INTRODUCTION

On the 19th of October 2022 the start-up bill, an executive bill, was signed into law by the President of the Federal Republic of Nigeria. The Nigeria start-up Act is a joint initiative by Nigeria’s tech start-up ecosystem and the Presidency to harness the potential of our digital economy through co-created regulations.

The primary aim of the Act is to have clear and planned laws and regulations that work for the tech ecosystems in the country for the creation enabling environment for growth, attraction and protection of investment in tech start-ups.

This is a welcome development, as the Act will Create Jobs, Boost Entrepreneurship, and has the capacity to improve the inflow of Foreign Investors To Nigeria. The Start-up is applicable to technology-enabled start-ups in Nigeria. A start-up is defined as an act or an instance of setting in operation or motion by the Merriam-Webster dictionary. In practice

THE ACT

To qualify for the incentives in the Act, a start-up must have the following:

1. The start-up must have a start-up label: To be labelled as a start-up, a certificate must be issued by the Secretariat. The certificate will be issued if the start-up fulfils the following requirements provided by section 13 of the Act:

It is registered as a limited liability company with the Corporate Affairs Commission (CAC) and has been in existence for a period of not more than 10 years from the date of incorporation.
its objects are innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process
The start-up is the owner or author of a registered software
It has at least one Nigerian as a founder or Co-founder who will share the revenue or profit from the sale of shares

For start-ups that are not registered with CAC, a pre-label status will be granted to such start-ups for six months in order to comply with requirements (2) and (3) above.

Upon getting the label as a start-up. A Start-up will enjoy the following benefits.
Tax and Fiscal Incentives for start-ups and their employees
Training and Capacity building by the secretariat
Support of Corporate Affairs Commission
Protection of Intellectual Property
Crowdfunding
Transfer of foreign Technology
Ease in obtaining a license for fintech start-ups
Participation in regulatory sandboxes and incubator programmes
Listing of start-ups in exchanges
Repatriation of capital and profits: Repatriation of investment by an authorised dealer in freely convertible currency.
Establishment of clusters, hubs, innovation parks and technology development zones etc.

TAX AND FISCAL INCENTIVES FOR START-UP

Today we will discuss some of the Tax and Fiscal Incentives for start-ups and their employees – sections 24 to 32 of the Act.

The Act provides for the following Tax and Fiscal Incentives for labelled start-ups and their employees:

Start-ups that fall within industries under the existing pioneer status incentives can apply to Nigerian Investment Promotion Commission (NIPC) for grant of tax reliefs and incentives. Also, the federal government may simplify the existing procedures and requirements to enable start-ups to benefit from existing fiscal incentives. Section 24 & 25.
Labelled start-ups can be exempted from the payment of income tax or other chargeable tax on their income or revenue for a period of four (4) years. Section 25.
In addition to other tax reliefs, a labelled start-up with a minimum of ten employees, 60% of which are employees without any form of work experience, and said employees are within three years of graduating from school or any vocation within the assessment period, shall enjoy tax relief from income tax of 5% of its assessable profits in the year of assessment in which the profits were generated for a period of up to five (5) years. Section 26.
Labelled start-ups engaged in the exportation of products and services (eligible under the Export (Incentives and Miscellaneous Provisions) Act, are entitled to export Incentives and financial assistance from the Export Development Fund, Export Expansion grant and the Export Adjustment Scheme Fund. Section 27.
Right and Ease in accessing grants and loan facilities administered by the Central Bank of Nigeria (CBN), the Bank of Industry or other bodies statutorily empowered to assist small and medium-scale enterprises and entrepreneurs. Section 28.
Credit Guarantee Scheme available for labelled start-ups shall be established for the development and growth of a labelled start-up in terms of accessible financial support, creation of a framework for credit guarantee, provision of financial and credit information to start-ups, and provision of financial management capacity building programmes to start-ups. Section 29.
An angel investor, venture capitalist, private equity fund, accelerator or incubator which invests in a labelled start-up shall be entitled to an investment tax credit equivalent to 30% of the investment in the labelled start-up. Capital gains tax shall not be charged on gains that accrue from the disposal of assets by an angel investor, venture capitalist, private equity fund, accelerator or incubator with respect to a labelled start-up. Section 30
An eligible employee of a labelled start-up shall be entitled to a personal income tax exemption of 35% on the income of the employee for a period of two years from the date of engagement by a labelled start-up. Section 31.
Tax incentives for external service providers: foreign entities which provide technical, consulting, professional or management services to a labelled start-up shall be subjected to a five per cent withholding tax on income derived from the provision of such services, provided that the payment of the withholding tax, shall qualify as the final tax to be paid by a company not registered in Nigeria. Section 32.

Other great incentives for Startups in the new Nigeria Start-up Act will be discussed in the next series. Stay tuned.

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