There has been a movement for a law to regulate and create a conducive environment for tech startups—the Startup Act (the Act). The Nigerian presidency initiated it in May 2021 in collaboration with relevant government bodies and some leaders in the tech world. The President recently assented to the bill for the Act.
The Act has bridged the gap between startups and government agencies. There are provisions for tax incentives as well as a fund of ₦10 billion that will be set up specifically for startups. There will be funding for research programs, training, workspaces, and so much more.
Let’s look at how the Act affects you.
The Act applies to startups registered under the Companies and Allied Matters Act; which includes companies, sole proprietorships, and partnerships.
This Act creates a council (the National Council for Digital Innovation and Entrepreneurship (the council)). The council and other government agencies will implement the Act. The Act empowers them to delegate some responsibilities to subcommittees.
The National Information Technology Development Agency (NITDA) will serve as the secretariat for the council. It is also responsible for carrying out the ease of access processes for startups. Among these processes are:
This forum will be set up by the secretariat. The forum will enhance collaboration in the Nigerian startup ecosystem. It will be made up of:
The secretariat issues the certificate. They issue it to startups. This certificate opens you up to all the benefits under the Act.
To qualify for the label, you must fulfil the following requirements:
If you have complied with all requirements, you will get the certificate.
This will ultimately lead to the label being withdrawn. You won't be able to access the benefits of the Act.
If you rectify all your defaults, you can re-apply to the coordinator for the certificate.
This will be an online platform. You can register and interact with the relevant government agencies on this platform.
The Act provides for a Startup Investment Seed Fund (the fund) of ₦10 billion. The main purpose of the fund is to provide financial help and fund the incentives provided under the Act for labelled startups. The NSIA manages the fund.
The secretariat will design and implement this scheme for startups.
You can apply for pioneer status if, as a labelled startup, you fall under the industries supported by the Pioneer Status Incentive Scheme. You should apply for this status through the Nigerian Investment Promotion Commission (NIPC).
For four years, you will be exempt from paying income tax. The exemption will start from the date they issued the startup label.
You will also enjoy income tax relief on 5% of your assessable profits in a year. If;
This will apply if your employees meet these criteria within the assessment period. This tax relief will be available for five years and its non-renewable.
This applies to exports of products and services that are eligible under the Export (Incentives and Miscellaneous Provisions) Act. The Export Development Fund, Export Expansion Fund, and Export Adjustment Scheme Fund will fund it.
You will be qualified to access all financial facilities available to small and medium-scale enterprises and entrepreneurs. To learn more about grants, check here and here for government loans.
It will provide financial help to labelled startups. It will also oversee the use of the funds by startups.
Your employees will be exempt from paying 35% of Personal Income Tax (PIT) on their income for two years after employment.
The secretariat and the Joint Tax Board will determine the eligibility of the employee.
Foreign companies that provide you with services as a labelled startup will pay only 5% withholding tax (WHT) on income derived from the service.
If the company is not resident in Nigeria, the 5% WHT will qualify as the final tax payable.
You can learn more about the tax system in Nigeria here.
It will have a separate section on the startup portal. This is to enable labelled startups to conduct transactions with the CAC.
There will be a collaboration with these agencies to help holders of Intellectual Property (IP) rights. This will be a drive towards making the rights commercial and international.
It will also have a section on the portal to ease all processes relating to IP rights of labelled startups.
The SEC will create the legal framework for hassle-free crowdfunding. The council will be involved.
The council will work with labelled startups that desire to be listed on the Nigerian Exchange to ensure they meet all requirements. These include granting incentives that will aid a startup’s development.
The secretariat will work with NOTAP to:
This is especially for Financial Technology (FinTech) companies.
The secretariat will work with the SEC.
The Council will work with the CBN and SEC. This is to ensure that:
The CBN and other regulatory agencies will also permit FinTech startups to take part in a regulatory sandbox.
An accelerator is a fixed-term, cohort-based program that provides a startup with mentorship and educational help to aid its growth.
An Incubator includes a company, partnership, non-governmental organisation or limited liability partnership, who solely provides support for the establishment and development of a startup, promotes innovation, and other related activities through the offer of dedicated physical spaces and services;
The Act provides incentives for accelerators and incubators. To qualify for the incentives, they have to be involved actively in providing goods, services, or finance to support the operation and growth of startups.
The council will establish these parks. They will serve the purpose of:
Apart from the roles listed above, they will also provide:
The Secretariat will collaborate with the Nigeria Export Processing Zones Authority to establish a Technology Development Zone (“Zone”) in Nigeria to spur the growth and development of startups, accelerators, and incubators.
The Zone will grant a licence to a startup, accelerator, or incubator before it can begin an approved activity.
A startup, accelerator, or incubator, carrying out an approved activity in a zone will be entitled to existing incentives provided under the Nigeria Export Processing Zones Act.
The Startup Act 2022 is a giant stride in the right direction for tech startups in Nigeria. The Act is to ensure ease of doing business for you as a startup. You can book a free consultation with a Counseal expert if you need help.