THE STARTUP ACT, 2022

On 19th October 2022, President Muhammadu Buhari signed the Nigerian Start-up Bill, 2022, into law(“the Act”) . This Act applies to start-up label companies incorporated under the Companies and Allied Matters Act and organisations whose activities affect the creation, support and incubation of labelled start-ups in Nigeria.

The objectives of the Act are to provide a legal and institutional framework for the development of start-ups in Nigeria, and an enabling environment for the establishment, development and operation of start-ups in Nigeria among others.

This article highlights salient provisions of the Act.

1.??DEFINITION OF A START-UP LABEL – SECTION 13

A Start-up is eligible for labelling under the Act where:

a.??it is registered as a limited liability company under the Companies and Allied Matters Act, 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, production, improvement, and commercialisation of a digital technology innovative product or process;

c.??it is a holder of a product or process of digital technology or the owner of registered software;

d.??it has at least one-third local shareholding held by one or more Nigerians as founder or co-founder of the start-up;

e.??in the case of a sole proprietorship or partnership, it satisfies the conditions for b, c and d.

The Act shall not apply to an organisation which is a holding company or subsidiary of an existing company which is not registered as a start-up.

2.??SPECIAL CERTIFICATIONS FOR START-UP LABEL- SECTION 14

A Start-up desirous of being granted a label (certificate) under the provisions of the Act shall submit an application on the start-up Portal in the prescribed form, the application shall be supported by such documents and fee prescribed by the Secretariat. Section 14

A Start-up Label shall be valid for a period of 10 years from the date of issuance. Section 15

Where a labelled start-up default in any of its obligations, the coordinator shall notify the labelled start-up of the default and within 30 days of the notification, the start-up shall take steps to rectify the default. The Secretariat shall withdraw the start-up label where the labelled start-up fails to regularise the default after being notified. Section 17

3.??Start-up Investment Seed Fund (Section 19)

The Act established the start-up Investment Seed Fund (“the Fund”) to be managed by the Nigeria Sovereign Investment Authority

The Fund shall be applied towards providing a labelled start-up with finance; provide early-stage finance for a labelled start-up on the recommendation of the Fund Manager subject to the approval of the Council; and provide relief to technology laboratories, accelerators, incubators and hubs.

4.??TAX AND FISCAL INCENTIVES (Section 24)

A labelled start-up, which falls within industries captured under the extant Pioneer Status Incentives (PSI) Scheme may apply to the Nigerian Investment Promotion Commission (NIPC) for the grant of tax reliefs and incentives under the PSI Scheme.

The Industrial Development (Income Tax Relief) Act or any other legislation on tax reliefs, a labelled start-up may be entitled to exemption from the payment of income tax or any other tax chargeable on its income or revenue for a period of four years, provided that the commencement date of the tax relief shall be the date of the issuance of the start-up label.

A labelled start-up shall be exempted from contributions to the Industrial Training Fund where it provides in-house training to its employees for the period where it is designated as a labelled start-up.

In addition to any other tax relief, a labelled start-up 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.

5.??Access to Government grants, loans and facilities – Section 27

The Secretariat shall ensure that a labelled start-up 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.

6.??CREDIT GUARANTEE SCHEME- Section 28

The Secretariat shall establish a Credit Guarantee Scheme for the development and growth of a labelled start-up under this Act. The Scheme is aimed at providing financial support to a labelled Start-up and creating a framework for credit guarantee for a labelled start-up.

7.??INCENTIVES AND RELIEFS FOR INVESTORS INVESTING IN A LABELLED START-UP – 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 provided that such credit shall be applied on any gains on investment which are subject to tax.

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, accelerators or incubators with respect to a labelled start-up provided the assets have been held in Nigeria for a minimum of 24 months.

8.??CROWD FUNDING – SECTION 32

Start-ups may raise funds through crowdfunding intermediaries and commodities investment platforms (“platforms”) duly licensed by the Securities and Exchange Commission (SEC) that would have their platforms available for use by start-ups on the start-up Portal.

The Council shall provide recommendations and proposals to SEC and collaborate towards ensuring that SEC considers rules that fast-track crowdfunding processes for labelled start-ups.

CONCLUSION

The enactment of the Act will transform the start-up ecosystem and further heighten investors’ interest in start-ups in Nigeria. There is however a need for public enlightenment on the provisions of the Act as well as the existing benefits for a start-up under this Act.??