The Nigeria Startup Act, 2022: 15 Things to Note

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Abiodun V. Ogunnubi
Abiodun V. Ogunnubi
Contributor

 

 

 

 

 

 

 

In the last decade, the Nigerian Startup ecosystem have dominated the African Startup sector, outranking other African Nations in terms of both the estimated number of startups[1] and available startup funding.[2] Nigerian startups like other businesses in Nigeria is faced with several challenges, such as, high cost of doing business, regulatory bottlenecks, stifling government policies, poor physical and digital infrastructure, etc.[3] The Nigeria Startup Act 2022, signed into Law by the President on 19th October 2022 is aimed at addressing some of these challenges.

The Act is the joint initiative of both the Nigerian tech startup ecosystem and the Presidency to harness the potential of our digital economy through co-created regulations.[4] The objective of the Act is to provide for the creation and development of an enabling environment for technology-enabled startups in Nigeria[5] and to position Nigeria’s startup ecosystem as the leading digital technology centre in Africa.[6] The Act is divided into ten (10) Parts with a total of forty-eight (48) Sections.

Below are some notable provisions in the Nigeria Startup Act 2022 that tech startups and enthusiasts should be aware of:

  1. The term startup as used in the Act refers to tech startups that offer a unique digital technology innovative product, service or process and have been in existence for not more than 10 years, that is, the provision of the Act is not applicable to non-tech-based businesses.[7]
  2. Establishment of the National Council for Digital Innovation and Entrepreneurship with the President as Chairman alongside representatives of the Federal Executive arm of Government, the Director General of National Information Technology Development Agency (NITDA) as Secretary and representatives of the Nigeria Computer Society, the Computer Professionals (Registration Council of Nigeria) and the Startup Consultative Forum to be established.[8] The Council is to monitor and evaluate regulatory frameworks; formulate and implement policy guidelines, oversee the harmonization of laws, and regulations, for the development of startups in Nigeria.[9]
  3. NITDA is to serve as the Secretariat of the Council with the Director-General of NITDA to serve in a dual capacity of both the Secretary of the Council and the Head of the Secretariat.[10]
  4. The Startup Portal: The Act establishes a Startup Support and Engagement Portal (“the Startup Portal”)[11] which is to serve as a One-Stop-Shop or platform for startups to register with all relevant Ministries, Departments and Agencies (MDAs). Startups can undertake such functions as registration with the Corporate Affairs Commission,[12] Nigerian Copyright Commission and the Trade Marks, Patent and Design Registries for protection of their intellectual property rights,[13] National Office for Technology Acquisition and Promotion (NOTAP) for ease of technology transfer,[14] the Securities and Exchange Commission (SEC) and the Central Bank of Nigeria (CBN) to ease the procedure for obtaining licences for financial technology and to apply for CBN’s regulatory sandbox or SEC’s regulatory incubation programmes,[15] access startup finance, exchange information, receive complaints and recommendations from stakeholders and the public, among others. This saves the time and associated cost that would have ensued in undertaking individual registration with each MDA and generally aims to improve the ease of doing business within the tech ecosystem.
  5. Startup Label Certificate: A Startup Label Certificate is to be issued upon registration, and the criteria for eligibility are as follows[16]: –
    • The startup must be registered as a limited liability company and have been operating for less than 10 years from the date of incorporation;
    • The startup’s object clause in its Memorandum of Association must include innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process;
    • It is a holder or repository of a product or process of digital technology, or the owner or author of a registered software;
    • The startup has at least one-third local shareholding held by one or more Nigerians as founder or co-founder of the startup; and
    • If the startup is a sole proprietorship or partnership, it must satisfy the conditions set out in in paragraphs (b), (c) and (d) above.

From the foregoing, a company that has been operating for 10 years and above cannot acquire a startup label status. Companies with foreign shareholders that meet the criteria can acquire a startup label under the Act. Also, holding companies and subsidiaries will have to register as a startup to acquire the status of a startup.[17] Lastly, a sole proprietorship or partnership is granted a pre-label status for a period of six months to enable it register as a limited liability company, otherwise it will lose the pre-label status.

  1. Startup Register:[18] Upon the acquisition of a startup label status the names and particulars of all labelled startups are entered in a register of startups. A startup label is valid for a period of 10 years only from the date of issuance.
  2. Establishment of a Startup Investment Seed Fund:[19] The Fund to be set up is required to have a minimum of N10,000,000,000.00 (Ten Billion Naira Only) annually towards financing labelled startups and others as seed funds, grants or loans under Section 27 of the Act.
  3. Trainings:[20] The Act requires that a training and capacity building programme should be designed for startups, also, startups will have access to trainings for its employees to be facilitated by the Industrial Training Fund and other organisations that partners with the Secretariat, for the training of entrepreneurs and their employees.
  4. Tax and Fiscal Incentives:[21] Labelled startups as well as angel investors, venture capitalists, private equity funds, accelerators or incubators have access to various tax and fiscal incentives under the Act.

The tax incentives are as follows:

    • labelled startups are entitled to the grant of tax reliefs and incentives under the Pioneer Status Incentives Scheme;
    • exempted from payment of income tax under the Industrial Development (Income Tax Relief) for an initial period of 3 years;
    • restrictions under the Companies Income Tax Act do not apply;
    • angel investors, venture capitalists, private equity funds, accelerators or incubators in labelled startups are entitled to an investment tax credit equivalent to 30% of their investment in the labelled startup;
    • capital gains tax is not to be charged on gains that accrue from assets disposed by them, if the assets have been held in Nigeria for a minimum of 24 months.

In relation to the fiscal incentives, labelled startups are exempted from contributing to the Industrial Training Fund where it provides in-house training to its employees; entitled to export incentives and financial assistance from the Export Development Fund, Export Expansion Grant and the Export Adjustment Scheme Fund; access to grants and loan facilities administered by the CBN, the Bank of Industry and other statutory bodies empowered to give loans to small and medium sized enterprises; and access to a Credit Guarantee Scheme to be set up for the development and growth of labelled startups.

  1. Crowdfunding:[22] Startups can raise funds through SEC licensed crowdfunding intermediaries and commodities investment platforms on the Startup Portal.
  2. Listing on the Nigerian Exchange Limited:[23] The Council will assist labelled startups to meet up with the eligibility requirements for listing on the Nigerian Exchange Limited or similar stock and commodity exchanges operating in Nigeria.
  3. Repatriation of capital and profits by Foreign Investors:[24] Repatriation of investments in a labelled startup by Foreign Investors is guaranteed at CBN official foreign exchange rate, only upon presentation of a Certificate of Capital Importation (CCI) as evidence that the initial investment fund was injected through the proper channel.
  4. Accelerators and incubators:[25]Development of accelerator and incubator programmes for startups, formulation of a national accelerator and incubator policy for the establishment of accelerators and incubators, a register of accelerators and incubators that contributed to the startup ecosystem to be maintained by the Secretariat. Accelerators and incubators registered with the Secretariat will be entitled to some incentives, grants and aids for research and development, etc.
  5. Establishment of a Technology Development Zone:[26] A Technology Development Zone (‘the Zone’) is to be established and startups, accelerators, or incubators are eligible to apply to the Zone prior to the commencement of an approved activity. Also, startups, accelerators, or incubators carrying out an approved activity in a Zone will be entitled to incentives provided under the Nigeria Export Processing Zones Act[27].
  6. Data Protection:[28] Data are to be used and processed in a responsible manner and in compliance with extant data protection laws and regulations in Nigeria. This is not surprising since NITDA serves as the Secretariat with oversight duties over the activities of startups.

The provisions of the Act presents a promising future for startups in Nigeria, and the Act has the potential to serve as a veritable tool towards fostering the development and sustenance of an enabling Startup ecosystem in the country. However, for the Act to attain its objective of  being the leading digital technology centre in Africa, it is imperative that both existing and prospective startups and other stakeholders fully engage in the ecosystem. Of more importance is the commitment of government through related parastatals and other players in the ecosystem to ensure the deployment of concerted and consistent efforts towards the implementation and achievement of the Act’s objectives. Further to which a 27-member committee comprising the Nigeria Startup Act (NSA) implementation Committee charged with integrating and improving on the achievements of the ICT sector in the Nigerian economy, was inaugurated on the 8th of March 2023.[29]

The Tunisian Startup Act[30] enacted in 2018 contributed to the ascent of Tunisia’s startup ecosystem and its recognition as one of the top ten venture investments destinations in Africa.[31] An effective implementation of the Nigerian Startup Act, alongside the incentives offered, should serve as a platform for the expansion of existing and new startup entities in Nigeria, engender an ecosystem that would attract foreign startups and investors, participation of female founders and other marginalized groups, promote the growth and development of startups across all the States of the Federation. This would require the creation of legal and institutional frameworks towards the successful implementation of the Act.[32]

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For further information on this article and area of law, please contact Abiodun V. Ogunnubi at S.P. A. Ajibade & Co., Lagos by

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[1]     The number of startups in Nigeria was estimated at around 3,300 in 2020 by Statista – https://www.statista.com/statistics/1290679/number-of-startups-in-africa-by-country/ accessed on 3rd November, 2022.

[2]     Disrupt Africa estimates that at least 383 Nigerian startups have secured funding, totaling at least US$2,068,709,445 – both the highest number of startups, and the highest amount of funding recorded by any country in this period. As of August 2022, 107 Nigerian startups had raised funding in the sum of US$747,908,000.00, accounting for around one-third of the continent’s funded startups in 2022. See, pp. 14 and 33 of the Nigerian Startup Ecosystem Report 2022 -available at https://disrupt-africa.com/wp-content/uploads/2022/09/The-Nigerian-Startup-Ecosystem-Report-2022.pdf accessed on 3rd November, 2022.

[3]     https://qz.com/africa/2012780/nigeria-ranks-first-in-african-startups-but-faces-challenges accessed on 4th November, 2022.

[4]     https://startupbill.ng/#contribute accessed on 4th November, 2022.

[5]     The preamble to the Nigeria Startup Act, 2022.

[6]     Section 1(d) the Nigeria Startup Act.

[7]     Section 47 of the Nigeria Startup Act.

[8]     Section 4(1).

[9]     Section 7(1).

[10]    Section 9(1).

[11]    Section 10(1).

[12]    Section 30.

[13]    Section 31.

[14]    Section 33.

[15]    Sections 34 and 35.

[16]    Section 13(2) and 15(1)(b) of the Nigeria Startup Act.

[17]    Section 13(3).

[18]    Section 15.

[19]    Section 19.

[20]    Section 21 of the Nigeria Startup Act.

[21]    Sections 24-29.

[22]    Section 21.

[23]    Section 36 of the Nigeria Startup Act.

[24]    Section 37.

[25]    Sections 38 & 39.

[26]    Section 42.

[27]    Cap N107, LFN 2004.

[28]    Section 43.

[29]    https://www.thecable.ng/fg-sets-up-27-member-committee-to-implement-startup-act accessed on March 27, 2023.

[30]    See, The Startup Act, Law No. 2018-20 of April 17, 2018, and https://startup.gov.tn/en/startup _act/discover accessed on April 6, 2023.

[31]    See, https://qz.com/africa/2012780/nigeria-ranks-first-in-african-startups-but-faces-challenges and https://afrikanheroes.com/2020/12/13/what-difference-have-startup-acts-made-in-african-countries-where-they-exist/ accessed on 1st Deceember, 2022.

[32]    See, https://spaajibade.com/a-review-of-the-nigeria-startup-bill-2021/ accessed on April 6, 2023.

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