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In February 2020, the erstwhile Minister of Finance, Budget and National Planning issued the Value Added Tax (VAT Modification Order) 2020, which modified the provisions of the First Schedule to the VAT Act adding to, and expanding the list of goods and services specified in its provision whilst extending VAT exemption status to 868 items covering amongst other things medical and pharmaceutical products, essential raw materials for the production of pharmaceutical products, basic food items, baby products, book and educational materials..
Recently the Presidential Fiscal Policy and Tax Reforms Committee chaired by Mr. Taiwo Oyedele seeks to reduce VAT burden on household spends proposed that VAT rate be reduced to zero per cent (0%) on food, health, and education, while tax exemption be extended to rent, transportation, and small businesses.
Additionally, the Committee seeks to review the rate of VAT by 2.5% on non-essential items, in order to partially offset the impact on the tax reduction rate and exemption for essential items in order to protect the masses, and grant opportunity for states who earn 85% of VAT revenue.
This proposed VAT reform also extends to businesses so that they benefit from the full credit of VAT remitted from their assets and services thereby lowering their overall costs and moderating inflation.
DISTINGUISHING THE CURRENT & PROPOSED VAT REGIMES.
The Value Added Tax (VAT Modification Order) 2020 and the Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) VAT proposed reforms are directed to adjust VAT application. However, they differ in scope, objectives, and specific reforms as enumerated below:
1. Value Added Tax (VAT Modification Order) 2020:
This VAT Modification Order, often implemented as a response to immediate fiscal needs, was part of the broader tax adjustments made to address specific challenges occasioned by the pandemic. The changes were largely focused on improving VAT revenue and addressing concerns raised by businesses and the public.
Key Features:
Modification of VAT rates: This order typically involved adjustments to VAT rates on certain goods and services, such as reductions or increases in the VAT rates applied to specific industries.
Introduction of zero-rated and exempt goods: The VAT Modification Order often reclassified goods and services, adding or removing items from zero-rated or VAT-exempt categories.
COVID-19 Response: The 2020 modification included temporary measures to support sectors hardest hit by the COVID-19 pandemic, such as healthcare, personal protective equipment (PPE), and essential goods.
Objectives:
Increase government revenue by expanding the VAT base.
Provide targeted relief for sectors affected by the pandemic.
Simplify VAT compliance for businesses through clearer rules and reclassifications.
The PFPTRC VAT proposed reforms represent a long-term and comprehensive approach to VAT reform to overhauling the tax system. These reforms typically involve a broader policy framework designed to address inefficiencies, improve compliance, and ensure equitable taxation.
Key Features:
Zero % VAT and exemption base expansion on essential items: One of the main objectives of the PFPTRC reforms is to include zero percent (0%) VAT on essential items such as food, education, and healthcare, along with exemptions for rent and transport, while raising VAT rates on non-essential items to offset these reductions.
Improved compliance mechanisms: The reforms emphasize better enforcement of VAT laws, improved collection systems, and reduced VAT evasion by employing digitization of VAT filing and payment processes.
Simplification of VAT structure: The proposed reforms simplify the VAT system by reducing complexities in rate classifications and exemptions, making it easier for businesses to comply.
Revenue allocation adjustments: The proposed reform changes how VAT revenues are shared between different levels of government and national development projects.
Objectives:
Increase revenue sustainability by reducing VAT exemptions and strengthening compliance.
Enhance fairness and equity in the tax system, ensuring that all sectors contribute fairly.
Improve economic efficiency by streamlining VAT procedures and removing distortions in the tax system caused by too many exemptions or reduced rates.
Long-term fiscal stability actualised through reformed VAT framework that is adaptable to changing economic conditions.
Comparison:
Aspect
VAT Modification Order 2020
PFPTRC VAT Proposed Reforms
Scope
Short-term, targeted adjustments
Long-term, comprehensive reforms
Objective
Immediate revenue needs and COVID-19 relief
Broader fiscal sustainability, fairness, and compliance
VAT Base
Modifications to specific items, some exemptions/zero-rated changes
Broader base, reducing exemptions
Enforcement
Some changes to simplify compliance
Focus on improved compliance, through digitization
Sector Focus
Pandemic-affected sectors, essential goods
All sectors with emphasis on equitable distribution of tax burdens
Immediate but potentially limited revenue impact Imposes VAT on these export services and intellectual property, making them more expensive and less attractive internationally
Long-term, sustainable revenue growth Introduces a 0% VAT rate on the export of services and intellectual property to boost global competitiveness,
Conclusion:
While the VAT Modification Order 2020 was more reactive, addressing specific issues like pandemic relief and short-term revenue generation, PFPTRC VAT proposed reforms are more proactive, seeking to create a long-term VAT system that is fairer, more efficient, and sustainable. It contemplates structural changes, whereas the 2020 order was more of a temporary adjustment to respond to urgent needs.
Prenuptial agreements, often referred to as “prenups,” are contracts entered into by intending married couples before the actual solemnisation of marriage, detailing the terms of arrangements on issues bordering entitlement to retirement plans and accounts, rights to separate and joint property in the event of a divorce or death of either spouse, child(ren) and spousal maintenance in the event of divorce, guardianship and custodial rights of parents after a divorce, settlement of debts owed to third parties amongst other things.
While Nigerians are not fully open to the concept of prenups, few believe that it doesn’t preempt that the marriage union will not last, rather it prepares parties for any type of eventuality. It should be noted that an enforceable prenup must comply with certain public policy considerations, provisions of the the Matrimonial Causes Act 1970 (MCA), and the principles of a valid written contract in Nigeria.
In this article, consideration is given to factors that may guaranty the enforceability of prenups in Nigerian courts.
2.0 The Legal Position of Prenuptial Agreements Under the MCA.
Under the MCA, which governs matrimonial proceedings in Nigeria, there are no explicit provisions regulating prenuptial agreements. This implies that the main statutory provision in Nigeria neither upholds nor invalidates prenuptial agreements.
However, for a prenuptial agreement to have any chance of being considered by a Nigerian court, it must be valid and properly executed. This includes both parties having independent legal advice, make full disclosure of assets, spell out clear terms on matters affecting the marriage relationship (children, possessions, finances etc) and the absence of vitiating factors i.e the agreement is entered freely without any form of duress.
In addition to clearly spelling out terms of the prenup, certain provisions in the MCA may serve as a guide in drafting a binding and enforceable prenuptial agreement. The following are relevant provisions of the MCA worth considering when preparing one.
2.1 Relevant Provisions in the Matrimonial Causes Act:
2.1.1 Section 69 – Settlement of Disputes:
Where a prenuptial agreement contemplates settlement of financial arrangement, the clause in the prenup should address all matters relating to the marriage and its dissolution in order for the Court to consider it as serving as evidence of the prior intentions of the parties when the report of compulsory conference and terms of settlement on the issues of financial arrangements relating to welfare, maintenance and custody of the children of the marriage are being decided as well as how the discharge of financial obligations to third parties have been settled by the parties to the prenup.
2.1.2 Section 70 – Powers of court in maintenance proceedings:
A prenup may determine whether a spouse will be maintained after a divorce at all or on a periodic or lumpsum basis, in addition to the children’s welfare and educational arrangements. Section 73 MCA provides for the maintenance of a spouse and/or children upon divorce. It also becomes relevant in specifically determining the financial obligations of the parties. For a prenup covering child support and spousal maintenance, it must consider the financial capacity of the spouse responsible for paying maintenance and any other relevant factor which the court is most likely to consider. This is because section 70 contemplates financial fairness and support between spouses after the breakdown of a marriage for it to enforce such provision, hence, the court will not enforce unrealistic or onerous terms so keep the prenup realistic rather than ambitious or vengeful.
2.1.3 Section 71 – Powers of court in custody, etc, proceedings:
When preparing a prenuptial agreement, parties to the prenup should consider the emotional, educational, and overall well-being of the child(ren) of the marriage. They are also required to determine who will have legal responsibility for the child(ren) of the marriage. This is because, the section prioritises the best interests and welfare of the children in decisions related to custody and guardianship following a divorce or separation, as such the agreement must be guided by this section if at all the clause in the prenup will be considered enforceable by the court.
2.1.4 Section 72 – Property Settlement:
During a matrimonial dispute where a prenuptial agreement is relied upon by the parties to determine property ownership/reversionary rights regarding any property acquired during the subsistence of the marriage, the Court will consider if the provision of the prenup particularly reflects the intentions of the parties relating to the property division. Therefore adhering to this provision of the MCA is important because it gives the court the power to make orders concerning the settlement of property between parties to a marriage upon divorce as negotiated by the parties. However, the Court will only make orders that it considers just and equitable, having regard to the interests of the parties and any children of the marriage.
2.2 Judicial Discretion:
While there is limited Nigerian case law specifically addressing prenuptial agreements, the principles applied are derived from general contract law, equitable principles, and the provisions of the Matrimonial Causes Act regarding financial arrangement on maintenance, custodial rights and ownership/reversionary interests relating to properties acquired by the parties to the marriage.
In practice, many Nigerian courts approach prenuptial agreements with caution, often viewing them with suspicion, particularly where they appear to undermine the rights of one party or the welfare of any children from the marriage.
Similarly, Nigerian courts have a broad discretion in matrimonial matters. These powers are itemized in section 73 MCA under General Powers of the Court. Even where a prenuptial agreement exists, the court may decide to enforce it after considering the intentions of the parties. It is trite that where the relationship between the parties is governed by a written agreement, the only duty of the Court is to resort to their terms as agreed in the contract to see whether such terms support the claims of both parties to the contract. See AONDO V. BENUE Links Nig Ltd[1] and EPE Resorts & SPA Ltd V UBA Plc[2].
On the other hand, the court will not enforce a prenup, though a valid written and properly executed agreement, if it is deemed to be unfair, unreasonable, or not in the best interests of the parties, particularly where the children of the marriage are involved. Factors such as undue influence, fraud, or lack of full disclosure at the time of the agreement may also lead to a prenuptial agreement being set aside. Again, the court will also consider the provision of the MCA. For instance, section 73 (k) MCA provides that amongst other things, the court may sanction an agreement for the acceptance of a lump sum or periodic sums or other benefits in lieu of rights under an order made in respect of a matter referred to in sections 70[3],71 [4] or 72[5]
2.2.1 Public Policy Considerations:
Aside from the provisions of the MCA, Nigerian courts shall also consider whether the terms of the prenuptial agreement are consistent with public policy. If the agreement is seen to contradict public policy (e.g., by unfairly disadvantaging one party or undermining the sanctity of marriage), the court shall refuse to enforce it.
3.0 Conclusion.
The enforceability of prenups are largely dependent on the circumstances surrounding their creation, the discretion of the courts and compliance with the MCA and public policy considerations, thereby prioritising fairness and equity in matrimonial disputes.
If you’re considering entering into a prenuptial agreement in Nigeria, it’s advisable to seek legal counsel to ensure that the agreement is drafted in a way that maximises its chances of being upheld by the courts.
1 LPELR-46876 (CA 2 LPELR-45310 (CA). [3] Power of court in maintenance proceedings [4] Power of court in custody,etc, proceedings [5] Power of court in proceedings with respect to settlement of property.
In Nigeria, where small and medium-sized enterprises (SMEs) form the backbone of the economy, family businesses are particularly crucial because they are significant tools for promoting job creation, wealth generation, and economic development in Nigeria.
While family businesses in Nigeria are famous for running confectioneries, supermarkets, clothing and fashion companies, there are also renowned companies like the First City Monument Group, GiG Group which are largescale thriving models of family owned businesses and have proven to be successful in transferring the baton of leadership of these organisations to the next generation of family members. This article delves into the essential legal elements aspiring family business owners should consider in navigating the Nigerian business terrain.
1. Choosing the Right Business Structure
The first step in establishing a family business in Nigeria is choosing the appropriate business structure that aligns with the family business’ goals, the nature of the business, and the level of liability the family is willing to assume.
Under CAMA 2020, setting up a legal entity like a private liability partnership, “LLP”, private liability company limited by shares, “LTD”, or public liability company limited by shares guarantees perpetual succession compared to the structure of a sole proprietorship and shield members of the family business from personal liability when the business faces crisis.
2. Compliance with Regulatory Requirements
Establishing a family business in Nigeria involves complying with various regulatory requirements. These requirements vary depending on the nature of the business and the industry in which it operates. Some of the key regulatory requirements include:
(i) Tax Registration: Every business in Nigeria is required to register with the Federal Inland Revenue Service (FIRS) for tax purposes. This includes obtaining a Tax Identification Number (TIN) and registering for Value Added Tax (VAT) where applicable. Businesses must also comply with other tax obligations, such as filing annual tax returns and remitting company income tax to FIRS where turnover of above NGN25,000,000 is realised by a company, in addition to remitting personal income tax to the state government. It is also important to state that there are incentives for complying with tax obligations. For instance, mandatory and/or voluntary contributions by the employers and employees to schemes approved by the Penson Reform Act 2014, (PFA) are tax deductible.
(ii)Industry-Specific Licenses and Permits: Depending on the nature of the business, certain industry-specific licenses and permits may be required for operating in certain sectors of the economy and can be obtained by applying to the related government institutions. For instance logistics companies must obtain the license to operate from the Nigerian Postal Services, (NiPOST), while the food and beverage companies must obtain a license from the National Agency for Food and Drug Administration and Control (NAFDAC) and manufacturing companies from the Manufacturers Association of Nigeria (MAN). Also businesses in the telecommunications and eCommerce sectors would also need to be licensed by the Nigerian Communications Commission (NCC) and National Information Technology Development Agency (NITDA) respectively.
(iii)Environmental Compliance: Businesses operating in sectors that impact the environment, such as manufacturing, construction, mining, oil and gas, must comply with environmental regulations set by agencies such as the National Environmental Standards and Regulations Enforcement Agency (NESREA), the Nigerian Upstream Petroleum Regulatory Commission, (NUPRC), The Nigerian Midstream and Downstream Petroleum Regulatory Agency, (NMDPRA) to mention a few.
(iv)Employment Laws: Family businesses with staff must adhere to Nigerian labor laws, including the Labor Act, which governs employment contracts, wages, working conditions, and employee rights. In addition, the PRA provides that employers with staff strength of at least 15 employees are required to open retirement savings account and remit voluntary pension contributions of at least 18% to Pension Fund Administrators. Family businesses who intend to attract talent can also adopt good corporate culture by registering staff with Health Management Organisations in securing staff motivation which impacts the operations of the family business. For instance in Lagos, the state government mandates all local employers to obtain Corporate Identification Numbers by registering with the Lagos State Health Management Agency and enroll staff on the state scheme for basic health package before procuring any supplemental private health coverage. It is also essential for employers to register employees with the National Social Insurance Trust Fund (NSITF) in providing for employee compensation.
(v)Data Compliance Requirements for Online Businesses: Family businesses deploying websites and mobile applications must integrate Terms and Conditions (T&C) Agreements outlining terms of sale, customer rights, payment, and liability, in addition to Privacy Policy, which should specify how a customer’s data is collected, used, and protected. Both documents should comply with the provisions of the Nigeria Data Protection Act (NDPA) which requires data controllers and processors to protect user data by ensuring confidentiality, integrity, and availability. Family businesses must also ensure that in collecting user data, terms and condition agreements and privacy policy of these digital platforms must seek the user’s consent, process data lawfully, and implement security measures. Also, users have rights to access, correct, and request deletion of their data, while breaches must be reported promptly to the relevant authorities.
3. Corporate Governance and Family Governance
One of the challenges of running a family business is balancing the interests of the family with those of the business. Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. In a family business, corporate governance is equally important as it ensures that family members understand their roles and responsibilities within the business.
To establish effective governance in a family business, the following measures should be considered:
(I)Board of Directors: A well-constituted board of directors can provide oversight and strategic direction for the business. In a family business, it is advisable to include both family members and independent directors on the board to ensure objectivity.
(II)Board Charter: This is a formal document that outlines the family’s values, vision, and rules governing the business. It establishes checks and balances, measures of performance and methods of resolving conflicts among family members. It is also an essential guide for decision-making.
(III)Succession Planning: Succession planning is critical for the continuity of a family business. It involves identifying and grooming the next generation of leaders to take over the business. A clear succession plan ensures a smooth transition of leadership and reduces the risk of disputes.
4. Dispute Resolution
Disputes are inevitable in any business, including family businesses. However, the close-knit nature of family businesses can make disputes more challenging to manage. It is essential to have mechanisms in place for resolving disputes amicably. This may include:
(I)Mediation: Mediation is an alternative dispute resolution (ADR) method that can help resolve conflicts without resorting to litigation. These methods are often faster, less adversarial, and more cost-effective in managing relationships than resorting to litigation.
(II)Family Council: A family council is a formal body within the family business that addresses issues related to family dynamics, succession, and conflicts. It provides a forum for family members to discuss and resolve disputes before they escalate.
5. Intellectual Property Protection
Protecting the intellectual property (IP) of a family business is crucial to safeguarding its competitive advantage. IP assets may include digital assets, trademarks, copyrights, patents, and trade secrets. In Nigeria, IP protection is governed by various laws, including the Securities and Exchange Commission Regulation Rules, on Issuance, Offering Platform and Custody of Digital Assets, Trademarks Act, Patents and Designs Act, and Copyright Act.
To protect IP, family businesses should consider:
(I)Trademark Registration: A trademark is a distinctive sign or symbol that identifies the goods or services of a business. Registering a trademark with the Trademark Registry in Nigeria provides legal protection against unauthorised use and commercialisation of brand identity.
(II)Patent Registration: If the family business develops a new invention or process, it may be eligible for patent protection. A patent gives the business exclusive rights to use, manufacture, and sell the invention for a specified period.
(III)Copyright Registration: Copyright protects original works of authorship, such as literature, musical, dramatic and artistic works. Registering copyrights ensures that the business has evidence of ownership in connection to exclusive rights to use, commercially exploit, and distribute its creative works.
(IV)Digital Assets Protection: Digital assets owned by family businesses in Nigeria can be protected by adhering to the Securities and Exchange Commission (SEC) Regulation Rules on Issuance, Offering Platform, and Custody of Digital Assets. The Regulation establishes SEC-registered platforms, and outlines the stringent security and operational standards required from SEC-licensed custodians, who are mandated to implement security measures such as encryption and multi-factor authentication for proper storage of digital assets while mandating issuers to provide accurate information about the digital assets offerings, risks attached to the digital assets, rights, and obligations of subscribers, which in turn enables potential and existing digital asset owners make informed decisions. The Regulation further mandates digital asset owners, who may be corporate entities like family businesses to adhere to Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations to prevent legal and financial risks.
(V)Trade Secrets: Trade secret guarantees protection for product designs, manufacturing techniques, new marketing strategies and any competitive information that the family business can benefit from commercially. It is usually protected by contracts
6. Conclusion
Establishing a family business in Nigeria requires a thorough understanding of the legal framework that governs business formation, operation, and succession. Choosing the right business structure that aligns with the collective family goals and nature of business, complying with regulatory requirements, implementing effective governance, and protecting intellectual property, are essential for the family businesses to thrive and contribute to Nigeria’s economic growth. Additionally, having mechanisms in place for dispute resolution and succession planning ensures the long-term sustainability of the family business whilst upskilling the NextGen is fundamental to professionalise these organisations.
As we celebrate black owned business this month, we hope that families are inspired to set up and operate businesses in Nigeria. We are open to receiving your enquiries and rendering legal advisory and consulting services to family members aspiring to set up businesses in Nigeria. We are available to receive your comments, enquiries and clarifications on info@aeolawpractice.com.
Adeola Osifeko is the Founding Partner of AEO Law Practice and can be reached by email.
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