after a series of predatory practices by many digital money lenders. There was also a judgement of the Court of Appeal which re-affirmed the power of the Federal Inland Revenue Service to collect VAT from hoteliers. Below are some of the highlights of the 3^rd quarter:

• The Central Bank of Nigeria Review of the Industry Quick Response (QR) Code Presentment Options. The review was done by the CBN to enhance the flexibility offered by the use of QR codes in payments. The review provides that the implementation of the QR code for payments shall be based on either merchant-presented or consumer-presented modes.
• The Central Bank of Nigeria Exposure Draft on the Digital Financial Services Awareness Guidelines. This was developed to address gaps in consumer knowledge and practices with Digital Financial Services (DFS). The Guidelines provides for a set of principles and expectations for financial service providers to integrate in the provision of DFS to ensure consumer understanding, good treatment and positive outcomes.
• On 1 July 2022, the Court of Appeal set aside the judgement of the Federal High Court in the case of The Registered Trustees of Hotel Owners and Managers Association of Lagos v. Attorney General of Lagos State which invalidated the powers of the Federal Inland Revenue Service (FIRS) to collect Value Added Tax (VAT) from hoteliers and held that the collection of the tax is in the purview of the state government. The Court of Appeal has now held that it is the FIRS that has the authority to collect VAT. See Federal Inland Revenue Service v. The Registered Trustees of Hotel Owners and Managers Association of Lagos.
• Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending 2022. The regulations were issued by the FCCPC on 18 August 2022 to provide the FCCPC’s approach to regulating the digital lending space and makes provisions for the requirements for approval/registration to carry out the business of digital lending in Nigeria. Thus, by this Framework and Guidelines, institutions engaged in digital lending activities are to be registered with the FCCPC.
• The Revised Handbook on Expatriate Quota Administration 2022 (the Revised Handbook). On 31 August 2022, the Federal Ministry of Interior announced the issuance of the Revised Handbook. The Handbook increased the minimum share capital requirement of a company wishing to apply for business permit from N10,000,000 to N100,000,000. It also reduced the lifespan of Expatriate Quotas (EQs) from ten to seven years. However, the provisions of the Handbook are yet to be operational.
• The Advertising Regulatory Council of Nigeria (ARCON) banned the use of foreign voice-over artists and models on any advertisement which targets the Nigerian advertising space. The ban took effect on 1 October 2022.

4^th Quarter (October – December 2022)

The Nigeria Startup Act was enacted during this quarter, and it represents a remarkable achievement towards incentivizing startups in Nigeria through the incentives and programmes dedicated to spur the growth of startups in Nigeria. A sport policy was also developed and approved with the motive to position the sport sector to generate revenue while standardizing it. The CBN was also active with the issuance of several guidelines and regulations to regulate players in the Nigerian financial services sector. Below are some of the highlights of the 4^th quarter:

• Exposure Draft Guidelines for the Regulation of Representative Offices of Foreign Banks in Nigeria. The Guidelines stipulate how a representative office of foreign banks can be licensed in Nigeria. It enumerates the activities they can validly engage in in Nigeria such as marketing the products and services of their foreign parent or affiliate and states that they cannot engage directly in any financial transaction.
• Exposure Draft Guidelines on Contactless Payments in Nigeria. The Guidelines provide the minimum standards and requirements for the operation of contactless payments and specified the roles of stakeholders such as acquirers, issues, payment schemes, merchants, etc.
• Nigeria Startup Act 2022. On 19 October 2022, the Nigeria Startup Act, 2022 was signed into law. The law aims to provide an enabling environment for the establishment, development, and operation of startups in Nigeria and to position Nigeria’s startup ecosystem as the leading digital technology centre in Africa.
• National Sports Industry Policy (NSIP) 2022 – 2026. On 2 November 2022, the Federal Executive Council (FEC) approved the National Sports Industry Policy (NSIP) 2022 – 2026. The policy contains provisions on governance regulations, infrastructure development plans, incentives for private investors, etc. aimed at standardizing the Nigerian sport sector and thereby generating revenue.
• CBN Naira Redesign Policy – Revised Cash Withdrawal Limits. Citing the need to combat fraud, corruption, terrorism and to ensure that most of the money in circulation are within the banking vault, the CBN issued the policy document on 6 December 2022 to reduce the daily and weekly cash withdrawal limit and also to introduce certain requirements for withdrawing across the counter beyond the set limit at the rate of 5% fee for individuals and 10% for corporate organizations. The revision of the cash withdrawal limits was done by the CBN pursuant to the recent redesign of the Nigerian currency i.e. N200, N500 and N1,000 notes. Coming less than three months before the next general elections in Nigeria, this policy has received a lot of resistance from the political class.

Conclusion

2022 has been a remarkable year in the Nigerian legal and regulatory space and saw the enactment of the Start Up Act, the redesign of the Naira and the introduction of far-reaching regulations especially by CBN aimed and tackling corruption, fraud and financial crimes.

We use this opportunity to wish all our clients a very Merry Christmas and best wishes for the New Year 2023. Thank you all for your support.

Please note that the contents of this Article are for general guidance on the Subject Matter. It is NOT legal advice.

For further information or to see our other service offerings, please visit www.goldsmithsllp.com  or contact:

The post Goldsmiths Solicitors – Legal Recap for the Year 2022 first appeared on Goldsmiths Solicitors.

What is a Startup?

A Startup is defined in the Act as “a Company in existence for not more than 10 years, with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process”.

Regulatory Authorities and Structures under the Nigerian Startup Act.

The Act introduces several Authorities and structures which are responsible for the administration and development of startups in Nigeria. These established regulatory Authorities are distinct from other regulatory bodies which regulate the various sectors in which a startup may operate in Nigeria. Some of these Authorities and structures are:

• The National Council for Digital Innovation and Entrepreneurship (the ‘Council’).

The Act establishes the Council and empowers it to formulate policies for the realization of the objectives of the Act. The Council consists of about 13 members including the President and Vice President of Nigeria who are to respectively serve as Chairman and Alternate Chairman of the Council. The Council is also to appoint a Council Agent who is to submit reports on the status of programmes implemented to the Council.

• The National Information Technology Development Agency (NITDA)

The NITDA functions as Secretariat and is the operational arm of the Council. It is to be chaired by the Director General of NITDA. As part of its duties, the Secretariat is required to manage the process of startup labelling and establish a Startup Support and Engagement Portal to provide support to startups.

• The Startup Support and Engagement Portal (the ‘Portal’).

The Portal is to serve as a platform and may be described as a one-stop shop through which startups conduct their registration process with the relevant Ministries, Departments and Agencies (‘MDAs). The activities of the Startup Portal are to be administered by a Coordinator to be appointed by the Secretariat with the approval of the Council.

• The Startup Consultative Forum (the ‘Forum’).

The Forum is to be set up on the Startup Portal to provide a platform for information sharing and collaboration among startups. It is to comprise of industry stakeholders including representatives from labelled startups, venture capitalists and angel investors.

• Accelerators and Incubator and Innovation Hubs.

The Secretariat is to establish accelerator and incubator programmes for startups. An accelerator is a fixed-term cohort programme designed to provide startups with mentorship and educational assistance, while an incubator on the other hand is a company, partnership or NGO whose primary object is to support the establishment and development of startups, promotion of innovation, and related activities through the offer of dedicated physical spaces and services. The Council is also to issue a framework for the establishment and operation of startup innovation clusters, hubs, physical and virtual innovation parks in each state of the Federation. The Hub is to promote collaboration among startups and between startups and big companies.

Startup Labelling

A company, sole proprietorship or partnership may be issued a certificate by the Secretariat labelling it as a startup and thus, making it entitled to incentives provided under the Act. To be eligible for startup labelling, the following conditions must be met:

1. In the case of a company, the company ought to be in existence for not more than 10 years from the date of its incorporation;
2. Its objects ought to be that of innovation, development, production, improvement and commercialization of a digital innovative product or process;
3. It is to be a holder or repository of a digital technology product or process, or the owner or author of a registered software;
4. At least one of its founders or co-founder is to be a Nigerian who would share from the profit or revenue from the sale of shares.

It is vital to note that the provisions of the Act including the startup labelling will not apply to an organization that is a holding company or a subsidiary of a company which is not registered as a startup.

Procedure for the application for a Startup Label

A startup desirous of being so labelled is required to make an application in the prescribed form on the Startup Portal which is to be established by the Secretariat with the approval of the Council. This application is to be supported by documents and fee to be prescribed by the Secretariat.

Validity/Duration of the Startup Label

The startup label when issued is valid for 10 years from the date of issuance. Startups so labelled are expected to comply with specified obligations. Where a labelled startup fails to comply with its obligations, the Coordinator may notify the startup of its default and the startup is expected to rectify the default within 30 days of being notified. Where the startup remains in default after the 30-days period, its label may be withdrawn.

A startup whose label has been withdrawn may only re-apply to the Secretariat for re-issuance once the default has been rectified.

Obligations of Startups under the Act

Startups are to fulfil specific obligations to enable them enjoy the benefits and incentives granted under the Act. They are to:

1. Comply with extant laws governing businesses in Nigeria, such as the Companies and Allied Matters Act, 2020;
2. Comply with obligations set out by the coordinator after the issuance of the startup label;
3. Notify the Coordinator of any changes in its structure or objects within a month from the date of such change;
4. Provide information annually on the number of human resources, total assets and annual turnover achieved from the period the startup label was granted;
5. Maintain proper book of accounts in accordance with reporting obligations under extant laws and regulations;
6. Provide an annual report on incentives received and advancements made by virtue of the incentives.

Incentives provided under the Act

The Act makes provision for various tax and fiscal incentives to labelled startups. These incentives cuts across reliefs for the labelled startups, their employees, service providers and investors. They are:

1. The Pioneer Status Incentive Scheme.

Labelled startups that fall within industries provided under the list of Pioneer industries and products as provided under the List of Pioneer Industries and Products, 2017 or any subsequent law may apply to the Nigerian Investment Promotion Commission (NIPC) for the grant of reliefs and incentives under the scheme. An example of startups that may benefit from this Scheme are companies involved in the development of ready-made software. A startup qualified to benefit from this scheme may enjoy a renewable 3-year tax holiday.

2. Four years tax holiday.

Labelled startups may be exempted from any form of income taxation for a period of four (4) years from the date of the issuance of the startup label. The Ministry of Finance is expected to provide simplified requirements for startups to benefit from this incentive.

3. 5% tax relief on assessable profits.

To benefit from this additional tax relief, the labelled startups is to have at least 10 employees of which 60% are employees without any form of work experience and who are within 3 years of graduating from school or any vocation within the assessment period. This tax relief is valid for a maximum period of five years.

4. Export incentives for labelled startups involved in exportation of products and services.

Startups deemed eligible under the Export (Incentives and Miscellaneous Provisions) Act are also entitled to export incentives and financial assistance from the Export Development Fund, Export Expansion Grant, and the Export Adjustment Scheme Fund.

5. Investment Credit Tax.

This relief is applicable to angel investors, venture capitalists, private equity fund, accelerators or incubators of a labelled startup and entitles them to tax credit equivalent to 30% of their investment.

6. Exemption from Capital Gains Tax (CGT) on disposal of assets by investors.

The Act exempts investors from taxation upon the disposal of its assets in a startup.

7. Exemption on the Personal Income Tax of employees.

The Act exempts eligible employees from remitting 35% of their personal income for a period of 2 years from the date of engagement by the labelled startup. However, the Act does not provide the requirements for eligibility but gives the Secretariat and the Joint Tax Board the responsibility of determining  the requirements for eligibility.

8. Reduction of withholding tax for foreign entities who are service providers of labelled startups.

Foreign entities that provide technical, consulting, professional or management services to a labelled startup is required to pay 5% withholding tax as opposed to the 10% withholding tax applicable to service providers. This tax shall be the final tax to be paid by the foreign entity.

Funding for Startups under the Act

Some of the funding arrangement provided under the Act are:

1. The Startup Investment Seed Fund (‘the Fund’).

The Act establishes the Fund which is to be managed by the Nigeria Sovereign Investment Authority (‘the Fund Manager’). A sum of at least N10,000,000,000 (Ten Billion Naira) is to be paid annually into the Fund which would be utilized to provide financial support to startups and reliefs to accelerators, incubators and hubs.

2. Access to Government funds and the Credit Guarantee Scheme (CGS).

The Act establishes the CGS with the primary objective of providing accessible financial support to labelled startups. The Act also directs the Secretariat to ensure that labelled startups have access to grants and loan facilities administered by the Central Bank of Nigeria (CBN) and other bodies empowered to assist MSMEs.

The Startup Portal as a One-stop Shop for Labelled Startups.

The major function of the Startup Portal to be set up by the Secretariat is to act as a one-stop shop for startups to register with the MDAs regulating some sectors in Nigeria. The Act charges the Secretariat to collaborate with some regulatory bodies in setting up sections on the startup portal for the registration and administration of the activities of labelled startups with these bodies. These regulatory bodies are the Corporate Affairs Commission (CAC), the National Office for Technology Acquisition and Promotion (NOTAP), the National Copyright Commission and the Trademark, Patent and Designs Registries, the Nigeria Export Processing Zone Authority, the Central Bank of Nigeria (CBN) and the Securities Exchange Commission (SEC). The aim of this exercise is to ensure swift and seamless registration processes for startups. For instance, the Secretariat is to work with CBN and SEC to create a section on the startup portal to ease the licensing procedure for financial technology (Fintech) companies. The Secretariat in conjunction with the NEPZA is also to establish a Technology Development Zone to spur the development of startups, accelerators and incubators.

The startup portal is also to have a section through which labelled startups who intend to participate in CBN’s sandbox or SEC’s regulatory incubator or in any other sandbox may fast track their application process. The labelled startup must however meet all the requirements to participate in the sandbox or regulatory incubator.

Repatriation of Capital and Profits.

In order to encourage foreign investments in startups, the Secretariat is to work with the CBN to ensure the repatriation of the proceeds of investments by foreign investors through an authorized dealer at the prevailing CBN rate. The repatriation is to be done on freely convertible currency of dividends or profits attributed to the foreign investor net all applicable taxed; and the proceeds in the event of sale or liquidation of the labelled startup, net all applicable taxes. To benefit from this arrangement, the investor would be required to present its Certificate of Capital Importation (CCI) as proof of injection of funds into the labelled startup.

Conclusion

The signing of the Nigerian Startup Act is no doubt a welcome development in Nigeria.  The provisions of the Act when implemented would encourage innovation and investment in the Nigerian startups especially in the FinTech space. There are many tax and fiscal incentives that are available to labeled startups including investors, foreign entities and employees. There are however concerns that this Act is yet another layer of bureaucracy in the already over regulated Nigerian business environment.

Please note that the contents of this article are for general guidance on the Subject Matter. It is NOT legal advice.

For further information or to see our other service offerings, please visit www.goldsmithsllp.com  or contact:

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On 28 March 2022, the Central Bank of Nigeria (CBN) issued the Guidelines for the Regulation and Supervision of Credit Guarantee Companies (CGCs) in Nigeria. The Guidelines are expected to create a conducive environment for Micro, Small and Medium Enterprises (MSMEs) to access credit at low interest rates from banks and financial institutions. The Guidelines also stipulate the activities that CGCs are permitted to undertake while outlining the non-permissible activities, application process for obtaining Approval-in-Principle and final licence as well as the corporate governance structure of CGCs.

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On 31 December 2021, the Nigerian President signed the Finance Act 2021 (the Act) into law. The Act came into effect on 1 January 2022. The Act amends various tax laws in Nigeria such as the Capital Gains Tax Act, the Companies Income Tax Act, the Customs, Excise Tariffs, Etc. (Consolidation) Act, the Federal Inland Revenue Service (Establishment) Act, Personal Income Tax, Insurance Act, etc.

In this article, we consider the recent changes which were brought in by the Act, aimed mostly at bringing relevant laws in conformity with the Nigerian Government reforms and policies.

Capital Gains Tax Act

Disposal of Shares in Nigerian Companies: The Act has now introduced chargeable Capital Gains for any disposal by any person of Shares in any Nigerian registered Company. The following exceptions however apply:

1. where the proceeds from the disposal are reinvested within the same year of assessment in the acquisition of shares in the same or in another Nigerian company. Note however that any portion not reinvested shall be taxable;
2. where the disposal is less than N100 million in any 12 consecutive months. Where this happens, the person disposing the Shares will be required to render appropriate returns to the Federal Inland Revenue Service (FIRS); or
3. where the shares are transferred between an approved borrower and lender in a regulated Securities Lending Transaction as defined under the Companies Income Tax Act (CITA).

The rate of tax on disposal of shares is 10% payable in the case of individuals, in accordance with the provisions of Personal Income Tax Act while for a company, it is to be paid to the FIRS.

Companies Income Tax Act

• The determination of adjusted profit of related Companies: The Federal Inland Revenue Service Board is now responsible for determining the adjusted profit of related companies where it is of the opinion that the commercial/financial relations are fictitious or artificial for the purpose of taxation. This was previously the responsibility of the Federal Inland Revenue Service (FIRS) only and did not involve the Board.
• Exemption from taxation: All dividends received from investments in wholly export-oriented businesses are now exempted from taxation.
• The exemption on profits of exported goods whose proceeds are used to purchase raw materials, plant, equipment and spare parts have now been streamlined to Nigerian companies operating in any of the Nigerian Petroleum Sector. Prior to this Act, it related to any Nigerian company.
• FIRS power to charge tax on the turnover of non-Nigerian Information Technology (IT) Companies:  The Act now empowers the FIRS to assess and charge non-Nigerian IT companies to the extent of their economic significant presence in Nigeria for that year of assessment on such fair and reasonable percentage of that part of the turnover attributable to that presence. This includes e-commerce stores, online payment platforms, application stores, such as companies owned by Facebook, Twitter, Ali Express, YouTube, etc.
• Allowable deductions from profits of a company in a year of assessment: Qualifying capital expenditure incurred in generating the assessable profit are now to be allowed as deductions for the purpose of ascertaining taxable profits of a company. However, a company that enjoys pioneer status under the Industrial Development (Income Tax Relief) Act cannot benefit from this deduction. An asset partially utilized to generate assessable profit will qualify for a pro-rated capital allowance where the proportion of non-taxable income is above 20% of the company’s total income.
• Extension of the accounting period to which the reduction of minimum tax payable applies: The accounting period to which the reduction of minimum tax payable (0.25%) applies has now been extended to include any two accounting period as may be determined by the tax payer that falls between 1^st January 2019 – 31^st December 2021. This extension, however, seems to apply where a company has filed its relevant tax returns for any year of assessment falling on any date between 1^st January 2020 – 31^st December 2021 (inclusive of both dates).
• Exemption from Incentives for companies engaged in Downstream Gas Utilization. These companies are now exempt from benefitting from the 3-year tax-free period which is renewable for an additional two-year period for companies engaged in Downstream Gas Utilization:

1. Companies that have claimed the incentive previously;
2. A company that has claimed any other incentive for trade or business in gas utilization under any Nigerian law including the Petroleum Profit Tax Act or the Industrial Development (Income Tax Relief) Act; and
3. A new company formed from a company restructured through buy-back, reorganization etc. that had previously benefitted from the incentive.

• Penalty for late filing: Henceforth any company that claims the minimum tax payment relief and fails to file its returns with the FIRS as appropriate shall be liable to pay as penalty for late filing, an amount equal to the relief sought. The implication of this is that such a company will be deemed to forfeit the said relief.

• Payment of undisputed tax: Where tax assessed by the FIRS is in dispute, the taxpayer is required to pay only the disputed tax.
• Payment of tax in installments: Taxpayers making payment in installment are no longer mandated to obtain an approval from the FIRS to make such payments.

• Taxation of the recipient of a Unit Trust Payment: The tax due from the recipient of a Unit Trust payment is now subject to withholding tax. The implication is that the withholding tax would be final tax in respect of such payment.

• Refund of tax payment made in excess: Excess payment arising from compliance with deduction of tax from interest, rent, dividend and at source over the assessment made by the FIRS is now to be refunded within 90 days of the assessment if duly filed with the option to set off against future taxes.

• Taxable dividends in a Regulated Securities Lending Transaction (RSLT): The taxable dividends in a RSLT has been generalized to include compensating payments received by a lender from its approved agent or borrower. Previously, it only applied where the underlying transaction giving rise to the compensating payment is a receipt of dividends by a borrower on any shares or securities received from its approved agent or a lender.

Customs, Excise Tariffs, Etc. (Consolidation) Act

Excise duty on non-alcoholic, carbonated and sweetened beverages: The Act empowers the Nigerian Customs Service to impose and collect an excise of N10 per liter on non-alcoholic, carbonated and sweetened beverages.

Federal Inland Revenue Service (Establishment) Act

• Administrative penalty for failure: Failure by any taxpayer to give access to the FIRS after the 30 days’ notice or any extended time is liable to an administrative penalty of N25,000 for each day that it fails to grant access.

Personal Income Tax Act

• Deduction of premium: The Finance Act makes provision for the allowance of the deduction of the annual amount of premium paid by an individual for life insurance for his own life or that of his spouse. The premium allowed to be deducted is the amount of premium paid in the preceding year before the year of assessment of the individual.
• Increment and removal of distinction of penalty charges: Section 47 of the Personal Income Tax Act states the duty of a person engaging in banking to make disclosure upon a 7 days’ notice from a relevant tax authority not below the rank of a Senior Manager or Grade Level 14 or equivalent. The penalty charges for the contravention of section 47 of the Act has been increased to N1,000,000. This was previously N500,000 penalty in the case of a corporate body and N50,000 in the case of an individual. This distinction of penalty charges has now been removed.

Tertiary Education Trust Fund (Establishment, etc.) Act

Increment of tax rate: Except for small companies, the profits of companies registered in Nigeria is now subject to a 2.5% tax deduction which is an increment from the previous 2% payable.

Value Added Tax Act

• Tax registration by non-resident persons: A non-resident person who make taxable supplies to Nigeria is required to register for tax with FIRS and obtain a Tax Identification Number (TIN).
• Inclusion of VAT on invoices: A non-resident person is obligated to include value added tax (VAT) on its invoice for all taxable supplies.
• Withholding tax by taxable persons: Taxable persons to whom taxable supplies are made are required to withhold or collect the tax and remit it to the FIRS. Ordinarily, taxable persons to whom taxable supplies have been made are not required to withhold VAT unless the appointed representative of the FIRS has failed to collect the VAT.
• Appointment of representative by a non-resident person: A non-resident person that makes taxable supply to Nigeria may also appoint a representative for the purpose of complying with its tax obligations.

Conclusion

The Finance Act 2021 has made some significant changes to the Nigerian tax laws. It has introduced a tax on non-alcohol carbonated drinks, it has also introduced taxes on non-resident IT companies with significant presence in Nigeria. In addition, it has introduced the charging of VAT by non-resident foreign companies doing business in Nigeria. This is a key piece of legislation that would drive the Nigerian government’s fiscal policies in 2022 and it will be interesting to see how the collection of taxes on non-resident IT companies in Nigeria is to be policed.

Please note that the contents of this article are for general guidance on the Subject Matter. It is NOT legal advice.

For further information or to see our other service offerings, please visit www.goldsmithsllp.com  or contact us.

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1^st Quarter (January – March 2021)

In what can only be described as heavy regulatory activities, the first quarter witnessed a buzz of actions by the regulators especially relating to Capital Markets, FinTechs, Taxation, Finance, etc.

• Companies Regulations 2021: Following the passing of the Companies and Allied Matters Act (CAMA) 2020, which revolutionized company registrations, ownerships and regulations in Nigeria, the Corporate Affairs Commission (CAC) issued the Companies Regulations 2021. The Regulations provide clarifications on some of the seemingly confusing provisions of CAMA 2020 such as the qualifications of a small company, allotment of shares, electronic meeting of directors, etc. Company owners in Nigeria now have some clarity as to some parts of CAMA 2020, which prior to the issuance for the Regulations were subject of several conflicting interpretations.
• The Central Bank of Nigeria (CBN) Regulatory Framework for Open Banking in Nigeria. In the first quarter, the CBN issued the framework for the principles for sharing of customers’ data with third party firms to build solutions and services that provide efficiency and enhance access to financial services in Nigeria. The framework has provided for the rules governing the sharing of customers’ data and the use of Application Programming Interface (API) to access customers’ data. Prior to this, there were no rules guiding this very important part of customer interface.
• The Securities and Exchange Commission (SEC) Guidance on the Implementation of Section 60 – 63 0f the Investment and Securities Act 2007. This provides guidance to public companies on corporate financial reporting, the role of the Chief Executive Officer and Chief Financial Officer and the role of the auditor of public companies on corporate financial reporting and the need for public companies to establish a system of internal control over its financial reporting. It also provides that only public accounting firm registered with SEC can prepare or issue audit report in respect of any public company. With the issuance of the Guidance, it now mandates directors to have common procedures for the evaluation of Internal Controls over Financial Reporting (ICFR) such that any other reasonably knowledgeable person can re-perform the same procedures and arrive at the same conclusion.
• SEC also announced the re-introduction of periodic registration for Capital Market Operators (CMOs). The essence of the re-introduction according to SEC is to obtain updated information on operators in the Nigerian Capital Market, strengthen supervision and monitoring of CMOs and reduce the incidences of unethical practices by CMOs.
• The Finance Act 2020. This was passed into law on 31 December 2020 but took effect on 1 January 2021 and represented a major shift in the tax regulations in Nigeria. The Act introduced the concept of Significant Economic Presence (SEP) for Personal Income Tax. It also exempts small companies (defined as companies with annual turnover of less than N25 Million) from payment of Tertiary Education Tax. It further excludes land, buildings, money and securities from the definition of goods and services for the purpose of Value Added Tax (VAT), etc.
• CBN Framework for Regulatory Sandbox Operations. In an attempt to drive innovation and create certainty especially in FinTech, the CBN introduced the Framework. This provides for the conduct of live tests on innovative products, services and other solutions in a controlled environment. It is open to both existing CBN licensees (FinTech and other institutions which may include financial sector companies as well as technology and telecom companies intending to test  innovative payments product or services). Prior to this, there were no avenues for innovative products to be tested before being offered to the public.
• CBN Framework for Quick Response (QR) Code Payments in Nigeria. The framework is to regulate the use of QR Codes in making payments in Nigeria through the provision of guidance and standards for its use. It stipulates the acceptable QR Code specifications and the obligations of participants. It is expected to further promote electronic payments in Nigeria.

2^nd Quarter (April – June 2021)

The second quarter was somewhat quiet. However, the CBN, among other regulators, issued the licensing requirements for players in the payment services system which raised the capital requirements for some license categories in the payments system space. A new Tax Appeal Rule was also made to guide tax appeals before the Tax Appeal Tribunal.

• CBN New License Requirements Payments System. These requirements now include mobile money operators, switching and processing providers, payment solution services providers, payment terminal service providers, payment solution service providers and super-agents. It stipulates the capital requirements and the need to make escrow deposits for the various players in the payments space.
• SEC’s Regulatory Incubator (RI) Guidelines. These Guidelines were  specifically developed for FinTechs operating or seeking to operate in the Nigerian Capital Market and for FinTechs who consider that there are no specific regulations governing their business models or who require clarity on the appropriate regulatory regime that would apply to their business. The RI is however, yet to be operational and shall be operational once the SEC calls for FinTechs to submit their applications.
• SEC’s Framework on the Interoperability and Financial Market Infrastructure (FMI). This Framework is now linked among Central Securities Depositories (CSDs) with the aim of protecting investors while ensuring the efficiency of the capital market. It provides the requirements for interoperability and the clauses that must be included in any interoperability agreement.
• Tax Appeal Tribunal (Procedure) Rules, 2021. The ProcedureRules wereissued by the Minister of Finance. It repealed the Tax Appeal Tribunal (Procedure) Rules, 2010. It contains innovative provisions such as the power of the tribunal to make an order for joinder, power to grant default judgement, summary appeal procedure, etc. It also aims to solve the problem of delays in prosecuting tax appeals.

3^rd Quarter (July – September 2021)

In the third quarter, there seems to have been a resurgence of activities. This quarter saw the enactment of the Petroleum Industry Act 2021 (PIA) and a judicial decision which seems to completely change the VAT collections mechanism in Nigeria.

• CBN’s Guidelines for Licensing and Regulation of Payments Service Holding Companies in Nigeria. The CBN issues these Guidelines, which requires any payment system company desirous of operating more than one license category i.e. mobile money operations, switching and processing and payment solution services, to set up a Payment Service Holding Company (PSHC) and clearly delineate the activities of its subsidiaries.
• CBN Regulatory Framework and Guidelines for Mobile Money Services (MMS) in Nigeria. The Framework and Guidelines list institutions that are prohibited from providing MMS and the requirements for Mobile Money Operators. It also, among other things, defines permissible and non-permissible activities for Mobile Money Operators.
• CBN Regulatory Framework for Non-Bank Acquiring in Nigeria. The CBN issued the Framework which sets out the roles of non-bank acquirers as well as that of other participants in non-bank acquiring. It aims to promote electronic payment and also mandates non-bank acquirers to have and implement policies that include minimum standards set by the payment schemes.
• A.G Rivers v. FIRS. This was a decision of the Federal High Court (FHC) in Rivers State, following a dispute between the federal government and the Rivers State Government on the collection of VAT. In an unprecedented and very bold decision, the FHC held that the Federal Inland Revenue Service (FIRS) (a federal agency) does not have the powers to collect VAT in Nigeria. Although the federal government has appealed this decision, if upheld on appeal, it is bound to completely change the VAT regime in Nigeria and affect the revenue of the federal government. Following the decision, some state governments enacted their own VAT laws setting VAT at 6% thus further alienating the federal government from the VAT revenue.
• The Value Added Tax (Modification) Order, 2021 was issued by the Minister of Finance which modifies and expands the list of exempted goods and services in the First Schedule to the Value Added Tax Act. Items such as petroleum products, renewable energy equipment, agricultural seeds and seedlings, raw materials for the production of pharmaceutical products, etc. are now exempt from VAT by virtue of the Order.
• Petroleum Industry Act 2021 (PIA). The big news in this quarter was no doubt the signing into law of the PIA by the Nigerian president. The PIA as a draft had lingered on at the Nigerian parliament for more than 20 years.  This is a ground-breaking piece of legislation which provides for the winding up of the Nigerian national oil company the Nigerian National Petroleum Corporation (NNPC). In its place, a new company known as the Nigerian National Petroleum Company Ltd was set up.  The Act is seen as a game changer for the petroleum industry. There are now separate authorities regulating the upstream, midstream and downstream sectors of the oil industry thereby bringing an end to the Department of Petroleum Resources (DPR), Petroleum Products Pricing Regulatory Agency (PPRA) and Petroleum Equalisation Fund (PEF). For the first time the PIA specifically sets up a fund for the host communities and targets gas flaring.
• The Copyright Repeal and Re-enactment Bill 2021 is currently before the National Assembly. The Bill seeks to repeal the operating Copyright Act 1988 and introduce salient innovative provisions into the Nigerian copyright regime in the light of technological advancement. The Bill has passed second reading and the jury is out as to what becomes of the Bill in coming days.
• It was reported that Nigeria attracted over $8.99 billion investment in the third quarter of 2021. This represents a growth of 130% when compared with the $3.95 billion that was attained in the third quarter of 2020. This was announced by Nigerian Investment Promotion Commission’s (NIPC) Director of Strategic Services.

4^th Quarter (October – December 2021)

In the fourth quarter, the eNaira which is a digital currency developed by the CBN to complement the Naira notes was introduced. Various Bills were also passed into law by both the Federal and State Governments. Tax matters were also prominent in the last quarter of 2021. The FIRS also issued guidelines which aim to expand the tax net to non-resident suppliers of goods and services in the coming years. The Finance Bill 2021 is presently before the National Assembly and when passed, it will introduce further significant changes to some tax and regulatory regimes in Nigeria.

• Regulatory Guidelines on the eNaira. This Guideline was released by the CBN to regulate the use of the eNaira, which is a digital currency unveiled by the president. The regulation provides for various eNaira wallets for the use of CBN, Financial Institutions (FIs), merchants and end users. The eNaira is administered by the CBN and the guidelines apply to all financial institutions and all users of the eNaira.
• The Climate Change Act. The Climate Change Act among other things seeks to project a net zero emission deadline plan for Nigeria. It provides the legal framework for the achievement of Nigeria’s long-term climate goals, national climate resilience, adequate climate finance and the role of business and civil societies in achieving the long-term climate objectives.
• Asset Management Corporation of Nigeria (Amendment) Act. This Act amends the 2019 AMCON Act and provides clarity on the 2019 Act and also enhance AMCON’s power in debt recovery.
• MultiChoice Nigeria Limited v. FIRS. in this long running case, FIRS had issued a tax audit assessment N1.8 trillion to MultiChoice after the forensic audit of its records which was challenged by MultiChoice by filing an appeal with the TAT. FIRS urged the TAT to mandate Multichoice to deposit 50 percent (N900 billion) of the disputed amount with it. MultiChoice challenged it and the TAT ruled in its favour which ordered it to make a cost deposit of 8 billion Naira.
• The Federal High Court, Abuja made an order to allow the unfreezing of the bank accounts of Rise Vest. The court held that the CBN cannot rely on a circular to freeze the bank account of a company. The CBN has sought to rely on a circular it issued to commercial banks to provide information on items not valid for foreign currency The court held that circulars giving directives by a regulator are not law and as such, the CBN cannot rely on a circular to freeze the bank account of a company.
• Guidelines on Simplified Compliance Regime for Value Added Tax (VAT) for Non-Resident Suppliers. The FIRS issued the Guidelines which mandate Non-Resident Suppliers who, within a period of 12 consecutive months immediately preceding the commencement of the Guidelines or any 12 consecutive months thereafter, has made or expects to make a single or series of supplies to Nigeria which amounts to an aggregate of $25,000 (Twenty Five Thousand US Dollars) or its equivalent in other currencies to register for VATS and obtain a Tax Identification Number (TIN) from FIRS. Non-Resident Suppliers supply taxable goods, services, digital products or intangibles to Nigerian customers through digital or electronic platform or means or intermediaries. The Guidelines will come into effect from 1 January 2022 with respect to supply of services and intangibles and 1 January 2024 for goods.
• The Finance Bill 2021: The Bill seeks to introduce significant changes to various tax and regulatory laws in Nigeria. It is presently before the National Assembly. Some of the laws which the Bill seeks to amend include Companies and Income Tax Act, Capital Gains Tax Act, Personal Income Tax Act, Stamp Duties Act, Petroleum Profit Tax Act, etc. The key changes the Bill seeks to make include the taxation of gaming revenue of a lottery and gaming business under the Companies Income Tax Act, taxation of foreign companies providing digital services in Nigeria such as e-commerce and online adverts, exclusion of companies with pioneer status incentives or other gas utilization incentives under any law in Nigeria from enjoying the gas utilization incentive under the Companies Income Tax Act, recognition of FIRS as the primary agency of the Federal Government for the purposes of assessment, accounting for, collection and administration of taxes and levies due to the Federal Government, etc.

Conclusion

Despite the economic challenges, 2021 was a very busy year for both the legislatures and regulators in Nigeria. The regulators issued guidelines and oversight regulations on various sectors such as FinTech, Banking and Finance, Capital Markets, etc. Various laws were passed and some very far-reaching judicial decisions were made.

The Finance Act 2020 took effect in the first quarter of 2021 and introduce the concept of significant economic presence and the exclusion of certain items such as land, buildings, securities, etc. from value added tax.

In Q2, new license requirements were issued for operators in the payments system which effectively increased the capital requirements for some license categories. The Tax Appeal Tribunal (Procedure) Rules 2021 was issued to guide the affairs of TAT in tax appeal matters. It introduced innovative provisions to tax appeals such as electronic filing and service, summary appeal, etc.

In Q3, we saw some of the regulations and guidelines aim to regulate and provide guidance to operators in the payment systems, the need for a payment service holding company, regulation of mobile money operators, etc.

The long-awaited Petroleum Industry Act 2021 (PIA) was also passed into law. It is a game-changing legislation for the petroleum industry. The decision of the Federal High Court on the VAT dispute between the federal government and Rivers State Government was a brave and unprecedented decision and could completely change the VAT regime in Nigeria.

In Q4, the Central Bank Digital Currency (eNaira) was unveiled and guidelines were issued by the CBN to regulate its use. In an attempt to expand the tax net,  guidelines for the taxation of non-resident suppliers were issued by the FIRS to tax non-resident suppliers of goods and services who have made a single or series of supply within a consecutive period of 12 months. The Finance Bill currently before parliament also aims to introduce significant changes to some tax laws in the country. The lottery and gaming sector is now expected to pay taxes when the Finance Bill is eventually passed into law.

Please note that the contents of this Article are for general guidance on the Subject Matter. It is NOT legal advice.

For further information or to see our other service offerings, please visit www.goldsmithsllp.com  or contact us.

The post Goldsmiths Solicitors – Legal Recap for the Year 2021 first appeared on Goldsmiths Solicitors.

In our third series examining the main provisions of the newly enacted Petroleum Industry Act (PIA), we consider some of the tax and fiscal provisions under the Act. The PIA altered the administration of taxes and the payment of fees and levies in the Nigerian Petroleum Industry and makes changes aimed at encouraging investment in the Industry. The Act also sets out the agencies now in charge of the administration and collection of taxes and levies, and makes alterations on the rates, allowable and non-allowable deductions, etc. to be made in respect of taxes.

Responsible Agencies

The Agencies responsible for the administration and collection of taxes and other levies under the PIA are:

1. The Federal Inland Revenue Service (FIRS) – responsible for assessing and collecting Hydrocarbon Tax, Tertiary Education Tax and Companies Income Tax.^[1]
2. The Nigerian Upstream Petroleum Regulatory Commission (the Commission) – responsible for determining and collecting royalties, signature bonuses, rents, production shares profit sharing or risk service provisions and other related payments;[2] and
3. The Nigerian Midstream and Downstream Regulatory Authority (the Authority) – responsible for the determination and collection of penalties on gas flaring arising from midstream operations.[3]

Applicable Taxes

The PIA has made some changes with respect to some aspects of taxes payable by operators. The Petroleum Profit Tax (PPT) will now be replaced with Hydrocarbon Tax (HT) and Companies Income Tax (CIT).

The Hydrocarbon Tax.

Hydrocarbon Tax (HT) are assessable taxes, chargeable on profits of Companies engaged in upstream petroleum operations in the onshore, shallow water and deep waters and it applies to crude oil, field condensates and natural gas liquids derived from associated gas and produced in the field upstream of the measurement points.[4] The following are not subject to Hydrocarbon Tax (HT):

1. Associated gas produced which is not upstream of the measurement point[5];
2. Any frontier acreage until it is reclassified to a general onshore[6].

The crude oil taxable under the HT is the value of chargeable oil adjusted to measurement point.[7] To determine Hydrocarbon Tax (HT), the adjusted measurement point, allowable deductions[8] adjusted profit and non-allowable deductions[9] are to be considered. In ascertaining the adjusted profit, penalties, litigation and arbitration costs, bad debts, financial/bank charges, etc. are not deductible.^[10]

In determining the HT, the sum eligible for deduction in an accounting period is subject to the cost ratio limit of 65% of the gross revenue determined at measurement point.[11] Where deductions required to be made are not made in an accounting year, such deductions may be brought to FIRS’ notice within 5 months after the end of an accounting year or as extended by the FIRS[12] and may be deducted in the subsequent accounting year.[13] HT is payable in installments.[14] and its assessment, computation and payment is to be made in USD.^[15]

The Act categorizes chargeable tax with respect to HT into two (2), namely:

1. Profit on crude oil for Petroleum Mining Leases (PML) with respect to onshore and shallow water areas, which is 30% of the lessee’s profit; and
2. Profit on crude oil for Petroleum Prospecting Licence (PPL) with respect to onshore and shallow water areas, which is 15% of the licensee’s profit.

Chargeable Persons under Hydrocarbon Tax

Generally, Companies engaged in Upstream petroleum operations are liable to be charged and to pay Hydrocarbon Tax. The following persons/companies are also subject to hydrocarbon tax:

1. Any person or persons or partnership except companies and/or partnership between companies that engages and makes profit from upstream petroleum operations is liable to pay taxes in addition to provided penalties.[16]
2. Companies engaged in upstream petroleum operations either as a Partnership, Joint Ventures or any other arrangement. These companies will be charged in proportion to the equity interest held respectively by them.[17]

Accounts/Returns to be Kept

The FIRS oversees the administration, assessment and collection of Hydrocarbon Tax. Companies assessable to Hydrocarbon Tax are required to keep and submit accounts to the FIRS.

Accounts of Profit and Loss

Companies engaged in Upstream Petroleum Operations relating to crude oil are required to make accounts of profits and loss within an accounting period and they are required to submit a copy of the accounts to the FIRS within 5 months of the accounting period or within 5 months from the effective date of the PIA.[18]

Returns of Profit and Loss

Companies engaged in upstream petroleum operations related to crude oil are also required to submit an estimated return of profits and loss not later than 2 months after the commencement of each accounting period. Where there is a change in price, cost or volume after filing of returns, the company will be required to submit further returns reflecting the change.[19]

Accounts or Returns on Bulk Sale or Disposal of Chargeable Oil

Every company yet to commence bulk sale or disposal of chargeable oil are to file its audited accounts or returns to the FIRS within 5 months after the 31^st of December of each year for already existing Companies and 18 months for newly incorporated companies.[20]

The post The Tax and Fiscal Regime under the Petroleum Industry Act 2021: Goldsmiths Solicitors PIA Series III first appeared on Goldsmiths Solicitors.

Grant of Licences and Permits in Midstream and Downstream Petroleum Operations

The Authority publishes the applications for the grant of licence or renewal in respect of which comments or representations may be made.^[1]There is an obligation to comply with the Land Use Act as it relates to compensation for acquisition of land in respect of which a licence or permit has been issued by the Authority for Midstream and Downstream petroleum operations.^[2]

Licences in Midstream and Downstream Gas Operations

The activities that require a licence in the midstream and downstream gas operations include establishing, constructing or operating a facility for the processing and storage, of natural gas, engaging in wholesale gas supply, etc. ^[3] Licences to be obtained under the Midstream and Downstream gas operations include:

1. Gas processing licence – grants the licensee the right to install and operate gas conditioning plants, gas processing plants, gas to liquids plants, liquefied natural gas (LNG) plants and ethane extraction plants.^[4]

2. Bulk gas storage licence – grants the licensee the right to undertake the bulk storage of natural gas either for its own account or on behalf of customers.^[5]

3. Gas transportation pipeline licence – gives the holder the exclusive right to own, construct, operate and maintain a gas transportation pipeline within a route defined in the licence for its own account with third party access or as common carrier.^[6] The holder cannot supply gas to customers on its own account where it is granted on a common carrier basis.^[7] The licence is also required for unprocessed gas that needs to be transported.^[8]

4. Gas transportation network operator licence – authorises the holder to convey natural gas through the gas transportation network, balance the inputs and off takes from the gas transportation network, charge for the use of the gas transportation network, etc.^[9]

5. Wholesale gas supply licence – authorises the holder to purchase natural gas directly from any lessee or third party and sell and deliver wholesale gas to wholesale customers and gas distributors at any location in Nigeria.^[10]

6. Retail gas supply licence – authorises the holder to sell or retail compressed or liquefied marketable natural gas to customers and establish, construct and operate facilities to deliver compressed natural gas and small-scale facilities for LNG.^[11] It also authorises the holder to purchase marketable natural gas directly from a lessee, wholesale gas supplier or third party, and sell and deliver compressed or LNG to customers at any location in Nigeria on a free market basis.^[12]

7. Gas distribution licence – grants the holder the right to establish, construct, and operate a gas distribution system and to distribute and sell its natural gas to consumers in a local distribution zone,^[13] including retail customers.^[14]

8. Domestic gas aggregation licence – the licence is issued for a period of 2 years and renewal in each instance is also for 2 years.^[15] A domestic gas aggregator supports the implementation of the domestic gas delivery obligation in addition to other functions that it is expected to carry out.^[16] The domestic gas aggregator is required to be a company limited by guarantee established under the Companies and Allied Matters Act.^[17]

Midstream and Downstream Petroleum Liquid Operations

The following licences may be granted to qualified applicants in the midstream and downstream liquid sector:

1. Crude oil refining licence – permits the licensee to procure, construct, install and operate facilities to process crude oil on its own account into derivative chemicals and petroleum products and to sell such chemicals and petroleum products.^[18] The licence gives the holder right of access to facilities which include harbours, jetties, petroleum bulk storage, transportation facilities and pumping installations.^[19]
2. Bulk petroleum liquids storage licence – authorises its holder to undertake the bulk storage of petroleum liquids whether for its own account or on behalf of customers.^[20]

3. Petroleum liquids transportation pipeline licence – grants the holder the exclusive right to own, construct, operate and maintain a transportation pipeline for the transportation of petroleum liquids within a defined route.^[21]

4. Petroleum liquids transportation network operator licence – gives the holder the right to:^[22]
5. Convey petroleum liquids through the transportation network;
6. Balance the inputs and off takes from the transportation network;

5. Wholesale petroleum liquids supply licence – authorises the supplier (the holder) to sell and deliver petroleum liquids to bulk customers in Nigeria or for export.^[23] The company that is entitled to this licence is one that is a lessee producing crude oil or condensates or both or a holder of a crude oil refining licence.^[24]

6. Petroleum products distribution licence – authorises the licensee to distribute petroleum products.^[25] The licensee has the duty to carry out its activities in line with the provisions of the Act.

7. Licence to construct and operate a facility for retail supply and distribution of petroleum products – authorises the holder to establish, construct and operate a facility to be employed for retail sale of petroleum products.^[26]

8. Licence to operate a facility for the production of petrochemicals – authorises the holder to establish, construct and operate a facility for the production of petrochemicals and sell the petrochemicals produced.^[27]

Environmental Management

Licensee and lessors in upstream and midstream petroleum operations are to submit an environmental management plan to their respective regulators in respect of projects requiring environmental impact assessment.[28]

The Act seeks to ensure an eco-friendly petroleum operation by making contributions towards remediation of environmental damage by licensees and lessees a condition for the grant of the licence or lease.[29]

Conclusion

Under the PIA, the agency that now has the responsibility for licensing the with the midstream and downstream sectors is the Nigerian Midstream and Downstream Regulatory Authority.  There are now a variety of licenses to be obtained either in the gas or petroleum liquid operations under the midstream or downstream sectors. These include Gas processing licence, Bulk gas storage licence, Gas transportation pipeline licence, Gas transportation network operator licence, crude oil refining licence etc.

Watch out for our next publication on the PIA to be published next week and which shall consider the fiscal and tax regimes under the PIA..

Please note that the contents of this Article are for general guidance on the Subject Matter. It is NOT legal advice.

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The post New Licensing Regimes under the Petroleum Industry Act 2021 – GS Series II (Part B) first appeared on Goldsmiths Solicitors.

The PIA still categorizes the petroleum sector into three as follows: the Upstream, Midstream and the Downstream sectors. The Nigerian Upstream Petroleum Regulatory Commission (the Commission) is responsible for regulating the Upstream sector. The Commission is responsible for issuing licences to operators in the upstream sector. However, the grant of a licence to operate a refinery is issued by the Minister on the recommendation of the Authority.^[1]

A company cannot operate more than one (1) stream. Where a person intends to operate in more than one stream, separate companies must be incorporated for each stream.^[2] However, the Act provides for the establishment of an Integrated Specific Project (ISP) where the capital investments associated with the Midstream Petroleum Operations can be consolidated with the Upstream Petroleum Operations (UPO) for tax purposes. An ISP may be established where there is a project by the UPO to produce oil and natural gas, which is to be processed and refined as a final product and sold to the local market.^[3]

In this part, we address the licensing regime under the upstream petroleum sector as provided in the PIA.

Licences/Lease in Upstream Petroleum Operations

The PIA seems to have introduced a change in licence type nomenclature. Under the previous regime, there were the oil exploration licence, oil prospecting licence and oil mining lease. Now the word “Oil” has been replaced with the word “Petroleum”.

1. Petroleum Exploration Licence (PEL) – The license only allows its holder to explore petroleum on a non-exclusive basis.^[4] Exploration under this licence may also cover areas that include the Petroleum Prospecting License (PPL) and Petroleum Mining Lease (PML) provided the holders of the PPL and PML have no obligation to pay for the result of the survey conducted under the PEL.[5] The license is valid for 3 years and renewable for another period of 3 years on the satisfaction of prescribed conditions.^[6]

2. Petroleum Prospecting Licence (PPL) – This license allows its holders to carry out petroleum exploration on a non-exclusive basis and to drill exploration and appraisal wells.^[7] The holder is required to submit to the commission a commitment to a field development plan within a period of 2 years after a commercial discovery declaration to the commission.^[8] In respect of onshore and shallow water acreages, the licence is valid for 3 years and renewable for an additional period of 3 years at the option of the holder^[9] while for deep offshore and frontier acreages, it is valid for an initial period of 5 years and an optional extension period of 5 years.^[10] This licence is not to be extended except in accordance with the PIA.[11] Failure of the holder of the licence to fulfil any term or condition which arises from a force majeure shall not amount to a breach of the licence.^[12]

3. Petroleum Mining Lease (PML) – It is granted to qualified applicants to win, work, carry away and dispose of crude oil, condensates and natural gas on an exclusive basis.^[13] It also allows its holder to explore oil on a non-exclusive basis. The Lease will be granted to the holder of a PPL upon each commercial discovery of crude oil or natural gas or both and where it has satisfied the conditions imposed on it.^[14]

The holder of the lease has exclusive right to carry out the development and production of petroleum with respect to the area covered by the lease.^[15] The lease is granted for a maximum period of 20 years.^[16] Its holder must continue commercial production otherwise the lease may be revoked, and title goes to the government.^[17]

Any of these licences or lease may only be granted to companies incorporated under the Companies and Allied Matters Act.^[18] It is an offence for Individuals and Partnerships other than Companies or partnership between Companies to engage in upstream petroleum operations. Such individual or partnership will also be liable to HCT and CIT on profits so made^[19] and will be liable to pay an administrative penalty of N10Million, N2Million for each day the offense continues and upon conviction, the sum of N20Million or Six (6) months imprisonment.^[20]

Submission of Field Development Plan and Unitization

The holder of a Petroleum Prospecting Licence is required to submit to the commission a commitment to a field development plan within a period of 2 years after a commercial discovery declaration to the commission.[21] The field development plan may be submitted in phases.[22] Upon submission, the NURC shall evaluate the technical and commercial terms of the field development plan and shall approve it where it meets certain conditions.[23]

The areas where there is a declaration of commercial discovery in respect of may be developed and worked on, on a unitization basis for the purpose of optimum recovery of petroleum from a petroleum reservoir. This provision on unitization applies to the holders of PPL and PML.[24] The commission may issue regulations on unitization from time to time.[25]

Conversion of Oil Prospecting Licence and Oil Mining Lease

In view of the change in license nomenclature, the PIA has introduced new steps to be taken by license holders under the old regime who intend to switch to the new ones. Generally, present holders of the Oil Prospecting Licence (OPL) and the Oil Mining Lease are not mandated to convert to PPL and PML respectively. However, upon the expiration of their licence, they shall cease to hold any license and would be required to apply for the licences under the PIA. A holder of an OPL or OML who wishes to convert may do so through a Conversion Contract.^[26] For the conversion to take place, it is required that all arbitration and court cases related to it be terminated through the termination clause included in the contract.^[27]

Conversion for Marginal Field

A producing marginal field is allowed to continue at the original Royalty rates and Farm Out Agreements but is required to convert to petroleum mining lease within 18 months from the effective date of the PIA.^[28] On the other hand, a non-producing marginal field shall be converted into a petroleum prospecting licence.^[29] It is important to note that new marginal fields shall not be declared under the Act.^[30]

Gas Flaring or Venting

Generally, gas flaring or venting by a licensee, lessor or the operator of a marginal field is an offence except it is done:

1. In the case of an emergency
2. Pursuant to an exception granted by the commission for a specific period and purpose as defined under the Act.[31]
3. As an acceptable safety practice under established regulations.[32]

The fine is imposed on gas flaring or venting is for the remediation of the environment and relief of the host communities of the settlors.[33]

Revocation of Licences/Lease

PPL and PML may be revoked by the Minister of Petroleum. However, a notice of default shall be sent to the last known address of the holder in addition to the provision of a remediation period of not less than 60 days.^[34] Where a satisfactory remedy is received, the revocation process shall be terminated^[35] otherwise it shall be revoked and the fact of revocation shall be published in the Federal Government Gazette.^[36]

Conclusion

The PIA introduces some new licensing regimes in the Nigerian petroleum sector. It introduces a change in upstream sector’s license type nomenclature and has replaced the word “Oil” with the word “Petroleum” suggesting that there are more far-reaching licensing requirements. While it is not mandatory for holders of OPL and OML to convert their licences, holders of marginal field are required to do so within 18 months. Licensees are to comply with international best practices and ensure compliance with local laws and regulations to prevent revocation of their licence.

Watch out for the part B which comes out on 29^th September 2021 which will deal with the licenses under midstream and downstream sectors.

Please note that the contents of this Article are for general guidance on the Subject Matter. It is NOT legal advice.

[1] Section 111 (1), Petroleum Industry Act 2021

[2] Ibid, Section 302(3)

[3] Ibid, Section 302(4)

[4] Ibid, Section 70 (1) (a)

[5] Ibid, Section 71 (4)

[6] Ibid, Section 71 (3)

[7] Ibid, Section 70 (1) (b)

[8] Ibid, Section 79 (1)

[9] Ibid, Section 77 (1)

[10] Ibid, Section 77 (2)

[11] Ibid, Section 78 (4) and 79 (6)

[12] Ibid, Section 72 (2)

[13] Ibid, Section 70 (1) (c)

[14] Ibid, Section 81(1)

[15] Ibid, Section 82(1)

[16] Ibid, Section 86(1)

[17] Ibid, Section 86 (2) and (3)

[18] Ibid, Section 70 (2)

[19] Ibid, Section 273(1) & (2)

[20] Ibid, Section 297(1) & (2)

[21] S. 79 (1)

[22] S. 79 (14)

[23] S. 79 (2)

[24] S. 80

[25] S. 80 (9)

[26] Ibid, Section 92 (1)

[27] Ibid, Section 92 (3)

[28] Ibid, Section 94 (1)

[29] Ibid, Section 94 (2)

[30] Ibid, Section 94 (9)

[31] S. 107

[32] S. 104

[33] S. 104 (4)

[34] Ibid, Section 97 (1) (a) and (b)

[35] Ibid, Section 97 (2)

[36] Ibid, Section 97 (6)

The post New Licensing Regimes under the Petroleum Industry Act (PIA) 2021 – GS Series II (Part A) first appeared on Goldsmiths Solicitors.