Oserogho & Associates

Oserogho & Associates Business Solicitors, Tax Advisers and Notary Public

29/10/2024

Legal Alert – New Withholding Tax Regulations, 2024

Introduction

Withholding Tax is an advance tax payment of income tax, deducted at source, on some specific transactions. The withheld advance tax that is deducted is ultimately subtracted or netted-off the final tax obligations of the affected tax payer for the relevant period of the transaction’s tax assessment.

A Withholding Tax system, where properly designed, implemented and managed, provides to a government a regular stream of income, usually on a monthly basis. It also curbs tax evasion.

New Withholding Tax Regulations

The Deduction of Tax at Source (Withholding) Regulations, 2024 (“the 2024 Withholding Tax Regulations”) was recently published with some of its significant objectives including the removal of complexities under the previous Withholding Tax Regulations; reduction in the withholding tax rate for some economic sectors; curbing tax evasion; among others.

The 2024 Withholding Tax Regulations revoked all prior, subsisting withholding tax regulations.

The effective, implementation, commencement date for the 2024 Withholding Tax Regulations is 1st January 2025. The current withholding tax regulations will remain in force until 31st December 2024..

Applicable Withholding Tax Rates

The applicable withholding tax rates, at which a advance tax deduction is to be made at source on eligible applicable transactions, as from the commencement effective date of the 2024 Regulations, can be found in the First Schedule to the 2024 Withholding Tax Regulations.

As an example, the withholding tax rate for Dividends, Interest, Rent, Hire or Lease for corporate entities and individuals is ten per cent (10%) of the income to be paid.

The withholding tax rate for Commissions, Consultancies, Technical, Management and Professional Fees is 10% for non-resident individuals and corporate entities, but 5% for resident individuals and resident corporate entities. The higher withholding tax rates for non-residents serves as a final tax on such transactions provided that the non-resident does not carry on business within the jurisdiction of the taxing authority.

The withholding tax rate for Directors fees is 15% for resident Directors and 20% for non-resident Directors.

Residents of countries covered by Double Taxation Treaties (“DTT”), which DTT are ratified by parliament, are entitled to claim the tax benefits under such DTT when dealing with their Withholding Tax obligations.

Transactions Exempted

Some of the transactions exempted from the 2024 Withholding Tax Regulations includes telephone charges, internet data charges, airline tickets, insurance premiums, supply of liquefied petroleum gas (“LPG”), compressed natural gas (“CNG”), premium petroleum spirits (“PMS”), dual purpose kerosene (“DPK”), and their likes.

Other exempted transactions includes across the counter transactions; compensatory payments under a registered securities lending transaction; goods manufactured or materials produced by a person making a supply; any payment of income or profit already exempted under an existing statutory provision.

Persons Exempted

Provided that the eligible tax payer has a Tax Identification Number (“TIN”), and the value of the transaction is N2Million or less during the relevant calendar month, Regulation 3(c) of the 2024 Withholding Tax Regulations provides that “In case of the supply of goods, rendering of service or any eligible transaction involving non-passive income, the amount to be deducted at source shall be twice the rate specified in the Schedule where the Recipient has no Tax Identification Number.”

Also, small companies, which are companies with a annual turnover of N25Million or less, and unincorporated bodies with a similar annual turnover of N25Million or less, are exempted from the mandatory provisions of the 2024 Withholding Tax Regulations.

Offenses

It is an offence not to deduct/withhold, or having deducted/withheld a tax, the person who deducted or withheld such a tax fails to remit the amount withheld/deducted to the applicable tax authority within the period prescribed by Law.

The penalties on conviction for the above withholding tax offense(s) includes:- (a) the amount of the tax that was not withheld, or where withheld was not remitted; (b) plus interest at the rate of 10% on the tax not withheld or withheld but not remitted; (c).with another additional interest at the prevailing Central Bank of Nigeria minimum re-discount rate; (d) and imprisonment for a period of not more than three (3) years.

Conclusions

Receiving what is commonly known as excess withholding tax, which occurs where the tax withheld is higher than the tax payer’s ultimate tax obligation during a period of tax assessment, has remained a challenge for tax compliant persons.

In addition to serving as a revenue collection measure, taxation also serves to stimulate key sectors of an economy. The N25Million withholding tax exemption threshold for small businesses is too low in today’s economy rampaged by high inflation, to stimulate meaningful high economic activities.

The prosecution of high tax non-compliant persons, especially persons who deduct withholding tax and do not remit the tax withheld/deducted but not remitted, has remained a challenge and a disincentive to voluntary tax compliance. This also leaves the tax payer, especially small businesses, whose income were deducted in advance, at a financial disadvantage.

Disclaimer

This is a free educational material which only serves as a general guide. It is not an exhaustive discussion of this topic. It does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek from qualified Legal Practitioners, competent legal advisory counselling to their specific factual situation or to any questions or concerns arising from their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Oserogho & Associates Authorship of this material is explicitly acknowledged, and our above Disclaimer Notice is prominently displayed.

08/09/2024

Legal Alert – New National Minimum Wage (Amendment) Act, 2024

Introduction

In order to protect both the employers and the employees, most countries have a stipulated National Minimum Wage which is regulated by an Act/Law/Statute of parliament.

A National Minimum Wage is simply the least remuneration or compensation amount that an employer is required by a State or a National Federal Law, subject to a few exceptions, to pay to its employees. Any wage that is below the stipulated National Minimum Wage and is not covered by the exceptions to the law on the subject, is a contravention of the applicable law and therefore not binding.

According to the International Labour Organisation (“ILO”) a National Minimum Wage cannot be waived or reduced by an individual’s employment contract or by a Collective Agreement.

National Minimum Wage (Amendment) Act, 2024

The Explanatory Memorandum to the National Minimum Wage (Amendment) Act, 2024 (“the 2024 National Minimum Wage Act”) states that the National Minimum Wage Act (“… seek to amend the National Minimum Act of 2019 to increase the national minimum wage and reduce the time for periodic review of the national minimum wage from five years to three years.”)

The 2024 National Minimum Wage Act amends some of the provisions of the National Minimum Wage Act, 2019. The new 2024 National Minimum Wage Act is now an amount that must not be less than N70,000 (Seventy Thousand Naira only) per month to be paid to the lowest paid employee in every establishment.

With this amendment to the National Minimum Wage Law, a contract or agreement that seeks to pay less than the new National Minimum Wage is not binding on the affected employee or employees.

The National Minimum Wage is also now required to be reviewed every three (3) years; instead of every five (5) years as was previously provided for in the National Minimum Wage Act, 2019.

Exceptions to National Minimum Wage

The new National Minimum Wage does not however apply to employments that are on part-time, or commission, or piece-rate basis.

The National Minimum Wage also does not apply to businesses with less than twenty-five (25) employees; just as it does not apply to employees in seasonal-like businesses like agricultural businesses.

The provisions of the 2024 National Minimum Wage Act do not also apply to employees in merchant shipping (vessels) and civil aviation (aircraft) industries. This is as these kinds of businesses already have laws which regulate the remuneration of their employees.

National Minimum Wage Offences

Any employer who pays less than the new National Minimum Wage and is not exempted from complying with the requirements of the new National Minimum Wage (Amendment) Act 2024 commits an offence and is liable on conviction to pay:- (a) a fine that does not exceed 5% of the difference in the national minimum wage that was not paid to the employee(s); (b) all the outstanding arrears of the employee’s wages that were short-paid; and (c) an additional penalty that is not less than the Central Bank’s prime lending rate on the short-pay of the affected employees.

Employers are also required to keep the payroll records for all their employees. Any Employer who fails to comply with this statutory mandatory record-keeping requirement commits an offence and is liable on conviction to a fine that does not exceed N75,000, with an additional penalty of N10,000 for each additional day that the penalty continues unremedied.

Conclusion - Comments and Observations

As commendable as the increase in the National Minimum Wage may be, the new National Minimum Wage is not a living wage when indexed against inflation and the cost of living.

Also, with the escalation in the cost of doing business, the unemployment rate may continue to increase both in the public and private sectors of the economy. As will adherence to the provisions of the 2024 National Minimum Wage Act be held more in breach than in compliance if the cost of doing business does not abate by improving.

Disclaimer

This is a free educational material which only serves as a general guide. It is not an exhaustive discussion of this topic. It does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek from qualified Legal Practitioners, competent legal advisory counselling to their specific factual situation or to any questions or concerns arising from their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Oserogho & Associates Authorship of this material is explicitly acknowledged, and our above Disclaimer Notice is prominently displayed.

06/09/2023

Data Protection Act, 2023

Introduction

The benefits that the internet brings also comes with its own risks. One of such risk is the breach and abuse of private data information usually for dishonest, commercial gain. Data Protection legislation is one of the statutory attempts to curb if not eliminate some of the risks associated with the use of online facilities.

Data Protection can be described as the protection of sensitive information from damage, loss, intrusion of privacy or corruption.

As Data Protection is now a very important aspect of the digital world in the twenty-first century, the Data Protection Act, 2023 was recently passed into Law. This Business Alert is a general summary of some of the highlights of this new Law to guide you on how this subject will have an impact on your online activities

Objectives – Data Protection Act, 2023

The Data Protection Act, 2023 (“DPA 2023”) in its preamble informs the reader that this Law is intended to provide the legal framework for the protection of all sensitive personal information; and established the Data Protection Commission for the regulation of the processing of personal data information.

The above lofty objectives are structured to work in tandem with safeguarding the Fundamental Rights and freedoms of all individuals, who are the Data Subjects, by promoting the best data processing practices which safeguard the security and privacy of all data subjects.

Data Protection Commission

The Data Protection Commission is established by the DPA 2023 as an independent Commission, and regulator for data protection.

The functions of the Data Protection Commission include the development of data protection technologies and techniques, in accordance with International Law and best international practices on data protection.

The Data Protection Commission is authorised, as part of its statutory duties, to accredit, license and register suitable persons as Data Controllers and Data Processors to provide data protection services. This Commission is also empowered to conduct investigations into any violation of any of the provisions of the DPA, 2023; and impose penalties for any data infringement.

Data Processing

A Data Controller is the person who alone or jointly with others determines the purpose and means of processing personal date. A Date Processor on the other hand is a person who processes personal data on behalf of or at the direction of a Data Controller or another data processor.

All Data Controllers and Data Processors are required by the DPA 2023 to ensure that they process all personal data lawfully, in a transparent and confidential manner, for the explicit and legitimate purpose for which the data that is processed is intended.

Generally speaking, Data Processing can only be lawful if the consent of the Data Subject is freely and intentionally obtained; or the processing of the data is essential for the performance of a contract; or is required for compliance with a legal obligation; or the performance of a task that is in the public interest.

Data Protection Officers

Data Controllers and Data Processors are each required to designate a Data Protection Officer (“DPO”) who must be someone with expert knowledge of Data Protection Laws, regulations and best practices. The DPO must also have the ability to carry out the tasks set out for this position in the DPA, 2023.

A DPO may be an employee of the Data Controller or Data Processor; or engaged as a outside contractor.

Data Protection Compliance Services

The Data Protection Commission is authorised to license any person with the requisite expertise in Data Protection Compliances to monitor, audit and report on Data Compliance matters to the Data Controllers who in turn report to the Data Protection Commission.

Data Subject Rights

A Data Subject is the individual whose personal data is collected and processed by a Data Controller and a Data Processor. A Data Subject has the legal right to request from and obtain from a Data Controller, without any constraint or unreasonable delay, information as to whether the Data Controller or a Data Processor operating on behalf of a Data Controller, has any of the Data Subject’s personal data.

Where the Data Controller has possession of a Data Subject’s personal data, the Data Controller is required by Law to inform the Data Subject of the purpose for collecting, retaining and processing the Data Subject’s personal data; with the duration for which the Data Controller has had and will keep such personal data.

The Data Subject also has the statutory right to request the Data Controller to rectify or erase the personal data of the Data Subject from the Data Controller’s systems. This is especially where such personal data is inaccurate, or is out of date, or is incomplete, or is misleading, or is no longer necessary in relation to the purposes for which the Data was collected and processed in the first place.

A Data Subject also has the legal rights to withdraw, at any time, any consent given for the processing of the Data Subject’s personal data.

Exceptions to Data Protection

The protection of the personal data of a Data Subject is a fundamental right under the Constitution One of the exemptions to a Data Subject’s rights to the protection of his or her personal data is where the Data Controller is able to demonstrate that it in in the public interest, or is authorised by a written Law, or has a legitimate ground to collect and process the personal data of a Data Subject without the express consent of the Data Subject.

Data Security

Data Controllers and Data Processors are required to implement appropriate technical and organisational measures which ensures the security, integrity and confidentiality of all personal data that they come across.

Where the data of a Data Subject is found to have been breached, the Data Subject and the Data Protection Commission are required to be informed immediately of the details regarding such data breach and the steps that are been taken to mitigate any risks that could arise from such a data breach.

Cross-Border Data Transfers

As it applies in other jurisdictions, Data Controllers and Data Processors shall not permit the transmission of any personal data of any Data Subject to another country unless the recipient of such personal data is bound by similar legal provisions as those in the Data Protection Act, 2023.

Some of the exceptions to the above cross-border transfer of personal data compliance requirement is where the Data Subject, mindful of the possible risks of such cross-border transfer of his or her personal data, has provided and has not withdrawn his or her consent to the cross-border transfer of such personal data despite the absence of adequate data protection protocols in the jurisdiction where the personal data is been transferred to.

Another exception to the cross-border data transfer legal requirement is where the cross-border transfer is necessary for the performance of a contract of which contract the Data Subject is a party.

Enforcement of Data Protection Rights

A Data Subject who is aggrieved by the action, inaction or conduct of a Data Controller or a Data Processor has the right to lodge a complaint with the Data Protection Commission.

Upon receipt of a data breach compliant, the Data Protection Commission may initiate a data breach investigation and where such investigation is found to establish a violation of any of the provisions of the DPA 2023, the Data Protection Commission may make a appropriate Compliance Order against the Data Controller and or the Data Processor.

A Compliance Order may include a warning; a mandatory compliance with any of the provisions of the DPA 2023 that was breached; a cease-and-desist order; payment of compensation by the Data Controller or the Data Processor to the Data Subject who has suffered injury, loss or harm as a result of a data breach or a data violation.

A Data Controller and a Data Processor have the legal right to challenge any Compliance Order by way of judicial review by a Court of Law.

Data Protection – Remedies, Offences and Penalties

A Data Subject who is dissatisfied with the Compliance Order made by the Data Protection Commission has the further right to within thirty (30) days of the issuance of such Compliance Order, apply to a Court of Law for the Judicial Review of such an order.

A Data Subject who suffers any injury, loss or damage as a result of a data breach also has the right to seek for compensatory damages in a civil judicial proceeding against the Data Controller or Data Processor that is responsible for the data breach.

A Data Controller and a Data Processor shall be vicariously liable for any data infringing acts or omissions of their agents, privies and employees where such infringement was carried out in the course of performing the Data Controller and the Data Processor’s business.

The principal officers of a Data Controller or a Data Processor could be held jointly and vicariously liable for any data breach unless such principal officers are able to establish that they exercised due diligence to prevent the commission of a data breach and or that the data breach occurred without their consent or connivance.

Failure to comply with the Data Commission’s Compliance Order within the timeline given is an offence which on conviction after a judicial trial attracts a fine or imprisonment for a term not exceeding one (1) year or to both the fine and the term of imprisonment.

Conclusion - Comments and Observations

Having the Data Protection Commission as the Regulator for Data Protection is a continuation of the multiplication of regulatory bodies on the same or similar subject matters. Examples of some of such similar regulatory bodies are the Communications Commission and the National Information Technology Development Agency. The Data Protection Commission could have been created as a department under any of the existing regulatory agencies thereby reducing the costs of governance.

Our second soft observation is that it is not only the personal data of individuals that are deserving of statutory protection. Governments public sector data also deserve strengthening and statutory protection.

Disclaimer

This is a free educational material which only serves as a general guide. It is not an exhaustive discussion of this topic. It does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek from qualified Legal Practitioners, competent legal advisory counselling to their specific factual situation or to any questions or concerns arising from their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Oserogho & Associates Authorship of this material is explicitly acknowledged, and our above Disclaimer Notice is prominently displayed.

20/07/2023

Legal Alert – Shareholders Voluntary Winding-up

Introduction

Businesses are started for various reasons with the making of profit remaining one of the most common reason. Some businesses are started for other reasons; like a business created as a special purpose vehicle (Spv”) for a specific project. Others are started to take advantage of a temporary opportunity in the market place; etc.

Once the primary objective for setting up a business is fulfilled or the business is no longer profitable as a going-concern, it is only natural that the legal process for liquidating or winding-up the business will have to be activated. The most common way for liquidating or winding-up a business is known as Shareholders or Members Voluntary Winding-up. Other kinds of winding-up are winding-up subject to Court supervision and winding-up ordered by a Court of Law.

Knowing when to exit and liquidate a business can sometime be challenging on its own. So too can the legal processes for consummating the liquidation of a business. This Newsletter is our contribution to the literature of understanding the basic steps for the owners of a business to voluntarily winding-up a business.

What is Winding-Up?

Winding-Up is the process of bringing to an end the corporate existence of a Company by liquidating the assets of the Company, settling its debts and taxes, and distributing any surplus income afterwards among the Shareholders of the wound-up Company.

Once the Special Resolution to wind-up a Company is passed, the process for such a Company to cease to carry on any business activity other than completing the winding-up exercise is immediately activated.

Legal Consequences of not Winding-up

Leaving a business dormant without Winding-up such a business has legal consequences. The first and most obvious is the application of the Minimum Corporate Tax rate to such a dormant company; irrespective of whether the Company is doing business or not doing business. Other State and Municipal Taxes will also continue to apply to such a Company.

A second obvious legal consequence of leaving a Company dormant is that such a Company retains its corporate existence and exposure to getting sued.

There are also other minimum corporate and tax filings that every registered Company, whether dormant or not dormant, and whether profitable or not profitable, must continue to file if such a Company is to avoid paying late filing fees in addition to the filing fees themselves.

Voluntary Winding-up

A Company may be voluntarily wound-up by its Shareholders when the duration or the objective for establishing the Company have been met. A Company could also resolve to be wound-up voluntarily when the Company finds that though it can pay its debts, the Company may not on a long-term basis remain a going-concern.

A Voluntary Winding-up of a Company is commenced by the Shareholders of such a Company passing a Special Resolution for the Company to be wound-up. A Voluntary Winding-up is then deemed to have commenced, as mentioned above, once the Special Resolution is passed.

Notice of the Special Resolution for the Voluntary Winding-up of a Company must be published within fourteen (14) days of its ex*****on by the Shareholders in at least two (2) national newspapers or in a Federal Government Gazette. The Special Resolution must also be filed at the Corporate Affairs Commission (“CAC”) within the same fourteen (14) days period.

Effect of Voluntary Winding-up

Once the Special Resolution for the Voluntary Winding-up of a Company is passed, the Company through its appointed Liquidator cannot undertake any further business activity other than such business activities which will promote the liquidation of the Company. So too do the powers and authority of the Directors of the Company cease unless expressly granted in the Special Resolution.

Any dealings in the Shares of a Company going through a winding-up process, or the alteration in the status of the shareholding of such a Company will be deemed null and void unless approved by the appointed Liquidator for the winding-up exercise.

Statutory Declaration of Solvency

Any Company that is Insolvent, i.e., unable to pay its bills or debts, cannot pass any Resolution for such a Company to be voluntarily wound-up. It is for this reason that at the onset of any Voluntary Winding-up exercise the Directors of such a Company must depose under Oath, in the form of a Statutory Declaration of Solvency, that upon making a full inquiry into the business affairs of their Company, the Directors verily believe that the Company will be able to pay its debts in full within a period that will not exceed Twelve (12) calendar months from the date that the Special Resolution for the Voluntary Winding-up of the Company is passed.

The Statutory Declaration of Solvency must have attached to it a Schedule of the Company’s Assets and Liabilities, at the latest practicable date before the Statutory Declaration of Solvency document is sworn to.

It is a criminal offence to depose to a Statutory Declaration of Solvency knowing that any of the information in the Declaration is false.

Liquidation and Final Meeting

Once a Liquidator is appointed, all the legal authority and powers of the Directors of the Company automatically cease except as the Shareholders of the Company or the Liquidator sanctions otherwise.

The primary role of a Liquidator or Liquidators is/are usually to carry out the exercise of Winding-up the Company and distributing the Company’s surplus assets after the Company’s liabilities and taxes are paid in full.

As soon as the financial affairs of a Company are fully documented and wound-up, the Liquidator is required to prepare the exit accounts of the Company showing how the Winding-up exercise of the Company was carried out, with how the assets of the Company were disposed of, the liabilities and taxes settled, and the surplus income distributed among the Shareholders of the Company, in pari-passu of the number of shares held.

The Liquidator is then required, after the exit accounts are prepared, to call a General Meeting of the Shareholders of the Company at which the Liquidator must submit the Exit Winding-up Reports and Accounts for the Shareholders of the Company to review and ask any questions arising from the Exit Reports and Accounts.

Three (3) months after the Final Meeting is held with the Shareholders of the wound-up Company, and the said Exit Accounts are filed with CAC and CAC registers those Exit Accounts, the wound-up Company will be deemed dissolved/liquidated/wound-up.

Other Post Winding-up Compliances

The Liquidator appointed for a Shareholders or Members Voluntary Winding-up is required to keep all the records regarding the Voluntary Winding-up of a Company for a minimum period of five (5) years before electing to destroy such records. There are penalties for any default when a Liquidator fails to keep the winding-up records for a Company that he or she winds up.

Conclusion - Comments and Observations

Winding-up is not the only option open to a Company that may want to liquidate or restructure itself. Mergers, Acquisitions, Compromise, Arrangement, Reconstruction, Consolidation, among others are Corporate Reconstruction options that a Company can also explore.

Disclaimer

This is a free educational material which only serves as a general guide. It is not an exhaustive discussion of this topic. It does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek from qualified Legal Practitioners, competent legal advisory counselling to their specific factual situation or to any questions or concerns arising from their specific factual situation.

Intellectual Property Protected!

This material is protected by International Intellectual Property Laws and Regulations. This material can therefore only be reproduced or re-distributed for non-profit educational purposes under the strict condition that our Oserogho & Associates Authorship of this material is explicitly acknowledged, and our above Disclaimer Notice is prominently displayed.

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