Posts

New Legal Regime on Stamp Duty Charges in Nigeria

The Finance Act, 2019 amended some provisions of the Companies Income Tax Act, Petroleum Profit Tax Act, Personal Income Tax Act, Value Added Tax Act, Customs and Excise Tariff etc. (Consolidation Act), Capital Gains Tax Act and Stamp Duty Act.

Sections 52 to 56 of the Finance Act, 2019 amended Sections 2, 4, 89 and the Schedule of the Stamp Duty Act, 2004. Section 55 of the Finance Act, 2019 deleted Section 90 of the Stamp Duty Act, 2004.

We shall discuss new trends in stamp duty charges under the Finance Act, 2019.

Modern innovations on stamp duty under the Finance Act, 2019

Section 52 of the Finance Act, 2019 amended Section 2 of the Stamp Duty Act, 2004 to extend the meaning of “stamp” to include “an electronic stamp or electronic acknowledgment” for denoting any duty or fee. Again, the provision extended the meaning of “stamped” to include “instruments and materially tagged with electronic stamp or national stamp on an electronic receipt”. The meaning of “instruments” is extended to “electronic documents”.

Similarly, Section 54 of the Finance Act, 2019 amended Section 89 (1) of the Stamp Duty Act, 2004 to include “electronic inscription whereby any money” is paid within the meaning of “receipt” for the purpose of stamp duty payment. Section 89 (2) is introduced to provide for “digital tag with electronic stamp or any acknowledgement of duty charged on an electronic transaction”.

Section 89 (3) is also introduced to provide that “electronic receipt or electronic transfer for money deposited in any bank” of N10, 000 (ten) naira and above paid by the owner of the account shall be charged a one-off duty of N 50 (fifty) naira.

Who is the competent charging authority?

Under Section 53 of the Finance Act, 2019 which amended Section 4 of the Stamp Duty Act, 2004, the Federal Inland Revenue Service (FIRS) is the competent authority to charge duties on instruments between a company and an individual, group or body of individuals.

The relevant tax authority in a State is the competent authority to charge duties on instruments between persons or individuals within the respective States of the Federation.

The FIRS is empowered to collect stamp duties on all banking transactions though its agents; Banks and other Financial Institutions.

How much is the duty on electronic receipt or electronic transfer?

By the provisions of Section 54 (3) of the Finance Act, 2019, a one-off duty of N 50.00 (fifty naira) shall accrue for amounts from N 10, 000 (ten naira) and above. Nevertheless, duty shall not accrue where a person pays or transfers money electronically between his accounts within the same Bank.

What are chargeable transactions?

Instruments such as agreements, contracts, receipts, memorandum of understanding, promissory notes, insurances policies and other transactions listed in the Schedule to the Stamp Duty Act, 2004 are subject to stamp duty.

Exempted transactions under the Finance Act, 2019

Section 56 (a) of the Finance Act, 2019 amended the Schedule of the Stamp Duty Act, 2004 to include exempt receipts as “receipts given by any person in a Regulated Securities Lending Transaction carried out under regulation issued by the Securities and Exchange Commission”.

Section 56 (b) of the Finance Act, 2019 amended the Schedule of the Stamp Duty Act, 2004 and provided that shares, stocks or securities returned or transferred by a lender to its approved agent or a borrower in furtherance of a Regulated Securities Lending Transaction as well as documents relating to regulated securities lending transactions carried out under regulations by the Securities and Exchange Commission (SEC) are exempted from stamp duty.

Fred-young & Evans LP

Fred-young & Evans LP

Procedure for Obtaining Mobile Money Operator License in Nigeria

On 3rd August 2021, the recent Central Bank of Nigeria (“CBN”) released the Guidelines for the Establishment and Regulation of Payments Service Holding Companies (“PSHC”) in Nigeria. The Guidelines requires companies that intend to offer both switching and processing and mobile money services to set up a PSHC structure.

The Guidelines defines PSHC as a company whose principal object clause is to be a holding company set up for the purpose of making and managing equity investment in 2 (two) or more companies, being its subsidiaries, which are payment service providers across the following categories:

  1. Mobile Money Operations (“MMO”)
  2. Switching and Processing
  3. Payment Solution Services.

(A) Share capital

The minimum issued share capital of a company seeking to apply for an MMO license is N2,000,000,000.00 (Two Billion Naira) (approximately US $ 3, 703, 704 (Three Million, Seven Hundred and Three, Seven Hundred and Four United States dollars) at 540 naira per dollar.

The PSHC and MMO are in the same category with the switching and processing and payment solution services subsidiary companies in terms of the minimum share capital requirement of N 2, 000,000,000.00 (Two Billion Naira) share capital which must be deposited with CBN before the completion of the license application process.

(B) Procedure for Obtaining a Mobile Money Operator License

The licensing requirement as provided in the CBN guideline requires the promoters of the companies to submit a formal application for the grant of a License addressed to the Director, Payments System Management Department of the CBN.

The licensing process shall be in two phases: Approval-in-Principle (AIP) and Final License stage.

(C) Requirements for Grant of Approval-In-Principle (AIP)

The application shall be accompanied with the following:

  • A non-refundable application fee of N1, 000,000.00 (One Million Naira) (approximately US $ 1, 852 (One Thousand, Eight Hundred and Fifty Two United States dollars) or such other amount that the CBN may specify from time to time; payable to the CBN, through electronic transfer.
  • Evidence of meeting the prescribed minimum paid-up capital subject to the satisfaction of the CBN.

Detailed business plan or feasibility report which shall, at a minimum, include:

  • Objectives of the PSHC and those of the subsidiaries it intends to establish/acquire.
  • Justification for applying for the payments service holding company.
  • Ownership structure in a tabular form indicating the name of proposed investor(s), profession/business and their percentage shareholdings.
  • Bio-data, resume/curriculum vitae of proposed investors.
  • Indication of sources of funding of the proposed equity contribution for each investor.
  • Where the source of funding the equity contribution is a loan, it shall be a long term facility of, at least, a 7-year tenor, and shall not be obtained from the Nigerian banking system or foreign subsidiaries of Nigerian banks.
  • Corporate Governance Charter of the PSHC stating the roles and responsibilities of the board and its sub-committees, among other things.
  • Criteria for selecting board membership.
  • Bio-data and detailed resumes of directors and board composition.
  • List of identified top/senior management staff, bio-data and detailed resumes stating qualifications, experiences, records of accomplishment, etc.
  • National or Government issued identity documents (International Passport, etc.) bio-data and Bank Verification Numbers (BVNs) of proposed Board and management staff of the company.
  • The Tax Identification Number (TIN) of the company and its Tax Clearance Certificate where applicable.
  • A schedule of services that will be shared in the group.
  • Five-year financial projection on the operations of the PSHC indicating expected growth and profitability, and details of the assumptions that form the basis of the financial projection.
  • Details of Information Technology (IT) infrastructure proposed to be deployed.
  • Information on and pictorial representation of the corporate group structure with shareholding percentage by the PSHC in each of the subsidiaries and their principal businesses and registered Head offices.
  • A written and duly executed undertaking by the promoters that the PSHC shall be adequately capitalised for the volume and character of its business at all times, and that the PSHC shall be under the supervisory authority of the CBN, as an Other Financial Institution (OFI).
  • For regulated foreign institutional investors, the CBN shall require a no objection letter from the regulatory body in the home country.
  • Shareholders’ agreement providing for disposal/transfer of shares as well as authorisation, amendments, waivers, reimbursement of expenses, etc.
  • Statement of intent to invest in the PSHC to be made by each investor in the PSHC.
  • Technical Services Agreement, where applicable.

Draft copy of the company’s Memorandum and Articles of Association (MEMART). At a minimum, the MEMART shall contain the following information:

  • Proposed name of the PSHC.
  • Object clause which shall be limited to the permitted activities of its license.
  • Subscribers to the MEMART.
  • Procedure for amendment.
  • Procedure for share transfer or disposal.
  • Appointment of directors.
  • Where the promoters of the PSHC are corporate investors, the CBN shall require them to forward the following additional documents.
  • Certificate of Incorporation.
  • Board resolution supporting the company’s decision to invest in the equity shares of the proposed PSHC.
  • Names, biometrics, BVNs and addresses (business and residential) of owners, directors and their related companies, if any.
  • Audited financial statements and reports of the company, including Tax Clearance Certificate for the immediate past 3 years.
  • Certified True Copies of the company’s CAC forms showing the details of allotment and particulars of directors.
  • Any other document/information that the CBN may require from time to time.
  • If satisfied with the application of the promoter(s), the CBN may grant an Approval in Principle (AIP).

Duration

The AIP stage usually takes a period of between 2-3 months to process.

(D) Requirements to Incorporate an MMO company

Companies in Nigeria are incorporated at the Corporate Affairs Commission (CAC). The requirements for incorporating a company are as follows:

  1. 2 (two) unique names of the proposed company to be reserved at the CAC;
  2. Name, address, phone number, email and means of identification of at least 2 Directors, one of which must be a Nigerian or a foreigner with business permit to carrying on business in Nigeria;
  3. Name, address, phone number, email, means of identification of at least one Share holder and in the case of corporate shareholder its incorporation Certificate and Board Resolution to acquire shares in the proposed company;
  4. Objects of the proposed company;
  5. Nigerian address, phone number and email of the proposed company;
  6. Special Articles of Association of the proposed company ;
  7. Name, address, phone number, email, means of identification of Company Secretary;
  8. Approval in Principle from CBN;
  9. Payment of statutory filing fees and stamp duty.

Duration

The incorporation stage will take a period of 7-10 business days.

(E) The Requirements for Granting a Final License

Within six (6) months after obtaining the AIP and incorporation of the company, the promoters of a proposed PSHC shall submit an application to the CBN for the grant of a final license.

The application shall be accompanied with the following:

  • Non-refundable licensing fee of N5,000,000.00 (Five Million Naira) (approximately US $ 9, 259), or such other amount that the CBN may specify from time to time, payable to the Central Bank of Nigeria by electronic transfer.
  • Evidence of promotion or investment of a payment service company.
  • Evidence of payment of capital contribution by each shareholder.
  • Evidence of location of Head Office (rented or owned) for the take-off of the PSHC.
  • Schedule of changes, if any, in the Board, Management, IT infrastructure and significant shareholding since the grant of AIP.
  • Evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, telecommunications, etc. to perform PSHC operations and meet CBN and other regulatory requirements.
  • Organisational structure, showing functional units, responsibilities, reporting relationships and grade (status) of heads of departments/units.
  • Board and staff training program.

Duration

The Final Licence stage usually takes a period of between 2-3 months to process.

(F) Requirements for Commencement of Operations

Upon obtaining the Final Licence, the PSHC shall inform the CBN of its readiness to commence activities and such information shall be accompanied with one copy of each of the following:

  1. Shareholders’ Register.
  2. Share certificate issued to each investor.
  3. Enterprise Risk Management Framework (ERMF).
  4. Internal Control Policy.
  5. Minutes of pre-commencement board meeting.
  6. Opening statement of affairs signed by directors and auditors.
  7. Date of Commencement of Activities.

(G) Conclusion

In order to manage financial risks and for efficiency of the business, the CBN expect promoters of a Mobile Money Operator company to form at least 3 (three) companies; first, the PSHC which is the holding company; second, a mobile money operator subsidiary and third, the switching and processing subsidiary. Each of the 3 (three) companies shall have a minimum share capital of N 2, 000, 000, 000 (Two Billion naira).

Fred-young & Evans LP

Fred-young & Evans LP

5 Employment Basics For Companies Expanding Overseas

Your company is doing well in the United States, and you are looking to expand internationally. That can be a very exciting time! But besides the practical logistics (e.g., Do I need to set up a subsidiary to hire someone overseas?), what fundamentals do you need to know before you take on an employee in another country? Once you grasp the basic differences between dealing with United States- and non-United States employees, you will foster smoother employee-employer relationships and prevent unexpected hits to your bottom line. Following are five points to consider as you hire and manage employees in other countries.

  1. Understand that every country has its own distinct employment laws and that when it comes to employee protections, other countries tend to be more like each other than they are like the United States. The most important distinction is that there is no employment at will in the rest of the world—meaning that employment is contractual and that generally speaking, you cannot just terminate or even materially change the employment contract unilaterally without consequences.
  2. Many employee relations issues flow from the absence of at-will employment, especially when United States management is unfamiliar with the reasonable expectations that employees outside the States have about their employment relationship with companies. Since employees have the contractual right to continued employment, they are trained to behave differently from United States employees. They are entitled to ask questions, push back on instructions they disagree with, and communicate with employers in ways that United States managers may be unused to—all without fear of being perceived as “questioning” the company’s strategy. In addition, because they receive paid vacations by law, employees usually do not hesitate to take all of the (often very generous) vacation time allotted to them. Especially in Europe and common law jurisdictions in the Americas and Asia Pacific region, employees do not hesitate to demand their legal and contractual rights under statute, collective bargaining agreement, or contract. In many countries, poor performance also is not legally sufficient reason to terminate employment, so employers must carefully hire motivated employees or find ways to provide extra motivation for extra effort. Unlike in many U.S. states, “continued employment” is never sufficient consideration for restrictive covenants imposed after initial employment has begun, precisely because the employee is already protected from dismissal.
  3. Beware of hidden expenses. American employers often front-load employee costs in their employment offers, because they expect certain costs and termination expenses to be minimal. But outside the United States, you may want to reconsider base salary offers that are substantially over market, because the cost of terminating someone’s employment can be substantial. So, not only should budgets take into account potential termination costs down the road, but when termination pay is based on “total remuneration,” as is the case in most countries, any out-of-pocket cash benefits over base salary—including annual discretionary bonuses—will increase the severance cost when an employee does not work out. In addition, in many countries almost all employees are entitled to overtime pay—even at the manager level—so you may want to take that into consideration when pricing an offer, or take the appropriate steps to avoid unexpected overtime costs. Another potential surprise cost lies in jurisdictions that require an extra holiday “allowance” or 13th, and sometimes even 14th, month of pay on top of base salary. If you do not know about these in advance, you may get a nasty surprise when you cannot take back a too-generous offer.
  4. Did we mention that employment is contractual outside the United States? This is true even in Canada, and even if many United States employers do not realise it. So let an employment contract be your friend! It is a good thing (and many times legally required), to have a written contract laying out the respective rights and obligations of the parties. Without it, you may not be able to enforce certain expected behaviours, the employee will always get the benefit of the doubt, and the employee will sometimes get substantially more generous entitlements that you might have otherwise been able to control by agreement.
  5. Rightly or wrongly, local employees, unions, labour authorities, and courts sometimes perceive United States employers as arrogant and wilfully ignorant of local expectations, customs, practices and laws. Given that all of those players usually play a greater role in the employer-employee relationship than in the United States, showing them that your company is looking to forge relationships and work within the system to everyone’s benefit can go a long way toward easing your path and helping you achieve your goals.

Is Arbitration Confidential?

It is generally assumed as a matter of commercial dealings that arbitration proceedings will be both private and confidential.

The first assumption is essentially correct. Arbitrations are private in that third parties who are not a party to the arbitration agreement cannot attend any hearings or play any part in the arbitration proceedings.

The second assumption, since the 1990s, is not. Confidentiality – which is concerned with the parties’ obligation to each other not to disclose information concerning the arbitration to third parties (and the arbitrator’s like obligations to the parties) – does not apply to arbitration as an all-encompassing rule, and indeed in some circumstances will not apply at all. Generally speaking, however, parties to arbitration agreements assume that it does. Indeed, surveys suggest that confidentiality is one of the main reasons commercial parties choose arbitration over court proceedings (along with the flexibility of the process and the ability to nominate an arbitrator of choice).

The traditional assumption that arbitrations are confidential is, on the face of it, a fair one, given that arbitration arises through private agreement: it is the contractual agreement to arbitrate (and usually to do so using a pre-agreed set of arbitration rules and with the assistance of an administrating body, such as the International Chamber of Commerce (“ICC”) or the London Court of International Arbitration (“LCIA”)) that provides the necessary legal framework for arbitration. This is inherently different to taking a dispute to a local court, which is a formal dispute resolution process provided and mandated by the state, and therefore, to varying degrees, open to the public and the press.

This traditional assumption was, however, dealt a severe blow in the 1990s, when, with the growth in the use of international arbitration, a closer consideration of various aspects of arbitration began to take place. Those considerations included the extent to which arbitrations were confidential, and when the issue came before the courts in Australia and Sweden in the mid- to late 1990s, the courts in those jurisdictions rejected the concept of an overall duty of confidentiality in arbitration. This led to a debate about confidentiality in arbitration in many jurisdictions, and new legislation in some places. It also led to many of the recognised arbitral institutions amending their rules to clarify the position on confidentiality.

Unfortunately, however, there has been no common approach amongst legislators and arbitral institutions, other than to recognise, and seek to reflect in different ways, the important arbitral mainstay that the parties should have considerable autonomy to decide the rules which will regulate their arbitration. In some instances, therefore, legislators and arbitral administrative bodies moved to make the default position that there was no confidentiality in arbitration (leaving it entirely a matter of the parties’ agreement), whilst others included such a duty, but covering differing scopes. Further, serious questions arose as to the extent to which confidentiality obligations, particularly those imposed through the rules of an arbitral institution as opposed to state legislation, can be enforced.

Whether an arbitration is confidential or not, therefore, depends upon the law at the seat of the arbitration, and the rules (if any) that have been agreed by the parties as part of their agreement to arbitrate. The issue of confidentiality is made complex by the various persons involved in the arbitration process, and the ability of the parties to the arbitration to impose rules upon persons such as witnesses, translators and transcribers who will know of and have access to private and confidential information through their involvement in the arbitration, but who, unlike the parties themselves, are not contractually bound or obliged by the arbitration agreement.

Different Aspects Of Confidentiality

As touched on above, the issue of confidentiality is made complex by the different types of information and documentation that are created and/or become available in the arbitration process.

To give a flavour of the problem, consider the question of documentation generated as part of the arbitral process by the parties and the arbitrators, including the award, as against pre-existing documentation made available as evidence. The former is perhaps in a similar category to the private and closed nature of arbitration hearings, and therefore readily considered confidential, save that in some instances there may be a third party, like a witness of fact, who knows the content of the document and regards it as theirs. Pre-existing documentation that was not created for the purposes of the arbitration might also be thought to be confidential because it might concern or involve parties other than the parties to the arbitration agreement, but equally some or all of it might already be in either the public domain, or certainly a wider domain, having, for example, been issued to various parties on a complex construction project.

Then there is also the question of the many different people involved in the arbitration, and whether a duty should be – or, in the case of arbitration rules rather then state legislation, can be – imposed on them. Who should a duty of confidentiality extend to? Whilst it is probably fair to expect it to extend to the Tribunal, and to the staff of the arbitral administrative body, to do so requires legislation, or agreement, as the people concerned are not parties to the arbitration agreement and therefore have not agreed to the rules that have been agreed to by the parties to the arbitration itself. Further, what about witnesses of fact, who are also not parties to the arbitration agreement, and who might not be entirely willing participants, and may well regard what they hold by way of documents, and the knowledge they have, as being theirs to do with as they wish. Expert witnesses are more obvious candidates for a confidentiality obligation, but it would have to arise through agreement, and the expert may wish, at least to some degree, to be able to let the fact of his or her instruction be known for marketing purposes.

Questions also arise as to whether any confidentiality should attach to arbitral proceedings if they are challenged in the local courts.

Legislation & Arbitration Rules: No Common Approach

As noted above, both countries and the arbitral institutions that administer international arbitration have not taken a consistent approach to “legislating” for confidentiality in arbitration proceedings.

Each country and set of arbitral rules has taken its own approach, and there is not room in this article to cover them all. We look here, therefore, at a handful of countries and institutional rules.

In France, which has been the traditional home of the ICC for many years, with Paris a common arbitral seat, it is only the deliberations of the arbitrators that are said by the relevant provisions of the Civil Code to be confidential, although there is case law which suggests that there may be a limited general duty of confidentiality.

In contrast, in England, where London is another common seat and the home of the LCIA, there is no relevant legislation: the Arbitration Act 1996 is completely silent on confidentiality. But as a consequence of case law, three quite far-reaching rules apply. The first is that unless agreed otherwise, arbitration proceedings are held in private. The second is that there is an implied obligation of confidentiality which arises from the very nature of arbitration, and the third is that any duty of confidentiality is subject to the exceptions of consent, court order, reasonable necessity and public interest.

In Singapore, again a common seat for international arbitration and the home of the Singapore International Arbitration Centre (“SIAC”), it is only court proceedings under the relevant arbitration Acts that might be confidential, if requested by the parties. Like England, however, case law (following English common law) recognises a general obligation of confidentiality, implied into the arbitration agreement.

In several jurisdictions, arbitrators are liable if they disclose arbitration information without consent, including the Dubai International Finance Centre (“DIFIC”), which has rules that require that all information relating to arbitral proceedings be kept confidential, except where disclosure is required by order of the DIFIC Court.

In Hong Kong, another common place and seat for arbitration and the home of the Hong Kong International Arbitration Centre (“HKIAC”), unless otherwise agreed by the parties, a party is not entitled to publish, disclose or communicate any information relating to the arbitral proceedings or any award, unless required to do so by law or to pursue a legal right.

In Sweden (home of the Stockholm Chamber of Commerce (“SCC”)) and the United States, however, there is no legal duty of confidentiality imposed or implied in arbitration.

With regard to the arbitration rules, the position is equally diverse. Whilst many rules make the hearings private, awards confidential, and the duties of the administrating institution private, otherwise they vary significantly. As with countries, there are too many different sets of arbitration rules to cover them all here, but the following is a selection of the better known ones.

The UNCITRAL Rules do not extend beyond making the hearings private, and the award confidential:

  • “Article 38(3) – Hearings shall be held in camera unless the parties agree otherwise. …”

and

  • “Article 34(5) – An award may be made public with the consent of all parties or where and to the extent disclosure is required of the party by legal duty, to protect or pursue a legal right or in relation to legal proceedings before a court or other competent authority.”
  • The SCC rules are also limited, simply obliging the arbitrators and the SCC to maintain the confidentiality of the award.

The ICC Rules make the hearings private, and the workings of the ICC Court confidential, but otherwise they simply provide for arbitrators to make orders in relation to confidentiality on the application of one of the parties. This followed considerable debate and deliberation in advance of the new rules which came into force in 2011.

The relevant Article reads as follows:

  • “Article 22(3) – Upon the request of any party, the Arbitral Tribunal may make orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration and may take measures for protecting trade secrets and confidential information.”

In contrast, the LCIA Rules include a specific agreement that the award, disclosed materials and the deliberations of the Tribunal are confidential, as follows:

  • “Article 30 – Confidentiality
  • 30.1 Unless the parties expressly agree in writing to the contrary, the parties undertake as a general principle to keep confidential all awards in their arbitration, together with all materials in the proceedings created for the purpose of the arbitration and all other documents produced by another party in the proceedings not otherwise in the public domain – save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right or to enforce or challenge an award in bona fide legal proceedings before a state court or other judicial authority.
  • 30.2 The deliberations of the Arbitral Tribunal are likewise confidential to its members, save and to the extent that disclosure of an arbitrator’s refusal to participate in the arbitration is required of the other members of the Arbitral Tribunal under Articles 10, 12 and 26.
  • 30.3 The LCIA Court does not publish any award or any part of an award without the prior written consent of all parties and the Arbitral Tribunal.”

Both the HKIAC and SIAC Rules go much further, making the process essentially confidential. Likewise the Dubai International Arbitration Centre Rules provide for confidentiality, as follows:

  • “Article (41) – Confidentiality
  • 41.1 Unless all parties expressly agree in writing to the contrary, the parties undertake as a general principle to keep confidential all awards and orders in their arbitration, together with all materials in the proceedings created for the purpose of the arbitration and all other documents produced by another party in the proceedings not otherwise in the public domain – save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right or to enforce or challenge an award in bona fide legal proceedings before a state court or other judicial authority.
  • 41.2 The deliberations of the Tribunal are likewise confidential to its members, except where an explanation of an arbitrator’s refusal to participate in the arbitration is required of the other members of the Tribunal under Articles 13, 14 and 15 of the Rules.”

When embarking upon arbitration, therefore, you can assume that it is private – that is to say, that third parties will not be allowed to participate without your agreement; but whether, and if so to what extent, the process might be confidential, depends upon the seat of your arbitration, and which rules, if any, you have agreed will apply.

Joint and Several Liability for Wage Claims in the Construction Sector

The system of joint and several liability for wage debts in the construction industry has been in place for almost ten years. Since 20121, employees have been able to claim back wages from their employer’s direct co-contractor in the event of the latter’s default.

This regime only applies to “activities in the construction sector”. Furthermore, the new regime applies both to contractors with seconded employees who come to work in Belgium and to contractors established in Belgium who hire Belgian employees.

The joint and several liability is limited to the “direct contractor”. This includes the principal, the contractor and the intermediate contractor. The principal is the party who orders the contractor to carry out, or have carried out, activities in the construction sector for a price. The contractor is the party who binds himself to the principal. The intermediate contractor is a subcontractor who himself engages a subcontractor to carry out the work entrusted to him. This joint and several liability is only aimed at the direct contractual relationship that these parties have with their counterparty.

Construction Workers on Work Site

Construction Workers on Work Site

The principal is jointly and severally liable for the wages due to the contractor from the employee. It is of no importance whether the contractor is established in Belgium or not. The principal (natural person) who has work carried out exclusively for private purposes does not fall under this regime.

The contractor is jointly and severally liable for the wages owed to the employee by the subcontractor – with whom he has contracted directly. The law specifies that this liability applies “in the absence of a chain of subcontractors”.

The subcontractor is jointly and severally liable for the wages due to the employee by the subcontractor with whom he has directly contracted. This subcontractor is an “intermediate contractor” vis-à-vis the subcontractor with whom it has directly contracted.

Please note: in case of a chain of subcontractors, the contractor can never be held jointly and severally liable. After all, he does not have the capacity of “intermediate contractor”.

The liability regime applies immediately (automatically) in the event of non-payment of the salary due. This means that the principal, contractor or intermediary contractor never has to be notified in advance by the inspection authority. The employee can jointly and severally sue his employer’s counterparty who fails to pay, without having to wait for a payment from any fund.

Usually in the building contract, the principal, the subcontractor or the intermediate contractor can exclude his joint and several liability by means of a written statement. This declaration must contain (1) the coordinates of the FOD WASO website (http://www.werk.belgie.be) and (2) a confirmation from the other party that it does not and will not pay the wages owed to its employee. Furthermore, this declaration must be signed by the jointly and severally liable person and the employer.

The exemption from liability is reinstated when the principal, contractor or intermediary contractor is informed that the employer is not paying the wages due to its employee(s). This knowledge can be proved by all means of law or when the inspectorate has sent a letter.

The renewed joint and several liability applies from the 14th day after the notification and thus only to the future wage debts. During this grace period of 14 days, the principal, contractor or intermediary contractor has time to take the necessary measures to avoid liability. He can, for example, have the breach of law stopped or terminate the contract with the direct contractor.

The employer must post a copy of the notice at the employees’ workplace. If he does not do so, the jointly and severally liable party must post the copy. Any person who believes he has been wronged may lodge an appeal with the president of the labour court.

Joint and several liability is further governed by Articles 1200 to 1216 of the Civil Code.11 Articles 3 to 6, 10, 13 to 16, 18 and 23 of the Wage Protection Act apply by equating the joint and several liability with the employer. They deal with the method of payment, the wages in nature, the interest due by law and the permitted deductions.

The jointly and severally liable person who does not pay the wages or fails to attach a copy of the notification by the inspection will be punished with a criminal (€ 50.00 to € 100.00) or administrative (€ 25.00 to € 250) fine.

Decision:

It is important to draft your contracts with (sub)contractors in a watertight manner and to include appropriate clauses to limit or exclude your potentially very large joint and several liability.

Authors:

Roxanne Sleeckx

Roxanne Sleeckx

Update UBO: Deadline UBO Register 31 August 2021 Has Passed

In our previous article ‘Update UBO register’ 1, you could already read that companies and non-profit organisations have until 31 August 2021 to comply with the provisions concerning the UBO register. Meanwhile, almost two months have passed and the FOD Financiën is serious. Those who do not comply with the registration can expect an administrative fine.

The UBO register is a register in which all the ‘Ultimate Beneficial Owners’ of a company or other legal entity are registered. The register is part of the fight against money laundering and seeks to put an end to the practices of money launderers who launder money through the creation of companies as intermediaries. Such a UBO register should make it possible to find out who is behind certain legal arrangements and entities. The intention is therefore to register details of the most influential actors.

The new UBO register will require companies, (international) non-profit organisations and foundations, as well as trusts and other legal entities similar to trusts, among others, to obtain and maintain adequate, accurate and up-to-date information on their Ultimate Beneficial Owners (UBOs). In addition, the Act provides for the obligation of directors to electronically transmit information on the beneficial owners to the UBO register within one month, under penalty of financial fines.

1. Companies

Ultimate beneficiaries in the case of companies include natural persons who hold a sufficient percentage of the voting rights or of the ownership interest in the company. A percentage of 25% is considered as sufficient. Individuals who have a degree of control by other means or who are members of the senior management are also ultimate beneficiaries.

2. (International) non-profit organisations and foundations

Ultimate beneficiaries in the context of non-profit organisations and foundations include:

  1. the members of the board of directors;
  2. the persons authorised to represent the association;
  3. the persons in charge of the daily management of the (international) association or foundation;
  4. the founders of a foundation;
  5. the natural persons or, if these persons have not yet been designated, the category of natural persons in whose main interest the (international) not-for-profit association or foundation was established or operates;
  6. any other natural person who ultimately controls the (international) association or foundation through other means.

3. Trusts and other legal entities similar to trusts

Are considered as beneficial owners in case of trusts, fiduciaries and other legal arrangements similar to trusts:

  1. the settlor;
  2. the fiduciary or trustee(s);
  3. the protector, if any;
  4. the beneficiaries, or if the persons who are the beneficiaries of the fiduciary or trust have not yet been designated, the category of persons in whose main interest the fiduciary or trust was established or operates;
  5. any other natural person who, by virtue of being a direct or indirect owner or by other means, ultimately controls the trust.

It’s a nice initiative, but the practical implementation of it is proving to be quite challenging. The deadline for registering the beneficial owners in the UBO register has been extended several times.

As of 11 October 2020, every obliged entity is obliged to include in the UBO register every document that supports and proves the adequacy, accuracy and timeliness of the data. It is no longer sufficient to simply present these documents for verification purposes. This includes the identity card of the UBO, the deed of incorporation and the articles of association of the company, etc.

One would have the time until 30 April 2021 to submit these documents, but again the deadline for uploading supporting documents and annual confirmation of the information in the UBO Register was extended to 31 August 2021. This according to Minister of Finance, Vincent Van Peteghem, in order to be able to support authorities to comply with the new rules imposed by the Royal Decree of 23 September 2020.2

In the meantime, we are at the end of October ’21 and the FOD Financiën has become serious. Companies that have not followed up on the tax authorities’ reminder letters to bring their registration in order will be faced with an administrative fine of €500.00 per director. This would concern approximately 80,000 companies that have not yet put their registration in order.

If you still have questions after reading this article, do not hesitate to contact us via [email protected] or 03 216 70 70.