For Start-ups:- The Most Important Provisions of The Nigerian Start-up Act

The Nigerian Start-up Act was finally signed into law by President Muhammadu Buhari on the 19th of October, 2022, making it the first dedicated piece of legislation dedicated to the creation of a Regulatory Framework for the registration, operation and support of Start-up ventures in Nigeria.

The Start-up Act was created for the purposes of :-

– Providing an enabling environment for the establishment, development & operation of Start-ups in Nigeria.

– Providing for the development & growth of Technology-related talent.

– Positioning Nigeria’s start-up ecosystem as the leading digital Technology centre in Africa, having excellent innovators with cutting-edge skills and exportable capacity

This Act is specifically applicable to :

– Companies registered under the Companies and Allied Matters Act (CAMA) 2022.

– Organizations & establishments whose activities affect the creation, support and incubation of labelled start-ups in Nigeria.

The Act also provides for the creation of a National Council For Digital Innovation & Entrepreneurship( operating through its Secretariat)  for the purposes of:-

– formulating & providing general policy guidelines for the realization of the objectives of the Act;

– providing overall direction for the harmonization of laws & regulations that affect a start-up;

– supporting digital technological development through grants to persons, research institutions & universities pursuing postgraduate programs in the areas of science, technology and innovation;

– ensuring monitoring and evaluation duties to encourage the development of Start-ups in Nigeria.

What are the major provisions of the Act for start-ups?

For start-ups, the Act makes a number of provisions, the major ones being the following :-

The creation of a Start-up Support & Engagement Portal

The secretariat with the approval of the Council shall establish a start-up support and engagement portal through which start-ups can conduct registration processes with relevant government Ministries, Departments & Agencies (MDAs).

This portal is also for the registration of what are called labelled start-ups eligible for incentives and benefits under this Act which include interaction opportunities between start-ups and the Federal Government, private institutions, angel investors, Venture Capitalists (VCs), incubators, accelerators & other relevant institutions as well as access to financing, information, Innovation and the global market.

A “Labelled Start-up” under this Act is a start-up that has been issued a certificate by the Secretariat upon the fulfilment of labelling requirements.

Which startup is eligible for labelling under this Act?

A startup is eligible for labelling under this Act where :

– it is registered as a limited liability company under the Companies and Allied Matters Act CAMA 2022 & has been in existence for 10 years;

– its objects are innovation, development, production, improvement and commercialization of a digital technology, innovation, product or process;

– it is a holder or repository of a product or process of digital technology, or the owner of a registered software;

– it has at least 1 Nigerian as a founder or co-founder of the start-up, provided the Nigerian founder or co-founder will share from profits of the start-up or revenue from the sale of its shares;

– in the case of a sole proprietorship or partnership, it satisfies the conditions set out in the other conditions mentioned above.

The Act will not apply to holding companies or subsidiaries of existing companies not registered as start-ups.

You can consult your lawyer on the process of applying for labelling your start-up under this Act. Start-up label certificates are valid for 10 years

The creation of a Start-up Investment Seed Fund

This fund is to be managed by the Nigerian Sovereign Investment Authority as its fund manager and paid into annually from sums to be approved by the Council.

This fund is for:-

– providing labelled start-ups with finance;

– providing early stage financing for a labelled start-up on the recommendation of the fund manager subject to the approval of the Council;

– providing relief to Technology laboratories, Accelerators, Incubators and hubs.

Tax & Fiscal Incentives

– Labelled Start-ups that fall under industries classified as Pioneer Status Industries (PSI) can under this Act apply to the Nigerian Investment Promotion Commission (NIPC) for Tax reliefs and incentives applicable to pioneer industries.

– Labelled Start-ups under this Act are also entitled to tax reliefs on their incomes for a 4-year period from the date of the issuance of the start-up label certificate.

– Labelled start-ups with a minimum of 10 employees, 60% of them being employees without any previous work experience and within 3 years of graduating from any school or vocation within the assessment period shall enjoy tax relief from income tax of 5%  of their accessible profits in the year of assessment in which the profits were generated.

– Tax reliefs under this Act shall last for a maximum 5-year period.

Access to Export Facilities

Labelled export business start-ups eligible under the Export (Incentives & Miscellaneous) Act are entitled to incentives and assistance from the Export Development Fund, Export Expansion Grant and the Export Adjustment Scheme Fund.

Access to Government Grants,Loans & Facilities

Labelled start-ups have access to grants and loan facilities administered by the Central Bank of Nigeria CBN, the Bank of Industry (BOI) & other bodies statutorily empowered to financially assist Small, Medium & Micro Enterprises (SMEs) .

The Creation of a Credit Guarantee Scheme

This is for:

– the provision of accessible financial support to labelled start-ups;

– the provision of financial and credit information to start-ups;

– the provision of Financial management and capacity building programs;

– the creation of a framework for credit guarantees for labelled start-ups.

Income Tax Incentives for Employees of Labelled Start-ups

Eligible employees of labelled start-ups are eligible to a 2-year personal income tax exemption of 35%.

Incentives for Investors in labelled start-ups

– The provision of a tax credit of 3% of the Investment in a labelled start-up.

– the removal of Capital Gains Taxes (CGTs) on gains from the disposal of assets by an angel investor, Venture Capitalists (VCs), private equity funds, accelerators or incubators with respect to a labelled start-up.

Tax Incentives for External Service Providers

Foreign entities providing technical, professional or management services to labelled start-ups shall be subjected to a 5% withholding tax on income from the provision of such services, provided that such payment shall qualify as the final tax to be paid by a company not registered in Nigeria.

Support with Regulatory Compliance

Corporate Affairs Commission (CAC) Compliance

Under this Act, a Corporate Affairs Commission section is to be designated on the start-up portal to ease CAC compliance for start-ups seamlessly.

Intellectual Property (IP) Compliance Support

An Intellectual Property (IP) compliance section is to be designated on the startup portal via a collaboration of the Council with the Trademarks, Patents & Design Registry as well as the Nigerian Copyrights Commission (NCC) for seamless Intellectual Property rights registrations, compliance, and the Internationalization & Commercialization of the IPs belonging to start-up which rely on the knowledge based-service package deliveries that are prone to theft and conversion.

The Provision of Crowdfunding Support for Start-ups

The Secretariat under this Act is to engage in liaising with the Securities and Exchange Commission SEC, the agency in charge of Crowdfunding in Nigeria, towards qualifying all labelled start-ups as eligible for accessing Crowdfunding facilities on SEC-licensed Crowdfunding portals and Commodities Investment Portals (CIPs).

Transfer of Foreign Technology.

The Start-up portal is to have a designated section dedicated to smoother and easier Technology Transfer agreement registrations and discounts on applicable fees.

SEC & CBN Licensing

Under this Act, there is to be a liaison with the Central Bank of Nigeria CBN and the Securities and Exchange Commission SEC for seamless and supported Fintech license acquisitions for labelled start-ups. This shall also apply to CBN Sandbox and SEC Regulatory Incubation program registrations.

Listing of Start-ups in exchanges

The Secretariat under this Act is to liaise with the Nigerian Exchange limited (NGX) to enable the easier meeting-up of exchange listing requirements for interested start-ups.

Repatriation of Capital & Profits by Foreign Investors

The Secretariat is to collaboration with the Central Bank of Nigeria CBN to guarantee repatriation of investments in start-ups at the CBN official rate as long as there’s a presented Certificate of Capital Importation (CCI).

Accelerators and Incubators

The Secretariat shall establish accelerator & incubator programs for start-ups and shall regulate the relationships between accelerators, incubators & start-ups.

Start-up accelerators and incubators registered with the Secretariat shall be entitled to incentives that include grants and aids for research and development, training and expansion projects as well as grants given under the Nigerian Digital Innovation, Entrepreneurship & Start-up policy.

Clusters, Hubs, Innovation Parks and Technology Development Zones.

The Council shall issue a framework for the establishment and operation of start-up Innovation clusters, hubs, and physical/virtual innovation parks in each state of the Federation to provide:-

– Free or subsidized workspaces.

– A detailed team, help desk and contacts for start-up support.

– Assistance and facilitation for the expansion of a start-up into foreign markets .

The Secretariat shall collaborate with the Nigerian Export Processing Zone Authority (NEPZA) to establish a Technology Development Zone in Nigeria to spur the growth and development of Start-ups, accelerators and incubators.