5 Things to Know About the Nigeria Startup Bill

In July, the Nigeria Startup Bill (NSB) passed through the country’s House of Representatives, a week after the Senate voted in favor of it. The Bill is now awaiting approval of the presidency, which created it in collaboration with leaders from the country’s technology sector, to be signed into law.

In this report, PYMNTS looks at five things to know about the upcoming bill and what impact it is expected to have on the country’s burgeoning startup scene.

1. Startups Will Require Certification

To determine if a company counts as a startup and is therefore eligible to receive any assistance stemming from the new legislation, businesses will need to meet requirements set by the NSB and obtain certification — known as a startup label — to be recognized as a startup.

Companies issued with a startup label have certain obligations under the bill, and failure to comply with these will lead to the revocation of their startup label. Among other requirements, for a company to be named a startup, it must be a registered limited liability company that has been in existence for not more than 10 years from the date of incorporation.

To facilitate this, the bill mandates that a Startup Support and Engagement Portal should be established to ease the certification issuance process.

2. Startups Will Get Tax Incentives

Businesses that receive the necessary certification will be eligible for certain tax benefits.

The bill proposes the Pioneer Status Incentive scheme as the model for startup tax breaks. That scheme, which is currently focused on specific products and industries, will be extended to Nigeria’s startup ecosystem, providing young businesses with the chance to pay reduced taxes for up to three years.

Eligible employees of labeled startups will also be entitled to personal income tax reductions of 35% for a period of two years. The Secretariat and the Joint Tax Board will be responsible for determining the criteria for eligibility.

The bill further demands that the Federal Ministry of Finance and Budget and National Planning and the Nigerian Investment Promotion Commission (NIPC) prioritize startups in the way they award tax relief.

3. The Bill Will Establish Funding for Startups

Local startups will have access to a special seed fund created by the bill, which is to be administered by the Nigeria Sovereign Investment Authority.

Related: African FinTechs ‘Least Hit’ by Global Tech Funding Winter, but for How Long?

The Startup Investment Seed Fund will provide qualifying startups with grants and loans as well as provide relief to technology laboratories, accelerators, incubators and startup hubs.

This is welcome news for Nigeria — and African startups more broadly — as the continent still attracts a tiny slice of global venture capital (VC) investment, despite increasing VC interest in the last two years.

“In Africa, we all celebrated the $5 billion [VC dollars raised last year], twice as much as the previous year. But [at the global level it] was $600 billion so [while] we’re right to celebrate, we should be looking at how to get Africa to the real level it deserves, which is much higher than $5 billion,” Maurizio Caio, managing partner at Africa-focused VC firm TLcom Capital, told PYMNTS in a recent interview.

Read Caio’s interview: Africa’s Startups Balance Trade Off Between Lower Valuations and Larger Funding Rounds

4. Licensing Assistance Will Be Made Available

The startup bill refers specifically to FinTechs, which are often inhibited from innovating due to significant resources businesses are forced to put into obtaining the necessary licenses to operate in the financial services sector.

As a solution, the bill will require the Central Bank of Nigeria (CBN) and the country’s Securities and Exchange Commission (SEC) to contribute towards a section of the Startup Portal designed to “ease the licensing procedures for labeled startups that operate as financial technology companies.”

Related: Concerns Over Lost Fee Income Prompt Nigerian Lenders to Slow CBDC Adoption

By doing so, the SEC and CBN will help ensure that FinTechs have an opportunity to liaise with regulators through interactive sessions moderated through the Startup Portal and other forums. The two bodies have also been asked to harmonize rules and regulations that affect the establishment, licensing and operations of FinTech startups.

Finally, any labeled startup that intends to participate in the CBN’s regulatory sandbox or the SEC’s regulatory incubation will have the opportunity to apply through a fast-track process available via the Startup Portal.

5. Nigeria Isn’t the First African Country to Pass a Startup Bill

Although Nigeria may be the continent’s biggest economy, it is not the first African country to pass legislation specifically designed at fostering entrepreneurialism.

Tunisia is considered the first African country to have passed a similar bill, The Tunisian Startup, in 2018.

And in the years since the act passed, over 650 startups in the North African country have received official certification for the program, while a €200 million “fund of funds” has been launched to support different investment vehicles targeting specific aspects of Tunisia’s startup ecosystem.

Last year, Senegal passed its own startup legislation to support the country’s burgeoning startup scene and take advantage of the economic opportunity it presents.

 

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