As an effort to provide stability to the startup ecosystem in Nigeria, the federal government in collaboration with key stakeholders in the Nigerian technology start-up ecosystem have put in place a unique regulatory and legal framework. The Startup Act (“Act”) was passed into law on the 19th of October, 2022. Here are some key provisions of the Act.

1.1. Startup Labelling/ Licensing Process

By virtue of Section 13 of the Act, a company under the Act can only be referred to as a Labelled Startup if:

a) it has been registered as a limited liability company under the CAMA;

b) it has existed for a period of not more than 10 years from the date of incorporation;

c) its objects are innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process;

d) it is a holder or repository of a product or process of digital technology or the owner or author of a registered software; and

e) it has at least one-third local shareholding held by one or more Nigerians as founder or co-founder of the startup, and

f) in the case of a sole proprietorship or partnership, it satisfies the conditions set out in (c, d, and e) above.

 

Companies desirous of becoming a Labelled Startup under the Act must apply through the Startup Support and Engagement Portal (the “Startup Portal”) in the prescribed form with supporting documents.

A startup that has satisfied the requirement for labeling under the Act shall be issued a certificate that is valid for 10 (ten) years from the date of issuance.

A Labelled Startup has an obligation under the Act to:

a. comply with all the extant laws governing businesses in Nigeria;

b. provide information annually on the number of human resources, total assets and the annual turnover achieved from the period the startup label was granted;

c. maintain proper book of accounts in accordance with reporting obligations provided under extant laws and regulations;

d. provide an annual report on incentives received and advancement made by virtue of the incentives;

e. notify the Coordinator of any change in structure, composition or objects of the Labelled Startup within a period of one month from the date of such change; and

f. comply with the obligations set out by the Coordinator after issuance of the startup label.

 

1.2. Establishment of the National Council for Digital Innovation and Entrepreneurship (the “Council”)

The Act established the Council, which among other things shall give overall directions for the harmonisation of laws and regulations that affect a startup and the National Information Technology Development Agency (the “NITDA”) is the Secretariat of the Council.

 

1.3. Startup Support and Engagement Portal. (“Startup Portal”)

To promote the ease of doing business in Nigeria, the Secretariat has been mandated under the Act to establish and maintain the Startup Portal which shall be a platform through which a startup can conduct registration processes with relevant Ministries, Departments and Agencies (“MDAs”) and interact with the Government, private institutions, angel investors, venture capitalists, incubators, accelerators, and other relevant institutions.

 

1.4. Establishment of the Startup Investment Seed Fund and Credit Guarantee Scheme

As an effort to provide funding support for startups in collaboration with private finance and venture capitalist firms, the Act establishes the Startup Investment Seed Fund (the “Fund”), which shall be managed by the Nigeria Sovereign Investment Authority (the “Fund Manager”) as prescribed under the Act for the overall management and operations of the Fund.

The minimum threshold that shall be paid into this Fund annually is ₦10,000,000,000 (ten billion Naira) from sources approved by the Council. The Fund shall be applied to provide early-stage finance for Labelled Startups on the recommendation of the Fund Manager, subject to the approval of the Council and provide relief to technology laboratories, accelerators, incubators and hubs. The Fund would also be applied to provide Labelled Startups with capital.

Further, the Secretariat is required under the Act to establish a Credit Guarantee Scheme to provide accessible financial support and create a framework for credit guarantees to Labelled Startups. It will also provide financial and credit information and financial management capacity building programmes to startups.

 

1.5. Tax and Fiscal Incentives under the Act.

• Labelled Startup which qualifies under the Pioneer Status Incentives Scheme may upon application to the Secretariat receive expeditious approval from the Nigerian Investment Promotion Commission for the grant of tax reliefs and incentives. Some of these include the exemption of dividends paid by the Labelled Startup from withholding tax, deferral of the claim of capital allowances on assets until after the pioneer status period has elapsed, and the right to carry forward tax losses incurred during the tax-free period, indefinitely, even after the tax-free period;
• Labelled Startup, when granted the pioneer status incentive, may be entitled to the exemption from companies income tax for a period of 3 (three) years and an additional 2 (two) years.
• Labelled Startup could also be entitled to a full deduction of any expenses on research and development wholly incurred in Nigeria and the restrictions placed by the Companies Income Tax Act shall not apply to a Labelled Startup.
• Non-resident companies that provide technical, consulting, professional or management services to a Labelled Startup shall be subjected to a reduced withholding tax rate of 5% (five percent), from the generally applicable rate of 10%, on income derived from the provision of such services, which shall be the final tax to be paid by such non-resident companies;

• Labelled Startup shall be exempted from contributing 1% of its annual payroll cost to the Industrial Training Fund as required under the Industrial Training Fund Act (as amended) where it provides in-house training to its employees for the period where it is designated as a Labelled Startup.

• Labelled Startups engaged in the exportation of products and services and eligible under the Export (Incentives and Miscellaneous Provisions) Act are entitled to receive export incentives and financial assistance from the Export Development Fund, Export Expansion Grant, and the Export Adjustment Scheme Fund;

• Labelled Startup would be able to have access to grants and loan facilities administered by the Central Bank of Nigeria (the “CBN”), the Bank of Industry, or other bodies statutorily empowered to assist small and medium-scale enterprises and entrepreneurs; and

• may also raise funds through crowdfunding intermediaries and commodities investment platforms duly licensed by the Securities and Exchange Commission (the “SEC”) through the Startup Portal.

1.6. Collaborative Initiative Framework under the Act.

The Act establishes a collaborative framework of various relevant agencies to ensure the proper regulation and administration of the startup ecosystem.. Through the Startup Portal, Labelled Startup, can access seamless and expedited registration with MDAs (i.e. CAC, NOTAP, CBN, SEC etc) within the ecosystem and ease the processes.

 

1.7. Accelerator and Incubator Programmes, and Clusters, Hubs, Innovation Parks and Technology Development Zones .

The Act proposes establishing accelerator and incubator programmes for startups to develop standards and guidelines to regulate the relationships between accelerators, incubators and startups.