The Nigeria Startup Act 2022: Salient Provisions and Applications

Nigeria Startup Act, 2022 was passed by the 9^th National Assembly and signed into law by President Muhammadu Buhari on October 19, 2022.  The Act is To Provide For The Creation And Development Of An Enabling Environment For Technology-Enabled Startups in Nigeria and for Related Matters.

The objective of the Act is to provide a legal and institutional framework for the development of startups in Nigeria, and to provide an enabling environment for the establishment, development and operation of startups in Nigeria; to provide for the development and growth of technology-related talent; and position Nigeria’s startup ecosystem, as the leading digital technology Centre in Africa, having excellent innovators with cutting edge skills and exportable capacity.

This Act applies to companies incorporated under the Companies and Allied Matters Act, organisations and establishments, whose activities affect the creation, support and incubation of labelled startups in Nigeria.

The Act also created the Establishment of the National Council for Digital Innovation and Entrepreneurship, the Functions and Powers of the Council shall be as follows;

(a) Formulate and provide general policy guidelines for the realization of the Objectives of this Act:

(b) Give overall direction for the harmonisation of laws and regulations that affect a startup;

(c) Approve the programmes of the Secretariat established under this Act;

(d) Ensure the monitoring and evaluation of the regulatory framework to encourage the development of startups in Nigeria,

(e) Monitor and ensure the implementation of the policies and programmes of the Secretariat;

(f) Support digital technological development through grants to persons, research institutions, and universities pursuing postgraduate programs in the areas of science, technology and innovation;

(g) Make, alter or revoke rules and regulations for carrying out the functions of the Secretariat, subject to the provisions of the Act;

(h) Appoint a council agent to carry out such functions as the Council may require, and carry out such other functions as are necessary or expedient to ensure the efficient performance of the functions of the Secretariat and other bodies established under the Act.

The Council shall have power to–

(a) Review policies and directives of Ministries, Departments and Agencies (MDAs). Which may affect the operation, establishment and investments in a startup; and

(b) Regulate its proceedings and make standing orders with respect to the holding of its meetings, notices to be given, the keeping of minutes of its proceedings and such other matters as the Council may, from time to time, determine.

OPERATIONAL STRUCTURE OF THE COUNCIL

The National Information Technology Development Agency will serve as the Secretariat of the Council and the Director-General of the Secretariat shall serve as the Chairman of the Secretariat.

The functions of the Secretariat shall be to –

(a) Manage the process of labelling a startup,

(b) Establish public online platforms and other platforms to provide access to information on matters pertaining to the establishment and development of a startup, incubation, acceleration and venture building programmes, and access to fiscal and non-fiscal support;

(c) Collaborate with relevant Ministries, Departments, Agencies and other relevant stakeholders to promote innovation in digital technology, and enterprise development for a startup in Nigeria;

(d) Ensure that the Secretariat’s National Digital Innovation, Entrepreneurship and Startup Policy (NDIESP) is implemented for the development of the startup ecosystem;

(e) Enter into partnerships with local and international business incubators, accelerators and digital innovation hubs to promote the establishment and growth of a startup in Nigeria, subject to the approval of the Council;

(t) Maintain a directory of startups, incubators, and accelerators;

(g) Support research and development activities relating to digital technology innovation undertaken by a startup;

(h) Support the growth and expansion of private sector-led incubator and accelerator programs,

(i) Support the growth and promote the commercialisation of local research and development on digital Innovation by startups.

(j) Develop mechanisms for pre-incubation of entities and, provide training and capacity-building programs for a startup;

(k) Develop, establish, support and incentivise digital technology innovation hubs, digital technology parks and community enterprise hubs in Nigeria;

(I) Develop, implement, and monitor guidelines for setting up digital technology innovation hubs, digital technology parks and community enterprise hubs in Nigeria;

(m) Foster synergy between startups and angel investors, venture capitalists, private equity frets, private investors, development finance institutions, global asset management firms, financial institutions, research institutions and other related institutions at the national and international level;

(n) Enter into partnerships to promote startup development with angel investors, venture capitalist firms, private equity firms development financial institutions, and other relevant funding organisations;

(o) Review proposals, policies and programs addressed to the Council;

(p) Collaborate with the National Universities Commission to provide adequate facilities for research, and promote multi-disciplinary collaboration among universities, polytechnics, and research institutions;

(q) Advise the Council on issues affecting startups and digital technology innovation entrepreneurship in Nigeria, and matters connected with the implementation of this Act; and

(r) Perform such other duties, as may be required by the Council.

10. Startup Support and Engagement Portal

(1) The Secretariat, with the approval of the Council, shall establish a Startup Support and Engagement Portal (“Startup Portal”) which shall serve as a platform through which a startup conducts the registration process with relevant Ministries, Departments and Agencies (”MDAs”).

The Act provides for the Startup Portal which shall —

(a) Facilitate the issuance of a permit or licence to a labelled startup;

(b) Provide a platform for interaction between a startup and the Federal Government, private institutions, angel investors, venture capitalists, incubators, accelerators and other relevant institutions;

(c) Create opportunities for a startup to participate in beneficial challenges and programs including, incubation and accelerator programs, showcases, pitch competitions, fellowships, and other related programs;

(d) Foster access of a startup to finance, information, innovation, and the global market;

(e) Foster information exchange between various stakeholders In the Nigerian startup ecosystem;

(f) Provide access to tools and resources to a startup;

(g) Provide assistance to a startup labelled under this Act;

(h) Provide information on clearances, approvals and registration requirements by a startup; provide opportunities for a startup to enter into contracts with the Federal Government, through public procurement or other engagement processes;

(j) Receive complaints and recommendations from industry stakeholders and the general public;

(k) Serve as a platform for the announcement and application of various schemes and incentives granted to a startup by the Federal Government; and perform such other duties, as may be required by the Council or the Secretariat from time to time.

The Act provides for Startup Consultative Forum

The Forum shall provide a platform for information sharing and collaboration in the Nigerian startup ecosystem with respect to-

(a) Information on a startup which qualifies to be labelled under this Act;

(b) Relevant incentives that apply to a startup;

(c) Information on available local capabilities;

(d) Nomination of representatives to the Council;

(e) Deliberations on a memorandum to be sent to Council for consideration; and

(f) Other policy proposals that may be relevant to the Nigerian startup ecosystem.

The Act provides for the Procedure for labelling a startup (issuing a certificate to a startup)

A startup desirous of being granted a label (certificate) under the provisions of the Act shall submit an application on the Startup Portal in the prescribed form, the application shall be supported by such documents and fee prescribed by the Secretariat.

1. A Startup Label shall be valid for a period of 10 years from the date of issuance,
2. It is registered as a limited liability company under the Companies and Allied Matters Act 2020, and has been in existence for a period of not more than 10 years from the date of incorporation;
3. Its objects are innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process;
4. It is a holder or repository of a product or process of digital technology or the owner or author of a registered software;
5. It has 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 in the case of a sole proprietorship or partnership, it satisfies the conditions set out
6. Comply with all the extant laws governing businesses in Nigeria;
7. Provide information annually on the number of human resources, total assets and the annual turnover achieved from the period the startup label was granted;
8. Maintain proper book of accounts in accordance with reporting obligations provided under extant laws and regulations;
9. Provide an annual report on incentives received and advancement made by virtue of the incentives;
10. Notify the Coordinator of any change in structure, composition or objects within a period of one month from the date of such change; and
11. Comply with the obligations set out by the Coordinator after issuance of the startup label.

After the application has been approved, the Act provides for the Issuance of a labelling certificate

The Act shall not apply to an organisation which is a holding company or subsidiary of an existing company which is not registered as a startup.

A sole proprietorship or partnership referred to in subsection (2)(e) of the Act shall be granted a pre-label status for a period of six months to enable the sole proprietorship or partnership to comply with the requirements set out in subsection (1) (b), (c) and (d) of the Act.

A sole proprietorship or partnership, which fails to comply with the provisions of sub-section (4) of the Act, shall lose the pre-label status granted to it.

A startup is eligible for labelling under the Act, where –

The Coordinator is satisfied that an applicant has complied with the requirements for labelling under this Act, the Coordinator shall –

(a) With the approval of the Secretariat enter the name and particulars of the applicant in the register of startups kept for that purpose; and

(b) the issue to the startup, a startup label.

The certificate issued shall be conclusive evidence that the startup has

(a) Complied with all the requirements for labelling specified under this Act; and

(b) Been duly labelled, in accordance with this Act.

Where a labelled startup defaults in any of the obligations or fails to meet the eligibility criteria under the Act,

The Coordinator shall notify the startup of the default, and within 30 days of the notification, the startup shall take steps to rectify the default.

Withdrawal of Startup Label

Where a labelled startup fails to regularize the default after being notified, the Secretariat shall withdraw the startup label and notify the relevant MDAs or investors that may have granted incentives to the startup.

Reissuance of Startup Label

Where a startup, whose startup label was withdrawn under the Act, rectifies the default, it may apply to the Secretariat for a re-issuance of the startup label.

The Act established a Startup Investment Seed Fund

The Fund is to be managed by the Nigeria Sovereign Investment Authority

The Fund shall be applied towards providing a labelled startup with finance; provide early-stage finance for a labelled startup on the recommendation of the Fund Manager subject to the approval of the Council; and provide relief to technology laboratories, accelerators, incubators and hubs,

THE ACT PROVIDES FOR TRAINING, CAPACITY BUILDING AND TALENT DEVELOPMENT

The Secretariat shall design and implement a training and capacity-building program for start-ups, and shall utilize the startup portal to disseminate necessary information. A startup may access training facilitated by the Industrial Training Fund and any organization, that partners with the Secretariat, for the training of entrepreneurs and their employees.

The Secretariat shall collaborate with the National Universities Commission, universities, and polytechnics within Nigeria to develop modules, and programs and hold workshops aimed at impacting knowledge necessary for the establishment and running of a startup in Nigeria.

The Secretariat shall establish centres for the acquisition of digital technology in the six geopolitical zones of Nigeria for the promotion of digital technology utilisation, and strengthening of digital technology management capability, and information systems.

The Secretariat may issue a framework for the development of talent and collaborate with relevant agencies and the private sector to establish digital technology innovation parks and hubs in universities, polytechnics and other institutions of higher learning.

The Act provides Support for Academic Research Institutions

The Secretariat will support the activities of an academic research institution to development of a startup by -creating linkages between a research institution, the private sector, the Federal Government and other stakeholders in the startup ecosystem; financing research systems for a startup; providing financial support for the acquisition or establishment of research facilities to be utilised by a startup; developing appropriate human resources and research capacity in the areas of science, technology and innovation; funding the co-operation and sharing of research information and knowledge, including supporting conferences, workshops, seminars, meetings and another synopsis; promoting the provision of information infrastructure linking research institutions to facilitate cooperation and sharing of research information and knowledge;

The Secretariat shall also compile and maintain a national database of research and innovation; and promote the commercialisation of the result of local research and development through startup incubation.

THE ACT PROVIDES TAX AND FISCAL INCENTIVES

A labelled startup, which falls within industries captured under the extant Pioneer Status Incentives (PSI) Scheme may apply to the Nigerian Investment Promotion Commission (NIPC) for the grant of tax reliefs and incentives under the PSI Scheme.

The Act also provides Additional Tax Relief

The Federal Government may, through the Federal Ministry responsible for Finance or any other relevant MDA, simplify the requirements for a startup to benefit from existing fiscal incentives.

The Industrial Development (Income Tax Relief) Act or any other legislation on tax reliefs, a labelled startup may be entitled to exemption from the payment of income tax or any other tax chargeable on its income or revenue for a period of four years, provided that the commencement date of the tax relief shall be the date of the issuance of the startup label.

Percentage-based tax relief for a labelled startup. In addition to any other tax relief, a labelled startup with a minimum of ten employees, 60% of which are employees without any form of work experience, and within three years of graduating from school or any vocation within the assessment period, shall enjoy tax relief from income tax of 5% of its assessable profits in the year of assessment in which the profits were generated.

A labelled startup shall be entitled to benefit from the tax relief for a maximum period of five years.

Access to export facilities

The Secretariat shall ensure that a labelled startup involved in the exportation of products and services, which are deemed eligible under the Export (Incentives and Miscellaneous Provisions) Act, is entitled to export incentives and financial assistance from the Export Development Fund, Export Expansion grant and the Export Adjustment Scheme Fund.

Access to Government grants, loans and facilities

The Secretariat shall ensure that a labelled startup has access to grants and loan facilities administered by the Central Bank of Nigeria (CBN), the Bank of Industry or other bodies statutorily empowered to assist small and medium-scale enterprises and entrepreneurs.

Credit Guarantee Scheme

A Credit Guarantee Scheme established under the Act shall have the following objectives —

(a) The provision of accessible financial support to a labelled startup;

(b) Creation of a framework for credit guarantee for a labelled startup;

(c) Provision of financial and credit information to startups; and

(d) Provision of financial management capacity-building programmes to startups.

Where a Credit Guarantee Scheme is established pursuant to the Act, the Secretariat shall ensure that there is –

(a) A strategy and operational goals which align with the objectives under subsection (2) of this section;

(b) Criteria for eligibility and qualification for recipients of funding under the scheme;

(c) Criteria for the monitoring and evaluation of projects undertaken under the scheme and the efficiency of the operations of the scheme;

(d) Mechanism for transparency, accountability and reporting on the activities of the scheme: and

(e) Chattels, registered intellectual property, assignment of shares or any other instrument identified in the collateral registry as sufficient collateral.

Incentives and reliefs for investors investing in a labelled startup

(1) The Federal Government, through the Federal Ministry responsible for Finance and other MDAs, shall develop and implement a national policy for incentives for individuals, impact investors, angel investors, companies, venture capitalists, private equity funds, accelerators or Incubators which invest in a labelled startup or in the startup ecosystem to enjoy tax credits on their investment.

(2) The Companies Income Tax Act, an angel investor, venture capitalist, private equity fund, accelerator or incubator who invests in a labelled startup shall be entitled to an investment tax credit equivalent to 30% of the investment in the labelled startup.

(3) Capital gains tax shall not be charged on gains that accrue from the disposal of assets by an angel investor, venture capitalist, private equity fund, accelerator or incubator with respect to a labelled startup.

The Act also provides Tax incentives for employees of a labelled startup

(1) An eligible employee of a labelled startup shall be entitled to a personal income tax exemption of 35% on the income of the employee for a period of two years from the date of engagement by a labelled startup.

(2) The Secretariat and the Joint Tax Board shall determine the criteria for eligibility of the employee and consideration shall be given to –

(a) a minimum salary threshold;

(b) the level of technical skills and expertise; and

(c) compliance with registration formalities as may be required by the Secretariat, from time to time.

Tax incentives for external service providers

Notwithstanding the provisions of any other law, foreign entities which provide technical, consulting, professional or management services to a labelled startup shall be subjected to a five per cent withholding tax on income derived from the provision of such services, provided that the payment of the withholding tax, shall qualify as the final tax to be paid by a company not registered in Nigeria.

THE ACT PROVIDES SUPPORT TO REGULATORS

The Secretariat shall collaborate with the Corporate Affairs Commission (the Commission) to designate a separate section on the Startup Portal to ease the processes for labelled startups that conduct transactions at the Commission.

In addition to the foregoing, the Secretariat shall further collaborate with the Commission and ensure that the processes and transactions carried out by startups at the Commission are seamless, expedited and in accordance with the provisions of this Act.

Protection of Intellectual Property Rights

The Council acknowledges the importance of intellectual property rights towards the growth and development of a startup. As part of its objectives, the Secretariat has ensured that holders of intellectual property rights are encouraged to exploit these rights and shall take steps towards assisting them in internationalising and commercialising their rights.

The Secretariat shall collaborate with the Nigerian Copyright Commission and the Trademarks, Patent and Design Registries, in ensuring that they:

(a) Designate a separate section on the Startup Portal to ease registration of intellectual property for labelled Startups;

(b) Provide assistance to labelled startups for facilitating the application for grant or revocation of patents and institution of legal action for infringement of any intellectual property rights;

(c) Facilitate assistance to labelled startups for the filing and registration of their trademarks and patents at the international level.

In addition to the foregoing, the Secretariat shall further collaborate with the Nigerian Copyright Commission and the Trademarks, Patent and Design Registries to ensure that registration and protection of intellectual property of labelled startups are seamless, expedited and in accordance with the provisions of this Act.

The Act provides for Crowdfunding

Startups may raise funds through crowdfunding intermediaries and commodities investment platforms (“platforms”) duly licensed by the Securities and Exchange Commission (SEC) that would have their platforms available for use by startups on the Startup Portal.

The Council shall provide recommendations and proposals to SEC and collaborate towards ensuring that SEC considers rules that fast-track crowdfunding processes for labelled startups.

The Act provides for the Transfer of Foreign Technology

The Secretariat, in conjunction with the National Office for Technology Acquisition and Promotion (NOTAP) shall:

(a) Designate a separate section on the Startup Portal to ease technology transfer registration for labelled startups;

(b) Provide a discount on all applicable fees for technology transfer registrations for labelled startups; and

(c) Provide technical assistance to labelled startups to enable them to commercialise their research results.

In addition to the foregoing, the Secretariat shall collaborate with NOTAP in ensuring that technology transfer registrations and other related activities are seamless and expedited and in accordance with the provisions of the Act.

Obtaining Licences for a Financial Technology Startup

The Secretariat in conjunction with the CBN and SEC shall: Designate a separate section on the Startup Portal to ease the licensing procedures for labelled startups that operate as financial technology companies (fintech startups);

Ensure that fintech startups are given the opportunity to liaise with SEC and the CBN through interactive sessions moderated through the Startup Portal and other forums; The Council shall collaborate with SEC and the CBN in ensuring that fintech startups are duly notified before new rules and regulations that affect the establishment, licensing and operations of fintech startups are issued.

The Council shall also work with the CBN and SEC in harmonising rules and regulations that affect the establishment, licensing and operations of fintech startups.

Participation of a Labelled Startup in Regulatory Sandboxes

A labelled startup intending to participate in the CBN’s regulatory sandbox, SEC’s regulatory incubation program, or any other regulatory sandbox program set up by other regulators, shall be entitled to submit an application through a fast-track process available via the Startup Portal.

Notwithstanding the above, each startup must be qualified to participate in the sandbox and their applications shall be accompanied by the documentary requirements put in place by the CBN’s regulatory sandbox and SEC’s regulatory incubation program guidelines.

Listing of a Startup on Exchanges

The Council shall assist labelled startups that seek to list on the relevant board of the Nigerian Exchange Limited (NGX), or on similar stock and commodity exchanges operating in Nigeria, to meet up with the eligibility requirements for listing.

The Council shall also encourage and support labelled startups that seek to list on the exchanges and may grant them incentives that aid their growth and development.

Repatriation of capital and profits

(1) The Secretariat shall collaborate with the CBN to guarantee repatriation of investment by a foreign investor through the CBN’s authorized dealer in the freely convertible currency of –

(a) Dividends or profits, net of all taxes, attributable to the foreign investor’s

Investments; and

(b) Proceeds, net of all taxes and other obligations in the event of a sale or

liquidation of the Startup or any interest attributable to the foreign investor’s investments.

(2) Repatriation of investments in a labelled startup shall be carried out at the CBN’s official foreign exchange rate, provided that the foreign investor can present a Certificate of Capital Importation (CCI) as evidence that the initial investment fund was injected through the proper channel.

THE ACT PROVIDES FOR ACCELERATORS AND INCUBATORS

(1) The Secretariat shall, in realising the objectives of the Act, establish accelerator and incubator programmes for startups.

(2) The Council shall develop a national accelerator and incubator policy for the establishment and development of accelerators and incubators.

(3) The Secretariat shall develop standards and guidelines to regulate the relationships between accelerators, incubators and startups; encourage and collaborate with existing accelerator and incubator programmes established by private organisations; and provide information on the Startup Portal on existing accelerator and incubator programmes and the process of registration and admission into the programs.

The Act provides Incentives for accelerators and incubators

Startup accelerators and incubators registered with the Secretariat shall be entitled to—

(a) Incentives as may be granted by the Federal Government in accordance with the relevant regulations, provided that the accelerators and incubators are actively involved In providing goods, services, or finance crucial in supporting the operation and growth of startups in Nigeria; and

(b) grants and aids for research, development, training and expansion projects.

Registered accelerators and incubators shall be entitled to grants given under the Nigeria Digital Innovation, Entrepreneurship and Startup Policy and any other policy that may be issued.

THE ACT PROVIDES FOR CLUSTERS, HUBS, INNOVATION PARKS AND TECHNOLOGY DEVELOPMENT ZONES

The role of the innovation clusters, hubs and parks shall include –

(a) Connecting, fostering collaboration and generating businesses between a startup and a large company;

(b) Collate expertise, ideas, and perspectives;

(c) Provide a startup with access to resources and professional services; and

(d) promote collaboration and innovation between startups. Functions of the clusters, hubs and innovation parks

Startup innovation clusters, hubs, and physical and virtual innovation parks shall provide –

(a) Dedicated team, help desk and contact to provide support to a startup;

(b) Assistance for a startup to understand the regulatory framework and its applicability;

(c) Assistance in registration, and application for authorisation;

(d) Assistance and facilitation for the expansion of a startup into foreign markets;

(e) Workspaces free or at a subsidised rate; and

(f) All other functions incidental to the attainment of the functions provided in paragraphs (a) —( e)

The Act provides for the Establishment of technology development zones

The Secretariat shall collaborate with the Nigeria Export Processing Zones Authority to establish a Technology Development Zone (“Zone”) in Nigeria to spur the growth and development of startups, accelerators and incubators.

The Zone shall grant licence to a startup, accelerator or incubator prior to the commencement of an approved activity.

A startup, accelerator or incubator, carrying out an approved activity in a Zone shall be entitled to exist incentives provided under the Nigeria Export Processing Zones Act.

The Act provides for Data protection

The use and processing of data for the purpose of giving effect to this Act shall be in a responsible manner and in compliance with extant data protection laws and regulations in Nigeria.

The Act provides for Pre-action Notice

No civil action shall be commenced against the Council or its authorised officers before the expiration of a period of 30 days after written notice of intention to commence the suit shall have been served by the intending plaintiff or his agent, and the notice shall clearly state the-

(a) Cause of action;

(b) Particulars of the claim;

(c) Name and place of abode of the intending plaintiff; and

(d) Relief sought.

A notice, summons or other document required or authorized to be served upon the Council under the provisions of this Act or any other law or enactment may be served by delivering it to the Secretariat.

CONCLUSION

The National Assembly, by passing the Startup Act, 2022, has dealt with the negative practice impact of startups in Nigeria, The challenge, however, will be implemented.  We are expectant that the Federation Government and other relevant stakeholders will work together to put in place mechanisms to ensure compliance so that startups may be seamless in Nigeria.

However, public enlightenment on the details of the Startup Act, 2022 cannot be overemphasized and should be encouraged, especially on the benefit a startup stands to gain otherwise the law will be like any other law that is only observed.

MAXWELL NOSAKHARE UWAIFO, ESQ.

LEX PHRONESIS SOLICITORS

21, AIRPORT ROAD, OOOM PLAZA,

WARRI,

Delta State

lexphronesissolicitors@gmail.com

07068840273

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

Source: Barristerng