Nigeria: The Last Mile To The Nigerian Startup Act

In our previous article, we introduced the Nigerian Startup Bill (the "Proposed Act") and its objectives. Since our last article, the Proposed Act has successfully progressed through the legislative houses and is now at its last mile to becoming an Act in Nigeria as it has now been submitted to the president for his assent.

In this article, we have summarized key provisions of the Proposed Act to guide Startups upon its enactment. Some of these are highlighted below.

Upon enactment, a National Council for Digital Innovation and Entrepreneurship (the "Council") is to be established. The Council shall comprise the president, some ministers and stakeholders. The functions of the Council will include: the formulation and provision of general policy guidelines; giving overall direction for the harmonization of laws and regulations that affect Startups; monitoring and evaluating the regulatory framework to encourage the development of Startups in Nigeria, etc.

In addition to the foregoing, the Proposed Act appoints the National Information Technology Development Agency (the "NITDA") as an administrative department (the "Secretariat") for the purpose of carrying out its operations. The NITDA is expected to: issue certificates to qualified Startups ("Startup Labelling"); maintain a directory of Startups, incubators, and accelerators; collaborate with the relevant ministries, departments, agencies and other stakeholders, amongst other duties.

2. Startup Labelling

Upon enactment, NITDA will issue a certificate, known as a Startup Label to entities that meet the eligibility criteria. To be eligible, an entity is required to:

i. be registered as a limited liability company under the Companies and Allied Matters Act 2020, and must have been in existence for a period not exceeding 10 years;

ii. have the objectives of innovation, development, production, improvement, and commercialization of a digital technology innovative product or process;

iii. be a holder or repository of a product or process of digital technology; or the owner or author of a registered software; and

iv. have at least one Nigerian as a founder or Co-founder, provided that the Nigerian founder or co-founder will share from profit or revenue from the sale of shares.

Upon the issuance of a certificate, a Startup shall be recognized as a "Labelled Startup" and can then enjoy the incentives set out in the Proposed Act. A Startup Label shall be valid for a period of 10 years from the date of issuance.

It is important to note that the provisions of the Proposed Act will not apply to holding companies or subsidiaries of existing companies that are not registered as a Startup. Hence, such companies might not be issued a Startup Label by the NITDA.

3. Authorisation of a Startup Support and Engagement Portal ("SSEP")

The Proposed Act provides for the creation of a portal ("SSEP") authorized to enable Startups register with relevant regulators, ministries, departments, and agencies of government. The SSEP will assist in bridging the gap between Startups and regulatory authorities.

The SSEP will also serve as an interactive platform for announcements and application of various incentives granted to Startups by the Nigerian government. The SSEP will be managed by the NITDA, who shall appoint an officer ("Coordinator") on the approval of the Council. Some of the functions of the Coordinator are as follows:

i. maintaining a register of Labelled Startups in Nigeria;

ii. keeping relevant documents and records of Labelled Startups;

iii. implementing the decisions of the Council on the labelling of a Startup, etc.

4. Establishment of a Startup Seed Investment Fund

Upon the enactment of the Proposed Act, a Startup Seed Investment Fund will be set up and managed by the Nigerian Sovereign Investment Authority. The funds will be applied to provide early-stage financing and relief to Startups, technology laboratories, accelerators, incubators and hubs.

5. Provision For Tax and Fiscal Incentives

Upon the enactment of the Proposed Act, Labelled Startups, their employees and investors are expected to benefit from tax and fiscal incentives including:

i. exemption from the payment of income tax or any other tax chargeable on the Labelled Startups' income or revenue for a period of four years commencing from the date of the issuance of the Startup Label;

ii. enjoyment of a 5% tax relief from income tax assessable on yearly profits. This incentive will apply to employees of Labelled Startups that have a minimum of ten employees, 60% of whom are without any form of work experience or graduated from school not later than 3 years;

iii. access to grants and loan facilities administered by the Central Bank of Nigeria, the Bank of Industry or other bodies statutorily empowered to assist small and medium-scale enterprises and entrepreneurs;

iv. access to export incentives and financial assistance, applicable to Labelled Startups involved in the exportation of products and services;

v. eligible employees shall be entitled to personal income tax exemption of 35% for a period of two years from the date of engagement by a Labelled Startup;

vi. exemption from payment of capital gains tax on gains that accrue from the disposal of assets by angel investors, venture capitalists, private equity fund, accelerators or incubators with respect to a Labelled Startup, etc.

6. Obligations of a Startup Label

The Proposed Act prescribes obligations which Labelled Startups must comply with while conducting business in Nigeria. These include:

i. complying with all the extant laws governing businesses in Nigeria;

ii. providing information annually on the number of human resources, total assets and the annual turnover achieved from the period the Startup Label was granted;

iii. maintaining proper books of account in accordance with reporting obligations provided under extant laws and regulations;

iv. providing an annual report on incentives received and advancement made by virtue of the incentives;

v.notifying the coordinator of any change in structure, composition or objects within a period of one month from the date of such change; and

vi. complying with obligations set out by the Coordinator after issuance of the Startup Label.

Where a Labelled Startup defaults in any of the obligations or fails to meet the eligibility criteria, the Coordinator shall notify the Startup of the default, and within 30 days of the notification, the Startup shall take steps to rectify the default. Failure to regularize the default upon being notified may amount to a withdrawal of the Startup Label.

Conclusion

As stated earlier, the Bill is at the last stage and awaits Presidential assent. Given that it was originally introduced by the President's administration as part of its commitment to transform various sectors of the economy by leveraging on digital technologies, it is expected that the president will approve the Bill in good time. It is also worthy of note that the passing of a Bill may be delayed by a change in political administration. However, where a President refuses to give his assent, the National assembly may overrule the veto of the President pursuant to the provisions of the Nigerian constitution and pass the Bill into law without the Presidential assent.

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.