Almost three years after The Start-up Act, was signed into law in Nigeria, the jury is still out as to whether or not it has made any difference at enhancing the development and growth of the Nigerian Startup sector and encouraged innovation and entrepreneurship for startups. In October 2022, Nigerian president at the time, signed the Start-up Act, which aimed to enhance the development and growth of the Nigerian Startup sector and encourage innovation and entrepreneurship for startups. As a result of this Act, there has no doubt been a lot of regulatory attention on Start-ups in the country. A start-up can be referred to as a company that is in the early or initial stages of business or development. According to the Nigerian Startup Act, 2022, a start-up is a company which has been in existence for a period not more than 10 years.

Generally, all companies, whether start-ups or not, must satisfy certain regulatory requirements in order to remain operational and avoid sanctions by regulators. It is therefore necessary for Start-ups to stay informed of the compliance requirements relevant to them and to comply with those requirements.

Below are some of the regulatory requirements Start-ups should watch out for

1. Incorporation of Company: It is a mandatory requirement that all businesses in Nigeria must be incorporated with the Corporate Affairs Commission (CAC) in accordance with the Companies and Allied Matters Act (CAMA), 2020. Incorporation grants your company legal identity and is mandatory before an organisation commences business.

2. Tax Registrations and Filings: Start-ups must register with the Federal Inland Revenue Service (FIRS) and State Inland Revenue Service for remittance of Company Income Tax (CIT), Value Added Tax (VAT), Personal Income Tax and Withholding tax (WHT) where applicable. Upon registration with the FIRS, a company is issued a Tax Identification Number (TIN), which serves as the company’s identification number for all dealings with the federal tax authorities. Failure to register for tax will attract sanctions from the FIRS. The first CIT must be filed within 18 months of incorporation, and subsequently within six months of their financial year-end. Companies are also required to file and remit VAT on or before the 21^st day of the month following that which the transaction was made. Remittance of Personal Income Tax or PAYE (Pay As You Earn) on behalf of local employees are to be filed monthly to the state government where the worker resides on or before the 10^th day of the month following the month of deduction. Additionally, employers are required to file annual PAYE returns not later than 31^st January in respect of all employees in its employment in the preceding year. WHT returns are to be filed monthly within 30 days from the date the amount was deducted or the time the duty to deduct arose. Failure to file the relevant tax returns result in penalties and tax liabilities.

3. Post incorporation filings: Any changes in any company’s structure, such as directorship, shareholding, registered address, etc. must be filed with and approved by the CAC. Annual returns (Statement of Affairs if the company has not commenced business) must also be filed to maintain active status with the CAC. For start-ups, the first annual returns must be filed within 18 months of incorporation of the company and subsequently on an annual basis. Failure to file annual returns could result in the company being declared inactive and ultimately deregistered. Also, late filing of annual returns attracts a penalty for each year of default.

4. Industry-Specific Licenses and Permits: Depending on the sector in which you operate, specific licenses or permits from regulatory bodies may be required. For example, sports betting companies require licenses from the state lottery boards and financial services companies require licenses from the Central Bank of Nigeria, Securities and Exchange Commission etc. For a company with foreign participation, it is required to obtain a business permit from the Federal Ministry of Interior which allows the company to commence business operations in Nigeria.

5. Mandatory Meetings: Companies are mandated to hold Annual General Meetings (AGM) and board meetings. Companies may hold extraordinary general meetings as they deem fit. For a start-up company, the first AGM must occur not later than 18 months of incorporation, with subsequent AGMs held no later than 15 months after the last AGM. Regarding board of directors’ meeting, the first board meeting should take place within six months of incorporation. Subsequently, the Directors may have meetings from time to time as they deem necessary.

6. NSITF Contribution and Pension: Employers must contribute 1% of their employee monthly payroll to Nigerian Social Insurance Trust Fund (NSITF) every year and remit monthly pension contribution of 8% for the employee and 10% for the employer with an approved Pension Funds Administrator (PFA) not later than 7 days of payment of salary every month. Start-ups must make their first NSITF contribution within two years of commencing operations. Companies that fail to make the required contribution to NSITF, shall pay a fine of at least 2% of the amount due to be remitted, in addition to the amount to be paid.

7. Nigerian Data Protection Commission Registration and Data Audit: Companies controlling or processing personal data must register with the Nigerian Data Protection Commission (NDPC) and file annual data audit reports. These companies are referred to as data controllers and data processors of major importance. Start-ups that control and process data are mandated to register with the NDPC upon incorporation failure to do so or late registration incurs penalties.

8. Brand Protection: Although not mandatorily required, Start-ups and existing companies are advised to protect their intellectual property or intangible assets by registering trademarks, patents, and copyrights with the Federal Ministry of Industry, Trade, and Investment. This prevents competitors from unlawfully copying, counterfeiting and registering your brand.

9. Corporate Governance: In Nigeria, companies are required to adhere to corporate governance best practices to ensure proper management. Companies in some specific industries are also required to set up sub-committees to effectively undertake the business of the companies. For example, some corporate governance requirements can be found under CAMA 2020, the Nigerian Code of Corporate Governance (NCCG), 2018, the Code of Corporate Governance for Public Companies (CCGPC) 2011; Code of Corporate Governance for Banks and Discount Houses in Nigeria 2014, amongst others. Start-ups are required to comply with the codes relevant to their industries.

9. Nigerian Investment Promotion Commission (NIPC) Registration: The Nigerian Investment Promotion Commission (NIPC) is a government agency established to encourage, promote and coordinate investments in Nigeria. Whether wholly or jointly owned by foreigners, start-ups intending to operate in Nigeria must register with the NIPC before the commencement of business operations.

10. National Office for Technology Acquisition and Promotion (NOTAP) Registration: Nigerian companies seeking to enter into contracts or agreements with a foreigner for the transfer of foreign technology to Nigerians are expected to register the contracts with NOTAP. Failure to register the contract will however not affect the validity of the contract but will prevent the Nigerian entity from making payments from Nigeria through any licensed bank in Nigeria to any person outside Nigeria.

11. Special Control Unit Against Money Laundering (SCUML) Registrations: Designated Non-Financial Institutions (DNFIs) which include construction, consulting, financial services, tax companies, etc. must register with the Special Control Unit Against Money Laundering (SCUML) of the Economic and Financial Crimes Commission (EFCC) and obtain a registration certificate. DNFIs are also expected to submit their cash-based transaction reports and Currency Transaction Reports to SCUML for onward forwarding to the Nigeria Financial Intelligence Unit (NFIU).

Conclusion

Almost three years after The Start-up Act, was signed into law, the jury is still out as to whether or not it has made any difference at enhancing the development and growth of the Nigerian Startup sector and encourage innovation and entrepreneurship for startups. There are numerous and enormous mandatory regulatory requirements which Start-ups (and existing companies) must comply with in Nigeria. Navigating regulatory landmines in Nigeria is vital for the success and sustainability of any business. Regulatory compliance keeps companies legally protected, helps them  identify and mitigate risks and enhances operational efficiency.

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 Regulatory Compliance Checklist for Start-ups in Nigeria appeared first on Goldsmiths Solicitors.

An International Money Transfer Operator (IMTO) is a company approved by the Central Bank of Nigeria (CBN) to facilitate the transfer of funds from individuals or entities residing abroad to recipients in Nigeria. Cross-border money remittances into Nigeria by any financial institution are regulated by the CBN. Therefore, any person or entity desiring to provide inbound cross-border money remittance in Nigeria is required to be licensed as an IMTO with the CBN. Under the previous regime provided by the Guidelines on International Money Transfer Services in Nigeria, 2014, IMTOs were able to engage in both inbound and outbound international money transfer but this is no longer the case following the new Guidelines issued by the CBN in January 2024 which restrict IMTOs only to inbound international money transfers.

To obtain an IMTO license in Nigeria, an applicant must meet specific eligibility requirements. These requirements would usually include share capital, policies and other documentary requirements.

The key regulatory framework applicable to IMTOs in Nigeria is the CBN Guidelines on International Money Transfer Services in Nigeria, 2024. These Guidelines outline the permissible and non-permissible activities for IMTOs, requirements to obtain IMTO license, etc.

Permitted Operations for IMTOs

IMTOs are now permitted to process only inbound international money transfer transactions.  This means that IMTOs can only accept and transfer monies to persons resident in Nigeria or render money transfer services towards family maintenance or in favour of foreign tourists visiting Nigeria, etc.

Non-Permitted Operations

IMTOs are prohibited from engaging in outbound transactions and purchasing foreign exchange from the domestic foreign exchange market for settlement. IMTOs are strictly limited to the permitted activities and any activity beyond the permitted operations is prohibited.

Procedure for Obtaining IMTO License from the CBN

The application for IMTO license is made in two stages which are Approval-in-Principle (AIP) and Final Approval.

1. Approval-in-Principle

An applicant of an IMTO license is required to first apply to the CBN for the grant of an Approval-in-Principle. The application is made to the Director of the Trade and Exchange Department of the CBN. At this stage, the applicant is required to pay a non -refundable application fee to the CBN and submit the required supporting documentations. The documents required for the purpose of obtaining Approval-in-Principle include:

1. Approval to operate in other jurisdictions or agency agreement
2. Evidence of tax clearance and incorporation documents in Nigeria
3. Ownership structure of the IMTO
4. Board of Director’s approval to operate international money transfer services
5. Profile of the company which shall include the Curriculum Vitae, biodata and contact details of the board and management of the company.
6. Credit reports on shareholders and other key officers obtained from a licensed credit bureau
7. Minimum share capital requirement of $1,000,000 (One Million USD) for foreign IMTOs and the equivalent in Naira for local IMTOs.
8. Any other information or documents as may be required by the CBN.

The CBN will review the application together with the supporting documents and decide whether or not to grant Approval-in-Principle. The grant of Approval-in-Principle by the CBN does not authorize the commencement of business operations but only allows the applicant to proceed to open bank account and process pre-operational requirements and processes.

2. Final Approval

No later than three months of obtaining Approval-in-Principle, an IMTO is required to apply to the CBN for a final approval to enable it commence business operations. To obtain final approval from the CBN, the applicant must submit the following information and documents to the CBN:

1. Names of Authorized Dealer Banks
2. Detailed business plan which addresses the nature of business, internal control systems and monitoring procedures, security features, three years financial projections, illustration of transaction flows, dispute resolution mechanism, information technology policy, etc.
3. Enterprise risk management framework
4. Business continuity plan
5. Project deployment plan
6. Any other information which the CBN may require.

If the CBN is satisfied that the applicant has met the requirements for the grant of a final licence, a licence shall be granted for a period of one year.

Renewal of IMTO License

IMTO licenses are subject to renewal annually upon the payment of the license renewal fee to the CBN on or before 31^st January of the year. The CBN allows the IMTO’s agent bank to cease further transactions with the IMTO where the IMTO fails to make a copy of its renewal license available to the agent bank within the first quarter of the year.

Prohibited Entities

The prevailing CBN IMTO regulations prohibit all banks and financial technology (FinTech) companies from providing IMTO services. However, banks can act as agents to IMTOs. The implication is that banks and FinTech companies cannot apply to the CBN to obtain IMTO licenses.

Under the previous IMTO regulatory regime, banks and FinTech companies were eligible to obtain IMTO license and provide IMTO services.

Conclusion

International money transfer services in Nigeria are regulated by the CBN and it is required that IMTO license is obtained from the CBN before any person or entity can provide international money transfer services in Nigeria. The CBN has set the minimum shared capital and documentations required for applicants of IMTO license in Nigeria. Banks and FinTechs are prohibited from operating an IMTO License.

IMTOs can now only engage in inbound international money transfer services and are prohibited from outbound money transfers. IMTO license is processed in two stages of “Approval-in-Principle” and “Final Approval”. The IMTO license is valid for one year and subject to renewal on or before the 31^st of January each year. 

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 International Money Transfer Operators (IMTO) License from the Central Bank of Nigeria appeared first on Goldsmiths Solicitors.