Nigeria Start up Act

HIGHLIGHTS OF THE NIGERIA START UP ACT 2022

On October 19, 2022, Nigeria’s President, Muhammadu Buhari, signed the Nigerian startup bill into law.

The Nigeria Start -up Act is a joint initiative by the Nigeria Tech Start-up ecosystem and the Presidency to harness the potential of our digital economy.

One main objective of the Act is to provide a legal and institutional support framework for the development of start-ups in Nigeria.

To enjoy any of the incentives under this Act, a Start-up would have to obtain a certificate from the Nigerian Startup Bill Secretariat, which will grant you the label of “startup”.

According to the act, to be eligible for incentives, your business has to be –

(a) registered as a limited liability company under the Companies and Allied Matters Act 2020, and has been in existence for a period of not more than 10 years from the date of incorporation;

?(b) its objects are innovation, development, and usage of technology to solve a particular problem. ?

(c) it is a holder or repository of a product or process of digital technology, or the owner or author of a registered software;

(d) it has at least one Nigerian as a founder or Co-founder of the startup, provided that the Nigerian founder or co-founder will share from profit or revenue from the sale of shares; and

(e) in the case of a sole proprietorship or partnership, it satisfies the conditions set out in paragraphs (b), (c) and (d) of this sub-section. ?

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ESTABLISHMENT OF SEED FUND

SECTION 19 of the Act also speaks of the establishment of a seed fund to be managed by the Nigerian Sovereign Investment Authority.??The Fund shall be used to –

(a) provide a labelled startup with finance;

(b) provide early-stage finance for a labelled startup on the recommendation of the Fund Manager subject to the approval of the Council; and

(c) provide relief to technology laboratories, accelerators, incubators and hubs,

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TAX RELIEFS

Under SECTION 24, labelled start-ups under the Pioneer Status Incentive Scheme can apply for tax reliefs from income tax or any-other tax chargeable on its income for a period of four years.

?A labelled startup with a minimum of ten employees, 60% of which are employees without any form of work experience, and 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

A labelled startup shall be entitled to benefit from the tax relief stated above for a maximum period of five years.

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ACESS TO GOVERNMENT GRANTS, LOANS AND FACILITIES

The Secretariat shall ensure that a labeled startup has access to 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.

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INCENTIVES OR RELIEFS FOR INVESTORS INVESTING IN LABELLED START-UPS

An angel investor, venture capitalist, private equity fund, accelerators or incubators which invests in a labelled startup shall be entitled to an investment tax credit equivalent to 30% of the investment in the labelled startup.

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TAX INCENTIVES FOR EMPLOYEES

An eligible employee of a labelled startup shall be entitled to 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 startup

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TAX INCENTIVES FOR EXTERNAL SERVICE PROVIDERS

Foreign entities which provide technical, consulting, professional or management services to a labeled startup shall be subjected to a five percent 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.

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PROTECTION OF INTELLECTUAL PROPERTY RIGHTS - SECTION 34

Protection of Intellectual Property Rights

?As part of its objectives, the Secretariat shall ensure that holders of intellectual property rights are encouraged to exploit these rights and shall take steps towards assisting them in internationalizing and commercializing their rights.

?The Secretariat shall collaborate with the Nigerian Copyright Commission and the Trademarks, Patent and Design Registries, in ensuring that they:

(a) designate a separate section on the Startup Portal to ease registration of intellectual property for labelled Startups;

(b) provide assistance to labelled startups for facilitating the application for grant or revocation of patents and institution of legal action for infringement of any intellectual property rights;

(c) facilitate assistance to labelled startups for the filing and registration of their trademarks and patents at the international level.

(4) In addition to the foregoing, the Secretariat shall further collaborate with the Nigerian Copyright Commission and the Trademarks, Patent and Design Registries to ensure that registration and protection of intellectual property rights

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DATA PROTECTION - SECTION 46.

The use and processing of data for the purpose of giving effect to this Act shall be in a responsible manner and in compliance with extant data protection laws and regulations in Nigeria.

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It is evident that the aim of the bill is to provide an enabling environment that would support the growth of the tech industry and to strategically support Nigerians to dominate the African Market. This Act has created a significant input for digital transformation and innovation for young start-ups in Nigeria, and it such a delight that Nigeria has joined the league of other countries such as Senegal and Tunisia who have passed their own start-up bills too.

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Ololade Oloniyo

Partner, Starfield Legal