Nigeria’s Federal Inland Revenue Service (FIRS) has issued a regulation on the automatic exchange of information with 105 countries on financial accounts. The co-operation of tax authorities in different countries will help to reduce tax evasion and enhance the reliability of tax systems. Otherwise, a person may refuse to comply with local tax obligations and avoid taxes on monies kept overseas. Therefore, several countries want to lower cross-border tax evasion through the use of the Income Tax (Common Reporting Standard) Regulations 2019 or CRS Regulations. The CRS Regulations provide guidelines that financial institutions must follow when reporting information on bank accounts of tax residents in Nigeria. FIRS must also disclose comparable information to other signatories to the agreement.
Furthermore, the guidelines contain general reporting and due diligence requirements. General reporting requirements consider the taxpayer’s profile and bank account details such as account balance and tax identification number. Due diligence requirements specify when and how a financial institution should report an account. The scope of CRS regulations also includes reportable accounts and reportable persons. This is subject to specific exemptions. First, a reportable account is the Nigerian bank account of a person who is a tax resident in another jurisdiction as well as a signatory to the agreement on the mutual exchange of information. Second, a reportable person is a person other than a public limited company, related entity, public enterprise, central bank, financial institution, and an international organization. The CRS Regulations have an effective date of 1 July 2019.
Due date and penalties
Beginning from the 2019 calendar year, Nigerian financial institutions will submit an annual information return to FIRS. The return is due on May 31 of the year following the year in which the information relates. Similar to other legislation, the CRS regulations also contain penalties for non-compliance with the guidelines such as;
- Failure to comply with CRS Regulations: an initial sum of ₦10 million plus ₦1 million per month
- Failure to file the stipulated return: an initial amount of ₦10 million plus ₦1 million per month
- Providing false or incorrect information: ₦5 million
- Failure by Financial Institution or any person to adhere with FIRS’ requirement: ₦1 million in the first instance and ₦100,000 each month
- Failure by Financial Institution to keep proper records: an initial amount of ₦10 million and ₦1 million every month
- Failure to comply with CRS Regulations: an initial sum of ₦10 million plus ₦1 million per month
FIRS may, however, waive administrative penalties where there is a reasonable reason for omission or default. With the new CRS Regulations in Nigeria, the compliance of residents with local and foreign tax laws will likely improve.