Introduction
The Nigerian Startup Act 2022 (NSA) is a significant piece of legislation, designed to foster innovation, attract investment, and create a favourable business climate for tech-enabled startups in Nigeria. It aims to position Nigeria as a leading hub for digital entrepreneurship in Africa by removing regulatory barriers and offering targeted incentives.
This newsletter explores key incentives available under the NSA and what they mean for startups and investors.
The Startup Label: A Gateway to Incentives
The NSA introduces the Startup Label, issued by the National Information Technology Development Agency (NITDA) which is a prerequisite for enjoying the incentives available under the NSA. To qualify, a startup must:
- Be registered as a limited liability company with the CAC, and in operation for less than 10 years.
- Have its objects focused on innovation, development, production, or improvement of a digital product, service or process
- Have at least 51% of its shares held by Nigerians
- Be certified by NITDA via the Startup Portal
Only Labelled startups may benefit from the incentives discussed below.
- TAX AND FISCAL INCENTIVES
One of the most attractive features of the NSA is its suite of tax incentives designed to encourage startup formation and sustainability:
- Pioneer Status Incentive (PSI)– The NSA allows for a Labelled startup to apply for PSI which grants an initial three-year tax holiday, extendable for an additional two years. This exemption from Companies Income Tax is a critical incentive for early-stage businesses as it allows them to reinvest significantly in their growth.
- Exemption from Capital Gains Tax– To encourage long-term investment, the NSA provides that angel investors, venture capitalists, private equity firms, and other institutional investors who invest in Labelled startups and hold their equity for a minimum of two years are exempted from paying Capital Gains Tax on the disposal of such investments.
- Tax deductions for Investments in Research & Development (R&D)– To encourage investment and innovation in R&D, Labelled startups may claim tax deductions for expenses on R&D which are wholly incurred in Nigeria and restrictions placed by the Companies Income Tax Act shall not apply.
- Access to the Startup Investment Seed Fund –The NSA establishes the Startup Investment Seed Fund, to be managed by the Nigeria Sovereign Investment Authority (NSIA). The fund is intended to provide early-stage finance to Labelled Startups, support for technology development, and grants for research and innovation.
- REGULATORY SUPPORT AND EASE OF DOING BUSINESS
The NSA introduces measures to reduce regulatory friction:
- Regulatory Sandboxes– The NSA empowers regulatory authorities (such as the Naional Insurance Commission (NAICOM), CBN or SEC) to introduce sandbox programs that allow Labelled Startups to test innovative products or services in a controlled environment without the full burden of regulatory compliance.
- Fast-Tracked Approvals and Support –Labelled startups may request expedited approvals, waivers, or forbearances from regulators where traditional compliance requirements are unduly burdensome or incompatible with digital innovation. The NSA requires regulators to consider such requests and respond promptly through designated innovation desks.
- Single Window Platform– the NSA mandates the creation of a single platform to streamline startup registration, compliance, and access to government programs which help reduce bureaucratic delays.
- CAPACITY DEVELOPMENT AND TALENT SUPPORT
The NSA mandates collaboration between the Federal Government, academic institutions, and the private sector to promote digital training programs, tech-focused curriculum, and upskilling in areas like AI, cybersecurity, and blockchain. Labelled startups may benefit from access to trained talent pools at lower cost.
- INTELLECTUAL PROPERTY AND COMMERCIALISATION SUPPORT
The NSA encourages simplified processes for IP registration. Labelled Startups are eligible for reduced fees and technical support in registering trademarks, patents, and copyrights with the National Office for Technology Acquisition and Promotion and the Trademarks, Patents and Designs Registry.
Conclusion
The NSA is a forward-thinking legislative framework that provides critical incentives to drive innovation and entrepreneurship. However, these incentives are contingent on obtaining the Startup Label and remaining compliant with the NSA's requirements. As the implementation of the NSA continues, stakeholders are encouraged to engage actively with the Startup Portal, monitor new guidelines from NITDA and NSIA, and seek legal advice to ensure eligibility and access to full benefits.
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.
