5 Essential Legal Requirements for Starting a Business in Nigeria
When starting a business in Nigeria – to be seen as a professional by your customers and as a law-abiding citizen by the government – you need to meet some essential legal requirements. On your customers’ path, not meeting the requirements will lead to distrust, while on the government’s path, you can be penalized.
So, before investing a lot of resources in that business idea, make sure you comply with the following legal requirements:
#1. Business Registration
For you to be taken seriously by your customers and for your personal belongings to be protected by law if your business runs into problems such as bankruptcy, you should register the business. The organization in charge of that in Nigeria is the Corporate Affairs Commission (CAC), and out of the six types of business entities offered by the organization, Limited Liability Company (LLC) and Corporation are the most preferred.
While registering a company as a corporation comes with the highest legal protection, many new business owners go will LLC. The reason is that registering as a corporation is more expensive, complicated – and it better suited for big, successful companies. To register an LLC, you are required to propose three names and personal information of shareholder(s) and directors.
#2. Registration with Federal Inland Revenue Service (FIRS)
Once the LLC registration is completed, another important legal requirement for starting a business is a registration with the Federal Inland Revenue Service (FIRS). This is the agency responsible for collecting taxes for the Federal Government of Nigeria. Upon registration with the agency, you will be given three documents, which are Tax Clearance Certificate (TCC), Tax Identification Number (TIN) and Value Added Tax (VAT).
TIN and VAT numbers are used when remitting taxes to the Federal Government, while the Tax Clearance Certificate shows that the business is compliant. Evading taxes in Nigeria can cost your business a lot of things when caught: government organizations and companies wouldn’t work with you and the Federal Government can heavily fine or confiscate your business.
#3. Local Tax Office Registration
If your business is 100% digital and you don’t have a physical office space or factory, you currently don’t need to register with a local tax office. However, if you have an office space or factory, registering with the local tax office is a legal requirement you can’t ignore.
You will be expected to register for a Business Premises levy, and you have to renew it annually. Also, your staff must be registered for the Pay As You Earn (P.A.Y.E) tax, which must be remitted every month.
Both the Business Premises levy and P.A.Y.E taxes are collected by the State Internal Revenue Service.
#4. Business Permit
As a Nigerian, you don’t need any permit to start a business in Nigeria. However, foreigners who intend to start a business in the country or open a subsidiary of a foreign company in Nigeria must get a business permit from the Ministry of Interior. A common way to avoid going through the long process of getting the permit is to engage a Nigerian citizen and make him or her to partly own the foreign company.
#5. Licenses & Certification
For you to run a business in some Nigeria sectors, the legal requirement is that you must get an operating license. This is standard whether you are a Nigerian or a foreigner. For example, if you produce and package food and beverages in Nigeria, you need licenses and certifications from the National Agency for Food and Drug Administration and Control (NAFDAC) and Standards Organisation of Nigeria (SON).
Fintech companies need a license from the Central Bank of Nigeria (CBN), and to open a new school, State Ministry of Education’s approval is needed. The point is that you need to find out the regulator of the business sector you are interested in and get all necessary licenses and certifications needed to start the business.
In conclusion, while Nigeria has recently improved on the World Bank’s Doing Business Index, getting some of the legal requirements for starting a business in the country can still be challenging and time-taking. Nevertheless, it is better to face the challenges when starting your new business than having your company sealed off because of non-compliance.
Now that you know the essential legal requirements for starting a business in Nigeria, go ahead and start your business. I hope you found this article helpful. We would like to know what you think about our content. Kindly leave a comment below.