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‘Seed funding, tax incentives’ — highlights of Nigeria’s Startup Act

‘Seed funding, tax incentives’ — highlights of Nigeria’s Startup Act
October 22
09:50 2022

On Wednesday, October 19, President Muhammadu Buhari signed the Nigeria Startup Bill (NSB) into law. 

The NSB project is a joint initiative by Nigeria’s tech startup ecosystem and the presidency to harness the potential of the country’s digital economy through co-created regulations.

Now known as the Startup Act, it seeks to provide an enabling environment for the establishment, development and operation of startups in Nigeria.

It also seeks to provide for the development and growth of technology-related talent and position Nigeria’s startup ecosystem as the leading digital technology centre in Africa, having excellent innovators with cutting-edge skills and exportable capacity.

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Here are key provisions of the new law.

ESTABLISHMENT OF A COUNCIL FOR DIGITAL INNOVATION AND ENTREPRENEURSHIP

The new law sets up a council known as the ‘National Council for Digital Innovation and Entrepreneurship’.

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Members of the council include the president, vice president, ministers of communications, finance, trade, and science, governor of the Central Bank of Nigeria (CBN), three representatives of the startup consultative forum, two representatives from the Nigeria Computer Society and the director-general of the National Information Technology Development Agency (NITDA).

The council is responsible for formulating and providing general policy guidelines for the realisation of the objectives of the startup law. It is empowered to review policies and directives of ministries, departments and agencies (MDAs), which may affect the operation, establishment and investments in a startup.

NITDA will serve as the secretariat for the council.

STARTUP INVESTMENT SEED FUND

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The new law creates a startup investment seed fund, which will be managed by the Nigeria Sovereign Investment Authority (NSIA).

Speaking on a programme aired on Africa Independent Television (AIT) on Thursday, Oswald Osaretin Guobadia, senior special assistant to the president on digital transformation and lead, Nigeria Startup Act, said the seed funding would be “about N10 billion annually”.

The seed fund will be used to provide a labelled startup with finance, early-stage financing for startups on the recommendation of the fund manager (NSIA), and relief to technology laboratories, accelerators, incubators and hubs.

STARTUP LABELLING

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According to the law, companies must obtain a “startup label” to access the seed fund and other incentives.

A company is eligible for a startup label if it is a registered limited liability company which has been in existence for 10 years and below. It must have at least one Nigerian as a founder or co-founder of the startup.

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PROVISION OF TAX AND FISCAL INCENTIVES

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The new law makes provisions for tax and fiscal incentives for labelled startups, investors investing in labelled startups, employees of labelled startups and external service providers of labelled startups.

A labelled startup, which falls within industries captured under the extant pioneer status incentive (PSI) scheme, may apply to the Nigerian Investment Promotion Commission (NIPC) for the grant of tax reliefs and incentives under the PSI scheme.

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The PSI is a tax holiday that grants qualifying industries and products relief from payment of corporate income tax for an initial period of three years, extendable for one or two additional years.

According to NIPC, the pioneer industries eligible for this tax incentive are agriculture, mining and quarrying, manufacturing, electricity and gas supply, waste management, construction, trade, information and communication, professional services, financials, and administrative services.

Also, a startup with a minimum of ten employees, 60 percent 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, is eligible to enjoy tax relief from income tax of 5 percent of its assessable profits.

Startups can also get access to government grants, loans and facilities.

In addition, investors are entitled to a tax credit equivalent to 30 percent of their investment in a startup.

Employees of startups are entitled to personal income tax exemptions of 35 percent for two years.

STARTUPS MAY LIST ON EXCHANGES

The new law provides that the council will assist labelled startups that seek to list on the relevant board of the Nigerian Exchange Limited (NGX), or on similar stock and commodity exchanges operating in Nigeria, to meet up with the eligibility requirements for listing.

The council will also encourage and support labelled startups that seek to list on the exchanges and may grant them incentives that aid their growth and development.

TRAINING, CAPACITY BUILDING & DEVELOPMENT

The new law prescribes that the council will design and implement a training and capacity-building programme for startups.

The council will also collaborate with the National Universities Commission (NUC), universities, and polytechnics within Nigeria to develop modules, and programs and hold workshops aimed at impacting knowledge necessary for the establishment and running of a startup in Nigeria.

The council will further support the activities of an academic research institution to the development of a startup by creating linkages between a research institution, the private sector, the federal government and other stakeholders in the startup ecosystem; financing research systems for a startup; among others.

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