An Overview of The Nigerian Startup Act 2022
On the 19th of October, 2022 President Muhammudu Buhari signed the Nigerian Startup bill into law to be known as the Nigerian Startup Act 2022. The purpose of this law is to create a legal framework for the development of startups, develop and grow technology-related talents and ultimately position the Nigerian startup ecosystem as the leading digital technology centre in Africa.
The body responsible for administering the provisions of this law is the National Council for Digital Innovation and Entrepreneurship (referred to as “the Council”). The National Information Technology Development Agency shall serve as the Secretariat of the Council (referred to as “the Secretariat”) and the Director-General of the National Information Technology Development Agency is the head of the agency. A couple of other administrative bodies are also provided which would be looked at in this article.
The coordinator shall be appointed by the secretariat with the approval of the council to maintain a register of labeled startups in Nigeria, keep relevant documents and records of labeled startups, implement the decisions of the Council on the labeling of a startup and perform other functions as may be necessary for the implementation of the Act.
According to the Act, a startup is a company that has been in existence for not more than 10 years with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service, or process.
This is the startup status given to companies that would benefit from the Nigerian Startup Act. Companies are issued this labeling through the issuance of a certificate by the secretariat. To be eligible for this startup labeling, the following are required from a startup:
- Be registered as a limited liability company or a sole proprietorship and be in existence for not more than 10 years from the date of incorporation
- Have objectives of innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process
- Be a holder of a product or process of digital technology or the owner or author of a registered software
- Have at least one-third of local shareholding held by one or more Nigerian co-founders or co-founders of the startup
A holding company or subsidiary of an existing company that is not registered as a startup cannot be granted startup labeling. There is also the pre-label status which is for sole proprietorships or partnerships that have not complied with all the startup labeling requirements. This pre-label status is valid for 3 months and if not fully complied with during this timeframe, the pre-label status would be lost.
The Startup support and Engagement Portal
This platform is created for startups to:
- Conduct registration process with relevant ministries departments and agencies (MDAs)
- Obtain necessary permit or license
- Interact with the federal government, private institutions, angel investors, venture capitalists, incubators, accelerators, and other relevant institutions
- Get opportunities
- Have access to finance, information, innovation, and the global market
- Receive complaints and recommendations from industry stakeholders
How to Apply for the Startup Labelling
- Submit an application in the prescribed form on the startup portal
- Submit other documents that may be required by the secretariat
- Upon satisfaction with the documents submitted and with the approval of the secretariat, the name and particulars of the startup would be entered into the register for startups and a startup labeling will be issued through a certificate.
The startup label is valid for 10 years from the date in which it is issued.
Statutory Compliance for Startups
Labeled startups are expected to do the following:
- Comply with all laws governing businesses in Nigeria
- Provide information annually on its human resources, total assets and annual turnover achieved from the date the startup label was granted
- Maintain proper book of account
- Provide an annual report on incentives received and advancement made by virtue of such incentives
- Notify the coordinator of any change in structure, composition, or objects of the startup within a period of 1 month from the date of such change
- Comply with the obligations set out by the coordinator after the issuance of the startup label
Default in any of the obligations or failure to meet the eligibility criteria for startup labeling under the Act requires that the coordinator notifies the said startup of such default and within 30 days of such default, the startup is expected to take steps to rectify. In the event that the startup does not rectify the default, the startup label would be withdrawn from the startup, and notification of this withdrawal would be sent to all relevant MDAs or investors that may have granted incentives to such labeled startup. However, if the startup rectifies the default after the withdrawal of its labeling, it can apply for re-issuance of the startup label.
Startup Investment Seed Fund
The startup investment seed fund is a sum of not less than NGN10,000,000,000.00 to be paid annually from sources approved by the Council. The fund is to be managed by the Nigerian Sovereign Investment Authority to assist labeled startups with finance upon approval of the Council and provide relief for technology laboratories, accelerators, incubators, and hubs.
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Tax reliefs and Incentives
Labeled startups that fall within industries under the pioneer status incentives (PSI) scheme can apply through the secretariat for fast approval from the NIPC, and grant of tax reliefs and incentives under the PSI scheme.
Also, labeled startups may be entitled to exemption from payment of income tax or any other tax chargeable on its income or revenue for a period of 3 years and an additional 2 years if still within the period of a labeled startup provided that the commencement date of the tax relief shall be the date of the issuance of the startup label.
Non-resident companies that provide technical, consulting, professional, or management services to a labeled startup will be subjected to a 5% withholding tax on income derived from the provision of such services provided that the payment of the withholding tax shall be the final tax paid by the such non-resident company.
It would also interest you to know that the Act has provided for labeled startups to be exempted from contributing to the industrial training fund where it provides in-house training to its employees for the period that it is designated as a labeled startup.
There is also a credit guarantee scheme provided for the development and growth of labeled startups. This scheme simply does credit guarantee, provides financial management, capacity-building programmes, financial and credit information for startups.
The Act also provides for access to grants and loan facilities administered by the CBN, Bank of Industry, or other bodies statutorily empowered to assist small and medium-scale enterprises and entrepreneurs.
Labeled startups involved in the exportation of products and services, which are deemed eligible under the Export (Incentives and Miscellaneous Provisions) Act, are also entitled to export incentives and financial assistance from the Export Development Fund, Export Expansion Grant and the Export Adjustment Scheme Fund.
Alliance with Relevant Sectors
The startup Act provides for a collaboration between the council and certain regulatory bodies to ensure compliance with data protection, compliance with sandbox regulations, support of activities of an academic research institution for the development of a startup, talent hunt and development, ease of registration, grant of license or permit, technology development zone and ease of doing business for labeled startups.
Some of these bodies include the Corporate Affairs Commission (CAC), Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), National Office for Technology Acquisition and Promotion (NOTAP), Nigeria Export Processing Zones Authority, Nigerian Copyright Commission and the Trademarks, Patent and Design Registries, universities, National universities commission, etc.
The Act also provides for these bodies to have sections on the startup portal to ensure that their services are rendered through a fast-track process.
The signing of the Nigerian startup Act is a great development, especially for startups and with proper implementation Nigeria will experience increased economic growth. However, it is expected that the government would gradually start to roll out implementation plans for the Act. Are you a startup that needs to focus on your business? Let’s handle your regulatory and compliance needs whilst you focus on your growth, contact us here today, and let’s handle the rest.