Nigeria Startup Act Implementation: Establishment of the Nigeria Startup Support and Engaement Portal

Happy New Year! Let's kickstart the year with a burst of positivity, embracing the harmattan chill. From setting vibrant resolutions to celebrating small victories, let's make this month about exploring, and new possibilities. Here's to a January packed with shining moments!

Now, over to the juicy stuff!

Remember when we all celebrated the enactment of the Nigeria Startup Act 2022 (the “Act”), signed into law on October 19, 2022 by former president Muhammadu Buhari which marked a significant milestone as it introduced the first comprehensive legal structure to support startups in Nigeria. 

Among the Act's provisions is the introduction of a “startup label”, applicable solely to businesses that have successfully registered for and obtained such designation. To streamline the startup labelling process, the Act mandates the establishment of a Startup Support and Engagement Portal (the “Portal”) through which eligible startups can register for a label, access a wealth of resources, information, funding opportunities, incentives, collaborative opportunities, and valuable connections all in one centralized location. 

As a result, the Federal Government, under the guidance of the Minister of Communications, Innovation, and Digital Economy, recently announced the rollout of the Portal to facilitate the registration of Nigerian startups. It welcomes startups, venture capitalists, angel investors, accelerators, incubators, and innovation hubs to register and engage.

We will be highlighting below, some key provisions of the Act relating to startup registration, as well as benefits of obtaining the startup label. 

The Requirements of the Startup Label

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

1. it is registered as a limited liability company under the Companies and Allied Matters Act, and has been in existence for a period not more than 10 years from the date of incorporation;
2. its objects are innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process;
3. it is a holder or repository of a product or process of digital technology or the owner or author of a registered software;
4. it has at least one-third (1/3) local shareholding held by one or more Nigerians as founder or co-founder of the startup; and
5. in the case of a sole proprietorship or partnership, it will be eligible for labelling if it satisfies the conditions set out in paragraphs (2), (3) and (4) above. A pre-label status will be granted to a sole proprietorship or partnership for a period of six (6) months to enable compliance with the labelling requirements.

A startup which meets the foregoing requirements and wants to obtain a  label can apply by submitting an application on the Portal in the prescribed registration form supported by documents. Where the coordinator is satisfied that an applicant has complied with the requirements for labelling under the Act, the coordinator shall enter the name and particulars of the applicant in the register of startups kept for that purpose and issue to the startup, a startup label which is valid for a period of ten (10) years from the date of issue. 

Are Stakeholders Left Out?

The Act includes provisions for the establishment of a register of active accelerators and incubators which shall be maintained by the Secretariat. Although the Act does not expressly provide for their registration process, venture capitalists and angel investors have the option to register on the Portal as well.

The Importance and Benefits of the Startup Label

Some of the benefits and incentives that may accrue to a labelled startup under the Act include: 

1. Expeditious approval from the Nigerian Investment Promotion Commission (NIPC) for the grant of tax reliefs and incentives under the Pioneer Status Incentives (PSI) Scheme;
2. Entitled to exemption from the payment of income tax or any other tax chargeable on its income or revenue for a period of three (3) years and an additional two (2) years if still within the period of a labelled startup, provided that the commencement date of the tax relief shall be the date of the issuance of the startup label;
3. Enjoyment of  full deduction of any expenses on research and development which are wholly incurred in Nigeria and the restrictions placed by the Companies Income Tax Act shall not apply to a labelled startup;
4. Reduction in withholding tax from ten (10) to five (5) per cent for non-resident companies that provide technical, consulting, professional or management services to a labelled startup;
5. Exemption from contributions to the Industrial Training Fund where it provides in-house training to its employees for the period where it is designated as a labelled startup.
6. Investment tax credit for angel investors, venture capitalists, private equity funds, accelerators or incubators that invest in a labelled startup. The tax credit is equivalent to thirty (30) percent of the investment in the labelled startup and shall be applied on any gains on investments which are subject to tax;
7. Entitled to export incentives and financial assistance from the Export Development Fund, Export Expansion Grant and the Export Adjustment Scheme Fund where the labelled startup is involved in the exportation of products and services, which are deemed eligible under the Export (Incentives and Miscellaneous Provisions) Act;
8. Access to fundraising through Nigerian-licensed crowdfunding intermediaries and commodities investment platforms that would have their platforms available for use by startups on the Portal;
9. 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; and 
10. Entitled to submit an application through a fast-track process available through the Portal where the labelled startup intends to participate in the CBN’s regulatory sandbox, the Securities and Exchange Commission’s regulatory incubation programmes, or any other regulatory sandbox programmes set up by other regulators.

Our Thoughts

The significance of the establishment of the Startup Support and Engagement Portal extends beyond mere implementation of the provisions of the Act, it represents a commitment by the Nigerian Government to follow through on the provisions and benefits of the Act and a crucial achievement in the continuous efforts to systematically bring together startups in Nigeria. As the Portal becomes operational and labelled startups begin to avail themselves of the benefits, the Act's impact on the Nigerian startup ecosystem is poised to be substantial, fostering a climate ripe for innovation and sustainable business development.