On the 19th day of October 2022, the Nigeria Startup Act was signed into law. This is no doubt a promising development for the proponents of this Act as well as the Nigerian digital ecosystem.
Before we go into an in-depth analysis of key provisions of the Act, it is important we consider a brief overview of the Nigeria Startup Act.
AN OVERVIEW OF THE NIGERIA STARTUP ACT
The Nigeria Startup Act is a joint initiative of Nigeria’s tech startup ecosystem and the Presidency to harness the potential of Nigeria’s digital economy. The Act aims to ensure that laws and regulations made in Nigeria are clear, properly planned for, and work in favor of the tech ecosystem. An example of how laws tend to disfavor Startups in Nigeria can be seen in the licensing challenges most Fintech Startups have faced as regulators consistently create laws to catch up with it.
WHAT ARE STARTUPS?
Startups are companies established for the purpose of developing a unique product or service and are primarily known for operating a scalable business model. Most technology companies are referred to as Startups.
KEY PROVISIONS OF THE STARTUP ACT TO TAKE NOTE OF
1. ENHANCED SUPPORT FOR STARTUPS BY RELEVANT GOVERNMENT MINISTRIES, DEPARTMENTS, AND AGENCIES
To ensure ease of compliance, PART VIII of the Act provides for the creation of a Startup portal, approved by the Council for Digital Innovation and Entrepreneurship (established under this Act), in which the Secretariat of the Council will collaborate with regulators such as the Corporate Affairs Commission, the Nigerian Copyright Commission, and the Trademarks, Patent and Design Registries, Securities and Exchange Commission (SEC), National Office for Technology Acquisition and Promotion (NOTAP), Central Bank of Nigeria (CBN) in ensuring seamless access to licensing and registration services.
This is a welcome development, particularly with respect to how inaccessible these agencies are and the length of time it takes to process licenses from some of these institutions.
2. ISSUING OF SPECIAL CERTIFICATES TO STARTUPS
Under the Act, Startups would be issued a Startup Label Certificate by the Secretariat. A labeled startup would have access to incentives provided by the Act.
To qualify for the certificate;
(a) It must be registered as a limited liability company under the Companies and Allied Matters Act 2020, and must have been in existence for a period of not more than 10 years from the date of incorporation;
(b) Its objects must include innovation, development, production, improvement, and commercialization of a digital technology innovative product or process;
(c) It must be a holder or repository of a product or process of digital technology or the owner or author of a registered software;
(d) It must have at least one Nigerian as a founder or Co-founder of the startup, provided that the Nigerian founder or co-founder will share from profit or revenue from the sale of shares; and
(e) In the case of a sole proprietorship or partnership, it satisfies the conditions set out in paragraphs(b), (c), and (d) of this subsection.
Please note that Sole Proprietorships and Partnerships will only be granted pre-label status for 6 (six) months after which it would lose its pre-label status if it fails to comply with the requirements in (b) (c) (d) above.
3. ACCESS TO TAX AND FISCAL INCENTIVES BY LABELLED STARTUPS
Part VII of the Act offers tax incentives to labeled startups, their employees as well as investors who invest in such startups. It also offers a 5% Withholding tax incentive on income for foreign entities which provide technical, consulting, and professional or management services to a labeled startup.
4. ACCESS TO FUNDING FROM STARTUP INVESTMENT SEED FUND
Labeled startups, technology laboratories, accelerators, incubators, and hubs will have access to funding opportunities from the Startup Investment Seed Fund. See Part V of the Act.
5. ACCESS TO TRAINING AND CAPACITY-BUILDING OPPORTUNITIES
Startups will have access to training programs facilitated by the Industrial Training Fund and any organization, that partners with the Secretariat. The Act also proposes to collaborate with higher institutions to nurture talents in the tech ecosystem through the creation of digital technology innovation parks and hubs in universities, polytechnics, and other institutions of higher learning.
6. CREATION OF INCUBATION AND ACCELERATOR PROGRAMMES FOR STARTUPS
The Act proposes the establishment of incubator and accelerator programs by the Secretariat. In addition, registered accelerators and incubators will be entitled to grants given under the Nigeria Digital Innovation, Entrepreneurship, and Startup Policy and any other policy that may be issued.
7. ESTABLISHMENT OF CLUSTERS, HUBS, INNOVATION PARKS, AND TECHNOLOGY DEVELOPMENT ZONES
The Act aspires to establish startup innovation clusters, hubs, and physical and virtual innovation parks in each state of the Federation. The aim of these clusters, innovation parks, and hubs is to foster collaboration/partnerships between startups and large companies and amongst startups, provide access to resources and professional services, etc.
In response to the need to encourage innovation amongst our youths as well as provide a legal and institutional framework for the development of Startups in Nigeria, the Nigeria Startup Act is a welcome development.
Furthermore, the fact that other States in Nigeria which are home to innovators who are not opportune to be positioned in commercially vibrant cities like Lagos State or the nation’s Federal Capital Territory, Abuja will gain access to the benefits from this Act makes the latter worth anticipating.
At LEX-PRAXIS, we understand the pain points associated with developing solutions that are frustrated by numerous policies as well as other external factors, and to this end, we provide solutions that enable startup founders to launch their ideas legitimately, at their level or pace and in line with their business models. For more information on how we can assist you, please reach out to us HERE. We would be delighted to hear from you.