The Nigeria Start-up Act 2022 - Key Provisions and Incentives
President Muhammed Buhari signed the Nigeria Startup Act, 2022 (the NSA 2022 or the Act) into law on 19 October 2022. The Act aims to create an enabling environment for investing, attracting, and protecting investment and innovation in tech-startups.
According to the NSA 2022, "Startup" means a company in existence for not more than ten years, with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process.
Management and Oversights
The NSA established ‘The National Council for Digital Innovation and Entrepreneurship’ (“the Council”). The Council will consist of the Nigerian President and Vice-President as Chairman and Vice-Chairman, respectively. Other members of the Council include the Ministers responsible for Communications and Digital Economy, Finance, Budget and National Planning, Industry, Trade and Investments, Science, Technology, and Innovation.
The Council membership also includes The Governor of the Central Bank of Nigeria (CBN), four representatives of the Startup Consultative Forum, one representative each from the Nigerian Computer Society, and the Computer Professionals (Registration Council of Nigeria).
The Director-General of the National Information Technology Development Agency (NITDA) serves as the secretary of the Council.
The Secretariat of the Council is responsible for managing the process of labelling a startup, establishing public online and other platforms for providing access to information on the establishment and development of a startup, incubation, acceleration and venture-building programmes. Furthermore, the Secretariat will collaborate with the relevant Ministries, Departments, Agencies (MDAs) and other stakeholders to promote innovation in digital technology and enterprise development for a startup in Nigeria.
The Council is responsible for, among others, formulating and providing general policy guidelines to achieve the objective of the Act and supporting digital technological development through grants to persons, research institutions, and universities pursuing postgraduate programmes in science, technology and innovation. The Council also has the power to review policies and directives of MDAs, which may affect the establishment, operations, and investments in a startup.
The Startup portal
Upon Council approval, the Secretariat will set up the Startup Support and Engagement Portal (the startup portal) to make it easier for startups to register with various regulatory agencies, receive start-up labels, licenses, and permits, exchange information with stakeholders, participate in development programs, access tools and resources, resolve complaints, and receive suggestions from stakeholders and the general public.
The startup portal will also serve as a hub for synchronisation and information exchange in the Nigerian startup ecosystem. It shall consist of stakeholders such as investors, labelled startups, the Nigeria Computer Society, and two civil society organisations involved in advancing technology and innovation.
Startup Labelling Process
The startup label is a certificate issued by the Secretariat to a startup upon fulfilling the labelling requirements. According to the NSA 2022, to be eligible for being given a startup label, the startup must fulfil the following criteria:
- be registered as a limited liability company under the Companies and Allied Matters Act 2020 and existing for a period, of not more than ten years.
- the nature of business must include innovation, development, production, improvement and commercialisation of a digital technology innovative product and process.
- be a holder or repository of a product or process of digital technology or the owner or author of registered software.
- one or more Nigerians hold at least one-third of its local shareholding as founder or co-founder.
Tax and Fiscal Incentives
The NSA aims to encourage investments in labelled startups, support employee recruiting and retention, and facilitate service delivery by foreign service providers. The tax and fiscal incentives are highlighted below.
- A branded startup that falls under the list of industries currently eligible for the Pioneer Status Incentives (PSI) Scheme may apply to the Secretariat of the Nigerian Investment Promotion Commission (NIPC) for fast approval of the PSI Scheme's tax exemption and incentive.
- Based on the provisions of the Industrial Development (Income Tax Relief), a labelled startup will be eligible for exemption on income tax and any other tax on its income or revenue for three years and an additional two years if it is still within the period of a labelled startup.
- Research and development costs wholly incurred in Nigeria will be tax deductible, and the Companies Income Tax Act restrictions shall not apply to a labelled startup.
- Exemption from contributing to the Industrial Training Fund (ITF) when a labelled startup conducts in-house employee training.
- A labelled startup that exports products and services that qualify under the Export (Incentives and Miscellaneous Provisions) Act will be eligible to receive an export incentive and financial support from the Export Development Fund, the Export Expansion Grant, and the Export Adjustment Scheme Fund.
- A labelled startup will be permitted to deduct only a 5% withholding tax from the income earned by a non-resident company providing technical, consulting, professional, or management services.
- Access to grants and financing programs managed by the CBN, the Bank of Industry, or other organisations with legal authority to support small and medium-sized businesses and entrepreneurs.
- Establishment of a Credit Guarantee Scheme (the Scheme) to support the expansion and development of a labelled startup and to give entrepreneurs access to financial and credit information.
- The Federal Government shall develop and implement a national policy for individuals, impact investors, angel investors, companies, venture capitalists, private equity funds, accelerators or incubators who invest in a labelled startup or in the startup ecosystem to enjoy tax credits on their investment.
- An angel investor, venture capitalist, private equity fund, accelerator or incubator that invests in a labelled startup will be entitled to an investment tax credit equivalent to 30% of the investment in the labelled startup. The credit will only be applied to any investment gains subject to tax.
- Capital gains tax will not be charged on gains that accrue from the disposal of assets by an angel investor, venture capitalist or private equity fund if the assets have been held in Nigeria for a minimum of twenty-four months.
- Collaborate with the Corporate Affairs Commission (CAC) to design a separate section on the startup portal to ensure labelled startups carry out easy, seamless, expedited processes and transactions with the CAC.
- Protection of intellectual property by working with the Trademarks, Patent and Design Registries and the Nigerian Copyright Commission to support labelled startups in commercialising and internationalising their rights.
- Labelled startups can raise funds through crowdfunding intermediaries and commodities investment platforms duly licensed by the SEC.
- Labelled startups will enjoy discounts on all applicable fees for technology transfer registrations with the National Office for Technology Acquisition and Promotion (NOTAP).
- Labelled startups operating as financial technology companies will have access to simplified licensing procedures with the CBN and SEC through a designated section on the Startup Portal.
- Repatriation of investment by a foreign investor through the CBN's authorised dealer in a freely convertible currency and carried out at the official exchange rate if the foreign investor presents a Certificate of Capital Importation (CCI).
Conclusion
The influence of technology on economic growth and progress in this era cannot be overemphasized. Also, the core of every country's technological ecosystem's growth and development is innovation and creativity. If effectively implemented, the NSA 2022 has the potential to eliminate issues plaguing the digital industry, such as regulatory roadblocks, tax barriers, worry about losing investments, and talent retention.
The numerous incentives specified in the Act maximise the potential for significant investment and talent migration. Consequently, training, capacity building, and talent development will be encouraged in the Nigerian information technology sector.
Contacts
Oluwatobi Olafaju
Manager, Tax & Regulatory Services
Oluwaseyi Ojewole
Associate, Tax & Regulatory Services
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