ARTICLE
3 February 2023

Basic Compliance For Tech Startups

SI
Sidebrief Inc.

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This article highlights basic compliance considerations local and foreign tech start-ups must take into account before taking steps to set up business operations in Nigeria.
Nigeria Corporate/Commercial Law

Most tech start-ups face the challenge of determining the salient regulatory provisions of the law in their areas of operation.

This article highlights basic compliance considerations local and foreign tech start-ups must take into account before taking steps to set up business operations in Nigeria.

  1. Minimum share capital Requirement: It is important for a tech startup to understand the minimum share capital requirements. The different share capital requirements will be addressed in a separate article. However, the most common minimum share capital for a company with "tech" objectives is N1 million. Where there is foreign participation in the tech startup then the company would be required to have N10 million share capital.

Tech startups must check with their compliance advisors to confirm whether their business falls under a regulated industry which has a minimum share capital requirement before proceeding to be registered with the Corporate Affairs Commission (CAC).

  1. Annual Returns Filing: Every technology company is required to file annual returns and audited financial statements with the Corporate Affairs Commission. However, a newly registered company is not required to file annual returns in the year of its incorporation or the following year if its first annual general meeting (AGM) is held within 18 months of its establishment. It is also important to note that companies would be removed from CAC's register if they violate.
  1. Tax Registration: Within six (6) months of incorporation, a startup must register with the Federal Inland Revenue Service (FIRS) or the State Inland Revenue Service and will be assigned a tax identification number (TIN) for the remittance of its Companies Income Tax and Value-Added Tax (VAT).
  1. Information Technology Tax: For businesses with yearly revenues exceeding N100,000,000, the NITDA Act of 2007 mandates a tax of one percent (1%) of annual profit before tax be paid into the National Information Technology Development Fund.
  1. Withholding Tax: A company must withhold 10% of all profits and dividends it pays investors in order to satisfy its tax obligations. If the company doesn't withhold tax, it will pay it from its own profits. Without proper tax registration, a business cannot legally levy withholding taxes, submit tax returns, or get tax clearance certificates (TCC) and will be assessed fines for failing to register before the deadline.
  1. Data protection: Every technology company that collects client data must take the necessary precautions to protect sensitive data, as stipulated by the Nigeria Data Protection Regulation 2019. The Nigeria Data Protection Regulation 2019 empowers the National Information and Technology Agency (NITDA) to issue regulations on information and communication technology and supervise the use of electronic data exchange.
  1. NIPC Registration: The Nigeria Investment Promotion Commission (NIPC) is a government agency established to encourage, promote and coordinate investments in Nigeria. Every tech startup that has foreign participation (foreign investors) is required to register with the (NIPC) and obtain a certificate of registration.
  2. NOTAP regulatory requirements: When a company signs an agreement with a foreign investor for the transfer of technology, the National Office for Technology Acquisition and Promotion (NOTAP) is responsible for making sure that all contracts and agreements signed for the transfer of foreign technology to Nigerians are registered and used in accordance with the acceptable purposes specified in the contract.

If a company fails to register an agreement for technology transfer or directly contravenes the provision of the NOTAP Act, each officer of the company involved in the management of the company's affairs will be guilty and can be prosecuted individually, unless they can prove that the act or omission was unintentional.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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