24/07/2026
Before You Jump on That Offer, Weigh the Tax Burden!
Deepening my practice in Tax Compliance has continually transformed how I evaluate commercial proposals and profit margins. Tax is not merely an administrative afterthought; it sits precisely at the intersection of law, finance, and economics.
One recurring scenario I frequently advise clients on is the common practice where a company uses a third party's legal entity to bid for and execute a contract.
Recently, a visionary entrepreneur brought a seemingly lucrative proposal of this nature to my desk. He runs a successful glass and window fabrication company. Through consistent compliance, he has built a clean regulatory track record, regularly paying his Companies Income Tax (CIT) and maintaining a valid Tax Clearance Certificate (TCC).
A few days ago, he reached out for counsel on an exciting proposition. Another company had secured an opportunity to execute a contract worth over ₦500 Million with a major organization. However, the third party lacked the necessary compliance documentation—specifically a current TCC—to bid directly. Their solution? Use my client’s registered company to bid for and execute the ₦500M contract. In exchange, my client would receive a 5% commission on the contract value (₦25 Million) simply for letting the transaction pass through his company.
To my client, it sounded like effortless revenue: zero operational ex*****on, minimal capital outlay, and a solid 5% payout. He came seeking my legal validation to proceed.
Before celebrating the 5% commission, I posed a critical question:
"Have you calculated your total tax exposure on the entire contract value, or are you only focusing on the 5% you expect to receive?"
Below is the stark reality under tax administration that I laid before him.
As far as the revenue authorities are concerned, the contract belongs entirely to your company. The full ₦500 Million contract value is classified as your company's gross turnover.
By routing the contract through your entity, your business immediately assumes liability for:
(i),Value Added Tax (VAT): 7.5% output VAT liability on the contract value.
(ii)Withholding Tax (WHT): Up to 5% deducted at source on payments.
(iii) Companies Income Tax (CIT): Statutory tax assessed on reported profits attributed to that turnover.
(iv) Development Levy: 4% calculated on assessable profits.
(v) Annual Financial Reporting: Heightened scale of statutory audit obligations.
(vi) Tax Audits & Desk Reviews: High-turnover entries trigger mandatory tax audits where you must account for all gross receipts and third-party expenses.
Thus, if the third-party company fails to properly account for their operational expenses, or if tax authorities disallow those expenses during an audit, your company will bear 100% of the unremitted tax liabilities, penalties, and interest.
Faced with the above reality, suddenly, that ₦25 Million fee pales in comparison to the potential multi-million-Naira tax exposure.
Upon realizing the magnitude of the risk, my client’s excitement faded. My goal was not to spoil a commercial opportunity but to provide a realistic, risk-adjusted view. We advised restructuring the proposal to guarantee "5% of the Contract Value, Net of ALL Taxes, Deductions, and Operational Liabilities," backed by comprehensive indemnity agreements.
Did the deal proceed on those terms? That is a story for another day. But the core lesson for every business owner remains clear:
When you lend your corporate identity for a contract, you are not just lending your company name. You are lending your tax profile, your legal identity, your compliance track record, and your professional reputation.
Can such arrangements be structured legally and safely? Yes. But only after thoroughly evaluating:
Commercial Substance: The legitimate business rationale behind the structure;
Contractual Allocation: Enforceable indemnities and liability distribution between parties;Tax & Accounting Treatment: Proper recognition of pass-through costs and revenue; Regulatory & Legal Risks: Safeguards against default by the executing entity.
A 5% commission sounds attractive today. But if that 5% comes with 100% of the legal, financial, and compliance exposure, it is not an opportunity—it is a trap.Before you allow anyone to leverage your business credentials, ask yourself:
Am I being paid for the value I am creating, or for the massive risk I amn unknowingly assuming?
Remember: All that glitters is not gold.
Need Expert Business & Tax Guidance?
At Don & Noye Attorneys, we offer structured Business and Tax Advisory Legal Services to protect your enterprise, optimize compliance, and give your commercial decisions a strategic edge.
Obum Nwoye, Esq., FICMC, ACTI
Principal Partner, Don & Noye Attorneys
