4 Tax Implications of the Startup Act in Nigeria

4 Tax Implications of the Startup Act in Nigeria
  • This article details 4 major tax considerations from the recently signed Nigeria Startup Act by President Buhari.

A recent development that has brought joy to many Start-ups and rising digital businesses in the country is the Startup Act in Nigeria which was translated from a bill by President Muhammadu Buhari, hence the Start-up Act 2022.

Over the years, there has been a significant increase in the formation of startups in Nigeria.

According to the Minister of Communications and Digital Economy, Isa Pantami, the bill, was initiated by the President through the office of his Chief of Staff in collaboration with the Ministry of Communications and Digital Economy.

What is a Start-up?

In an article by the founder of Taxmobile.Online; Olatunji Abdulrasaq; A startup is a young company established by one or more entrepreneurs to create unique and irreplaceable products or services.

Many startup operates in tech-related industries, including edtech, finance, insurtech, logistics, agriculture, and health.

What is the Nigeria Startup Bill no Nigeria Startup Act?

The Nigeria Startup Bill (NSB) project is a collaboration between the Nigerian tech sector and the Presidency to develop and implement great initiatives that will help Nigeria achieve its digital economy fully.

The bill also came as an effort from the Federal Ministry of Communication and Digital Economy and applies to every company registered under the Companies and Allied Matters Act 2020 and labelled as a startup.

It introduces a Startup Label which is a certificate given by the Secretariat to a startup after they have fulfilled the requirements under the proposed Act.14.

What is the Start-up label?

The “startup label” is a requirement for a company to be recognized as a startup. In addition, the Bill also covers organizations and establishments whose activities affect the support and incubation of labelled startups in Nigeria.

To obtain the startup label, such an entity must be a limited liability company registered under the Companies and Allied Matters Act 2020 in existence for a maximum of 10 years from the date of incorporation, a sole proprietorship or partnership.

From information obtained from the Federal Ministry of Communication and Digital Economy, the bill was passed by the Senate on 27 July and the House of Representative on 28 July.

The Minister in charge of the Ministry; Isa Pantami had explained that after meeting with young innovators across the country and hearing their challenges as regards the ease of doing business, the government realized the need to put this act in place.

The Bill which was signed on October 19, 2022, mainly seeks to provide a legal and institutional framework for the development of startups in Nigeria.

The minister in a recent interaction with stakeholders expressed that the new Act will come into effect with so many economic benefits for the country.

It is understood that one of the reasons for start-ups’ excitement regarding the new law is the positive set of tax implications that it will have on their businesses.

The new law makes provisions for tax and fiscal incentives for labeled startups, investors investing in labeled startups, employees of labeled startups, and external service providers of labeled startups.

Tax Implications of the Startup Act in Nigeria

1. One of the tax implications of the Nigeria Startup Act is that a labeled startup, which falls within industries such as agriculture, mining and quarrying, manufacturing, electricity and gas supply, and so on, may apply to the Nigerian Investment Promotion Commission (NIPC) for the grant of tax reliefs and incentives under the PSI scheme.

According to NIPC, this is a tax holiday that awards qualifying industries and products relief from payment of corporate income tax for a preliminary period of 3 years and can be extended for one or two additional years.

2. Another one is that a startup with a minimum of ten employees, 60% of which are employees without any kind of work experience, and within three years of graduating from school or any vocation within the assessment period, is qualified for tax relief from income tax of 5% of its assessable profits.

3. Investors are entitled to a tax credit equivalent to 30% of their investment in a startup.

4. Employees of startups are qualified for Personal Income Tax (PIT) immunities of 35% for two years.

In addition to the above tax perks, the law offers access to export amenities, government grants, loans and facilities, and a Credit Guarantee Scheme for the growth and development of startups.

Other Significance of the Nigeria Startup Act

  • The startup-centric law allows for the establishment of a self-regulatory body labelled ‘the National Council for Digital Innovation and Entrepreneurship. This council will have the responsibility of formulating policy guidelines that is to bring about the realization of the law’s core objectives in the start-up space.
  • The self-regulatory body is expected to operate alongside the National Information Technology Development Agency (NITDA) which is to serve as the Secretariat of the Council.
  • In addition, it is the core responsibility of the secretariat to embark on training and capacity-building schemes for a startup using the startup portal that is expected to go live shortly.
  • The all-encompassing law now allows the creation of Accelerator and incubator programmes for startups creation and operation of startup innovation hubs and physical and virtual innovation parks in each 36 states of the Federation.
  • The above is expected to be monitored and implemented by the Secretariat; the National Information Technology Development Agency.

In conclusion, the Startup Act in Nigeria or Nigeria Startup Act (NSA) aims to build a well-structured startup ecosystem and labeling procedure in Nigeria, and it is a critical step toward developing a legal framework for startups operating in Nigeria.

After all said and done, it is expected that both new and existing businesses in the startup space are set to feel the impact of the new law that houses key incentives aimed at business growth.

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