Company Law

The Nigeria Startup Act: Applicability, Qualification, and Incentives for Tech Companies

Abstract

On the 19th of October 2022, a glimmer of hope was raised for Nigerians as President Muhammadu Buhari assented to the Nigeria Start-up Act which seeks to create a friendly environment for tech-based start-ups in Nigeria. The Act was created to strengthen the country’s start-up ecosystem with the primary goal of creating an enabling environment for start-up ventures, bridging the gap by providing a clear regulatory framework and adequate local content support in the start-up ecosystem. Moreso, the act seeks to foster the growth of tech-related skills and place the Nigerian start-up ecosystem as the foremost digital technology hub in Africa.

According to the research conducted by statistica in 2022, Nigeria recorded over 3,300 start-ups. This is the highest number in Africa coming to a distant second in South Africa with 660 start-ups and Kenya with 600. Technology start-ups in Nigeria seem to be leading the pack of emerging start-ups and indeed across Africa with Nigerian leading lights such as Flutterwave, Paystack, and Piggyvest. This Article will highlight some of the key Importance of the Act.

INTRODUCTION

Nigeria has seen increasing funding, especially for technology start-ups over the years. The most recent and indeed the biggest funding in Africa was a series D round of USD250 million raised by Flutterwave in February 2022 [1]. Other noteworthy investments according to a report published by Nairametrics are funding Moove for USD 135 million, Bamboo for USD 15 million. In total it is Estimated that Nigerian tech start-ups have raised well over $ 2 billion in funding over the last seven years. This is According to a report published by disrupt Africa titled The Nigeria Start-ups Ecosystem Report 2022″[2]. In May this year the World Economic Forum (WEF) listed six African start-ups including Nigeria’s Okra among its 100-strong innovative global tech start-ups codenamed ” Technology Pioneers of 2022″. Also a few months ago search engine company Google announced the selection of 60 eligible start-ups across Africa with funding to enable them to scale up their ongoing work, Nigeria came top with 23 slots. The programme Google Black Founders Fund (BFF) for start-ups in Africa is the second phase of the global tech giant’s funding for the continent.[3]

Nevertheless, Unfavorable government policies, lack of capital, stringent administrative bottlenecks, and over-saturation of start-up ventures in the country among others are creating a high rate of failure for start-ups. for example, between 2010-2018 over 61% of start-ups in the country could not survive the business environment as a result there was a need to spur development and motivate prospective participants to engage successfully in the start-up venture ecosystem. This led to the enactment of the Nigeria Start-up Act 2022 to create an enabling environment for start-up ventures and rectify setbacks witnessed in the past.[4]

APPLICABILITY AND REGISTRATION OF START-UP BUSINESSES.

Start-ups are defined under the Act as a company in existence for more than 10 years with their objectives being the creation, innovation, production, development, or adoption of a unique digital technology innovative product, service, or process.[5] what this definition connotes is that the Act will apply to tech-enabled start-ups which are companies that leverage existing innovative technological advances to solve operational issues or improve customer experience. it would therefore not apply to small and medium enterprises (SMEs) that are not tech-enabled. The Act applies to all companies Incorporated under the Companies and Allied Matters Act (CAMA) Act 2020 and grants the start-up label and organizations and establishments whose activities affect the creation, support, and incubation of labeled start-ups in Nigeria.

However, the Act does not apply to organizations that are holding companies or subsidiaries of an existing company that are not registered as Start-ups [6]. For any company to be recognized as a start-up under the Act such company must obtain a label certificate, and for a company to be granted a start-up label the start-up is required to apply on the start-up support and engagement portal. [7] The portal coordinator shall with the approval of the secretariat enter the particulars of the applicant in the register of start-ups and issue a start-up label certificate to the applicant. This label certificate is valid for 10 years and will be prima facie evidence that the start-up has complied with all the requirements for labeling and has been labeled according to the Act [8].

KEY HIGHLIGHTS OF THE ACT

Start-up support and Engagement portal

Section 10 of the Act provides for the creation of the ”Start-up support and Engagement portal” (SSEP) which will enable start-ups to register with relevant agencies/ministries and departments. The goal of the SSEP is to bridge the gap between start-ups and government regulatory bodies. The SSEP will serve as an instrument platform to facilitate the issuance of a permit or license to a label start-up. provide a platform for interaction between a start-up and the federal government, private institutions, investors, venture capitalists, and other relevant institutions. It will also create opportunities for start-ups to participate in beneficial programs including incubation and accelerator programs, and foster access to finance, information, innovation, and the global market among others.[9]

Tax Incentives

To reduce the cost of doing business, the act introduced various tax incentives for start-ups. for example, start-ups may in specific circumstances be exempted from payment of income tax for five years.

          A labeled start-up may be entitled to exemption from payment of income tax or any other tax chargeable on its income or revenue for a period of three years and an additional two years if still within the period of a labeled start-up provided that the commencement date of the tax relief shall be the date of the issuance of the start-up label.[10]

And all start-ups are entitled to the full deduction of any expense on research and development which are wholly incurred in Nigeria [11]. The act also introduced incentives to encourage both local and foreign investors to invest in start-ups in Nigeria. These incentives include tax credits up to 30% of the investment [12]. There is also free repatriation of funds for foreign investors [13].

Regulatory Intervention

Concerning regulatory bottlenecks, the Act delves into facilitation and assistance for start-ups. The act introduced a start-up portal which generally facilitates the issuance of a permit to a labeled start-up and also serves as a hub for interaction between the Start-up ecosystem and the regulator [14]. The act makes provision for the fast-tracking of start-ups’ participation in the SEC regulatory incubation program and other regulatory programs [15].

Furthermore, the secretariat would assist start-ups who intend to secure licenses from SEC and CBN by fast-tracking the registration process and also ensuring that such start-ups are granted discounts on official fees payable to the regulator. Start-ups would also receive assistance in listing on the relevant board of the Nigerian Exchange Limited or on Stock and Commodity Exchanges operating in Nigeria [16].

Start-up investment seed fund

To ensure start-ups’ access to funding the act contains provisions for the creation of the start-up investment seed fund to be administered by Nigeria’s Sovereign Investment Authority. The sum of not less than 10 Billion Naira is expected to be paid into the fund annually for the purpose of providing finance to early-stage start-ups and also providing relief. There is a provision for a credit guarantee scheme that ensures access to grants and loans administered by the CBN. The bank of industry and other bodies are also statutorily empowered to help enterprises and SMEs. [17]

ELIGIBILITY FOR GRANT OF START-UP LABEL

  • The start-up must have been in existence for a period of not more than 10 years from the date of incorporation.
  • It must have at least one Nigerian as a co-founder.
  • It must be registered as a Limited Liability Company under the CAMA Act 2020.
  • Its business object must include “innovation, development, production, improvement and commercialization of digital technology, innovative product and process.[18]

CONCLUSION

With the worsening economic conditions in the country characterized by a high youth unemployment rate, encouraging the growth of start-ups is a step in the right direction. Our problems are not rooted in the absence of policies or enabling laws but rather in diligent implementation. A clear implementation of the start-up act through tax and fiscal incentives for investors and even accelerators would yield room for more attraction of funds from both local and international investors which would positively impact the economy.

In other to draw maximum benefit from the new legislation, establishing a multi-stakeholder implementation and collaboration would be critical for inclusive impact and sustainability. Regulatory support provisions with agencies of government will also help to reduce the operational burdens for start-ups trying to scale such hurdles. The temptation for nepotism and every form of bureaucratic bottlenecks must also be avoided at all costs if the law must strive.

REFERENCES

[1] The Nigeria Start-up Act 2022: Implications for tech start-ups in Nigeria by abosede adeboye and Nnamdi obinwa

https://www.mondaq.com/nigeria/new-technology/1249936/the-nigeria-startup-act-2022-implications-for-technology-startups-in-nigeria

[2] ibid

[3] The start-up act is a good piece of legislation: issues in the start-up act.

https://www.google.com/amp/s/www.thisdaylive.com/index.php/2022/11/07/the-startup-act-is-a-good-piece-of-legislation/amp/

[4] The Nigeria start-up act: why it matters to start-up up ventures by pelmi abdul.

[5] Section 1 of the Act.

[6] Section 2 of the Act.

[7] Section 14 of the Act.

[8] Section 15 of the Act.

[9] The Nigeria Start-up Act: what its and why it matters by Davidson Oturu and Agboola Dosunmu.

https://www.aelex.com/the-nigeria-start-up-act-what-it-means-and-why-it-matters/

[10] Section 25(2) of the Act.

[11] Section 25(3) of the Act.

[12] Section 29(2) of the Act.

[13] Section 29(3) of the Act.

[14] Section 10(2) of the Act.

[15] Section 35(1) of the Act.

[16] Section 36 of the Act.

[17] Understanding Nigeria Start-up Act by Zeenat  Sambo

https://www.techdigest.ng/understanding-nigeria-startup/?utm-souce=rss&utm-medium=rss&utm-campaign=understanding-nigeria-startup

[18] Key highlights of the startup Act 2022. what you should know by Arome Abu published on 20 October 2022.

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About HASSAN SADISU IMAM

HASSAN SADISU IMAM is a Lawyer who graduated from the prestigious Ahmadu Bello University Zaria, Kaduna, Nigeria. He has a keen interest in Technology and Innovation Law. He has authored many articles on diverse contemporary legal issues; He can be reached via; Tel: 09023945495 Email: hassanlimanesq@gmail.com