07/11/2022
Why The Startup Act Should Concern You
Dear Entrepreneur,
The Nigeria Startup Act 2021 was officially signed into law on October 19, 2022, by the President of the Federal Republic of Nigeria. The law is intended to encourage the development and growth of startups (especially technology-related) in Nigeria. Furthermore, it provides for an enabling environment for startups and small businesses to access funds and other resources needed to grow and thrive. The Act also includes a number of tax breaks and other incentives for businesses that are able to create jobs and drive innovation.
The Act also established the National Council for Digital Innovation and Entrepreneurship as the regulatory body in charge of enforcement of the Act and also appoints the National Information Technology Development Agency (NITDA) as the Secretariat to aid in prompt compliance with the provisions of the Act. In this article, we will take a look at the key highlights of the Act and what it could mean for your business.
1. LABELING OF STARTUPS– The Act allows for “labelling,” which is a certificate given to qualified businesses that allows them access to the incentives provided by the Act. This is necessary so as to ensure appropriate focus on Startups with the right metrics. For a company to be labeled startup, there are pre-requisite conditions to be met and they are as follows:
A company registered under the Companies and Allied Matters Act and has been incorporated for a period of not more than ten (10) years.
The sole objective of the company is innovation, development or improvement of an innovative product and the product must be technology-enabled.
The company’s headquarters must be located in Nigeria.
The company must have at least 51% of the shares allocated to Nigerians.
The company has 15% of its expenses attributed to research and development activities.
The company has less than 100 direct employees.
It should be a holder or repository of a product or process of digital technology or the owner or author of registered software.
It should have at least one Nigerian as a founder or co-founder of the startup.
2. STARTUP PORTAL- The Act focuses on startup facilitation and support with regards to regulatory compliance. In particular, the Act created a startup portal that is meant to make procurement of relevant permits and licenses easier. In addition it would ensure that startups receive savings on licensing/registration fees.
3. TAX AND FISCAL INCENTIVES- The Act offers a range of tax incentives including the Pioneer Status Incentives (PSI) Scheme, exemption from contributions to the Industrial Training Fund etc. The idea is to use these incentives to lower the cost of doing business in Nigeria.
4. PROTECTION OF INTELLECTUAL PROPERTY- In recognition of the importance of Intellectual Property, the Act specifies that the Secretariat shall help startups in securing and monetizing their intellectual property (IP) rights. Additionally, it will support startups who want to register foreign patents and trademarks as well as those that want to sue for IP Infringement.
5. FUNDING – The Act comprises of a variety of provisions designed to facilitate access to capital, one of this is the establishment of the Nigeria Sovereign Investment Authority’s Startup Investment Seed Fund14 (Fund) (NSIA) which would have a base contribution of N10, 000,000,000 (ten billion Naira). This fund will be available for drawdown by technological hubs, accelerators, incubators, and early-stage entrepreneurs.
6. ESTABLISHMENT OF STARTUP CONSULTATIVE FORUM- To bridge the gap between regulators and business owners, the Act created a Startup Consultative Forum (the “Forum”), which will be made up of industry stakeholders and representatives of the regulators. The Forum provides stakeholders with an ongoing channel of communication with the Nigerian government for the purpose of promoting the startup ecosystem.
7. TALENT DEVELOPMENT – The Act has explicit provisions to support talent development, scale new enterprises, and eventually position Nigeria as an African startup hub. The Act includes particular provisions for training and capacity-building initiatives for startups and simultaneously grants access to training provided by the Industrial Training Fund and any other institution that collaborates with the Secretariat to train entrepreneurs. This guarantees the expansion and improvement of local talent.
Further, the Act mandated the establishment of startup accelerator and incubator programs, the adoption of a national accelerator and incubator policy, and the registration of accelerators and incubators, guaranteeing that up-and-coming entrepreneurs have access to the necessary support and direction to enable them to scale.
CONCLUSION
It is safe to conclude that The Startup Act is a right step in the right direction. Particularly, the Act seeks to position Nigeria as the leading digital technology center in Africa. It aims to develop and train more technology related talents thereby encouraging foreign investment in the Nigerian economy. By creating enabling environment via provision of accelerators, innovation hubs, and so on, the Act is seen as a way to level the playing field for startups and to help them compete with larger businesses.
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