Introduction
Introduction
It is beyond prevarication or doubt that proper regulations by the government of a state are indispensable for the proper functioning of economies and societies. The main objective for any such regulation is to ensure that the regulation works effectively, and is in public interest. This is why it is quite commendable that on the 19th day of October, 2022, the President of Federal Republic of Nigeria signed the Nigeria Startup Act, 2022 [the Act] into law, thus positioning Nigeria’s startup economy as the leading digital hub in Africa.Definition of Startup
The Interpretation section of the Act defines Startup as “a company in existence for not more than ten [10] years, with its objective being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process” See, Section 47 of the Act.
Basically, Startups are young companies founded to develop a unique product or service, bring it to the market and make it irresistible and irreplaceable for customers. It is a company typically in the early stages of its development.
Objectives Of The Act
Section 1 of the Act provides for the objectives of the Act as follows:
- Provide a legal and institutional framework for the development of startup in Nigeria;
- Provide an enabling environment for the establishment, development and operation of startups in Nigeria;
- Provide for the development and growth of technology-related talents; and
- Positioning Nigeria’s startup ecosystem, as the leading digital technology centre in Africa, having excellent innovators with cutting edge skills and exportable capacity.
Application Of The Act
From Section 2 of the Act, it is clear that the Act only applies to companies incorporated under the Companies and Allied Matters Act and granted the startup label and organization and establishments, whose activities affect the creation, support, and incubation of labelled startups in Nigeria.
Highlights and Benefits of the Act
- Establishment of the National Council for Digital Innovation and Entrepreneurship [the Council]: Section 3 of the Act establishes the Council which is comprised of the President and Vice-President serving respectively as Chairman and Vice-Chairman of the Council, as well as other stakeholders who were commendably carefully curated to draw support of the Executive Government to provide policy and encourage greater collaboration between the State and the private sector. The Council shall be a body corporate with the responsibility to formulate and provide general policy guidelines for the realization of the objectives of the Act together with other functions and powers as clearly stated in Section 7 [1] & [2] of the Act.
- Secretariat of the Council: By the provisions of Section 9 of the Act, the National Information Technology Development Agency [NITDA] is designated to serve as the Secretariat of the Council [the Secretariat] to be headed by the Director General of the NITDA. The secretariat’s role has been designed to help operationalize the function of the Council and its functions are clearly started in Section 9 [2] [a-r] of Act.
- Startup Support and Engagement Portal: Section 10[1] of the Act establishes the Startup Support and Engagement Portal [the Portal] to serve as a flatform through which a startup conducts registration with relevant Ministries, Departments and Agencies [“MDAs]. It also facilitates the issuance of permit or licence to labelled startups amongst other function as contained in Section 10[2] [a-l] of the Act. There shall also be a coordinator of the Portal who is responsible for maintaining a register of labelled startup in Nigeria and keeping relevant documents/record. The office of the Coordinator of the Startup Portal is provided under Section 11 of the Act.
- Startup Labelling Process: Section 13[2] of the Act defines “Labelled Startups” as registered limited liability companies that has been in existence for a period not more than ten years from the date of incorporation involved in innovation, development, production, improvement, and commercialization of a digital technology innovative product or process. One of the eligibility requirements for the grant of a startup label is that it must have at least one-third local shareholding held by one or more Nigerians as founder or co-founder, amongst others. Once a company becomes a labelled startup, it is obligated to comply with the provisions of the Act and all extant laws governing businesses in Nigeria. Other obligations are as provided in Section 16 of the Act.
- General Incentives for Startups:
- Establishment of Startup Investment Seed Fund [the Fund]: Section 19 [1] of the Act establishes the Fund to be managed by the Nigeria Sovereign Investment Authority. The Act provides that there shall be paid into the Fund on an annual basis, as un not less than Ten Billion Naira from sources to be approved by the Council. The Fund may provide financial support and early-stage finance to labelled startup, and also provide relief to technology laboratories, accelerators and hubs as provided by Section 19 [3] of the Act
- Training, Capacity Building and Talent Development: Section 21 and 22 of the Act provides that the Secretariat shall implement a training capacity building programme for Startups and also establish centres for acquisition of technology in the six geopolitical zones of Nigeria for the promotion of digital technology utilization, strengthening of digital technology management capability and information systems. These centres would achieve this through collaboration with relevant agencies, the private sector and supporting the activities of related academic research institution.
- Protection of Intellectual Property Rights: The Act acknowledges the importance of intellectual property rights towards the growth and development of startup. The Secretariat, as part of its objectives, must ensure that holders of intellectual property rights are encouraged to exploit these rights and the Secretariat shall also take steps towards assisting startups in institutionalizing and commercializing their rights. See; Section 31 of the Act.
- Tax and Fiscal Incentives: The Act provides several tax and fiscal relief for labelled startup. By Section 24 of the Act, a labelled startup operating in eligible industries under the Pioneer Status Incentives [PSI] Scheme may apply through the Secretariat to the Nigeria Investment Promotion Commission [NIPC] for grant of tax relief and incentives under the PSI. If granted, this would entitle the labelled startup to a tax holiday for an initial period of three years, which may be extended for an additional two years. Furthermore, by Section 25 [2] of the Act, a startup may also be exempted from payment of income tax or any other tax chargeable on its income or revenue for up to five years, subject to certain qualifications.
While the above listed incentives are not exhaustive, it should be noted that the incentives conceived under the Act apply not just to the startups, but also the wider ecosystem.
6. Regulatory Compliance for Startup: Below are some of the basic regulatory compliances that Startups in Nigeria need to comply with:
- Corporate Affairs Commission: As provided under the Companies and Allied Matters Act, 2020, all companies in Nigeria must be incorporated under CAC before commencing operation and Annual returns must also be filed.
- Tax Remittance: All Startups are required to register for tax and file their audited accounts and tax computations with the Federal Inland Revenue Service [FIRS] within eighteen [18] months of incorporating their company or not later than six [6] months after its accounting period, whichever is earlier. Value Added Tax [VAT] are also to be remitted to FIRS monthly except where tax incentives have been granted to such startup company.
- Special Control Unit Against Money Laundering [SCUML]: This is a unit under the Economic and Financial Crime Commission [EFCC] and some designated non-financial institutions are required to register with the Special Control Unit to obtain the SCUML Certificate.
Conclusion
The Nigeria Start up Act, 2022 is a fundamental step in the development of a legal framework for startups operating in Nigeria as there are adequate provisions and benefits which if effectively and practically implemented will aid the ability of the Act to achieve its objectives and also ensure that Nigeria Technology ecosystem remains in the global market.
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