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The Startups Act aims to create an environment for startups to thrive while ensuring Nigeria leads the continent with regard to digital technology. In the final installment of our four-part series, we’ll conclude by highlighting the various financing options available to start-ups under the Start-Up Act, as well as investor incentives that can increase the availability of financing for start-ups. tagged.
Establishment of the Startup Investment Seed Fund (the “Fund”)
The Startup Investment Seed Fund is established under the Startup Law as a way to make financing available to labeled startups. The Fund is expected to receive an annual payment of not less than N10,000,000 (ten billion naira) from sources approved by the National Council for Digital Innovation and Entrepreneurship (the “Council”), which will be administered by the Authority of Sovereign Investments of Nigeria. . Tagged startups will have access to seed funding on the recommendation of the fund manager and subject to Board approval.
Access to Government Funds and the Credit Guarantee System (the “CGS”)
The Startup Act establishes the CGS with the primary goal of providing accessible financial support to labeled startups. Under the Act, the Secretariat is required to ensure that tagged start-ups have access to grants and loan facilities administered by the Central Bank of Nigeria (“CBN“) and other bodies empowered to assist MSMEs
Crowdfunding is one of the main ways startups can raise capital to operate and ultimately scale and reach their full potential. The framework for crowdfunding in Nigeria is governed by the Securities and Exchange Commission (“SECOND“) Crowdfunding Rules 2021 (“The rules“) outlining the eligibility and requirements under which entities will be able to raise funds through a crowdfunding platform. The Rules state that only MSMEs incorporated as companies in Nigeria that meet the following criteria are eligible to raise funds through of crowdfunding platforms:
- operating for a minimum of 2 years; either
- operating for less than 2 years but has a strong technical partner that has been operating for a minimum of 2 years or has a lead investor.one
The Startup Act also allows tagged startups to raise funds through crowdfunding platforms and provides that SEC-licensed commodity investment platforms would be available for startups to use on the Startup Portal. emerging. Additionally, the Board is empowered to make recommendations to the SEC to consider rules that expedite crowdfunding processes for tagged startups.
List of a Startup in Exchanges: The Start-ups Act provides that the Council will assist labeled start-ups seeking to be listed on the relevant board of the Nigerian Exchange Limited (“NGX”), or similar stock and commodity exchanges operating in Nigeria, to comply with the contribution eligibility requirements. , The Council is also expected to encourage and support labeled start-ups seeking to list on the exchanges and may provide them with incentives that help their growth and development. Interestingly, NGX recently issued rules for listing on the NGX technology board in a bid to encourage investments in indigenous tech-inclined companies, bring greater visibility to these companies, and ultimately deepen the Nigerian capital market.
To encourage investment in the startup ecosystem, the Startup Law also provides certain incentives to individuals, impact investors, angel investors, corporations, venture capitalists, private equity funds, accelerators, or incubators (“Relevant Stakeholders”) ) that invest in labeled start-ups. Some of these incentives include:
- 30% Investment Tax Credit
The Corporation Tax Law (“appointment“) requires companies to pay income taxes at variable rates depending on their annual turnover. The Startup Law establishes that the Federal Government in conjunction with the Ministry of Finance and other MDAs will implement a national incentive policy for interested parties aforementioned enjoy tax credits on their investments.
Pursuant to this policy, relevant stakeholders who invest in labeled startups will be entitled to an investment tax credit of 30% of the value of their investment, provided that such credit is applied to the taxable earnings of the investment.
- Capital Gains Tax
In general, the Capital Gains Tax Act 2004 (as amended) requires capital gains to be taxed at a rate of 10%. However, this will not apply to the relevant stakeholders listed in the Startup Law. Under the Start-Up Act, gains derived from assets disposed of by relevant interested parties are not taxable, provided the assets have been held in Nigeria for a minimum of 24 months.
- Repatriation of Capital and Profits
The Startup Act also includes incentives that may be applicable to relevant stakeholders outside of Nigeria. Provides that the National Agency for the Development of Information Technologies (“NITDA“) in its capacity as Secretariat2 will collaborate with the CBN to ensure the repatriation of funds with respect to:
- Dividends or profits, net of all taxes attributable to foreign investment; Y
- Proceeds obtained in the event of sale or liquidation of the start-up or any interest arising from the foreign investment, net of all taxes and other obligations
In addition, the Startup Act establishes that said repatriation of funds will be made at the official exchange rate of the CBN, provided that the foreign investor can provide a Capital Import Certificate (“ICC“) in relation to imported capital. The capital that is invested can be in cash or assets such as raw materials, machinery and equipment. This is in accordance with the CBN Foreign Exchange Manual which states that foreign investors who have obtained a CCI will be entitled to the repatriation of funds with the added benefit of accessing foreign currency at the CBN rate.
- Incentives for accelerators and incubators In addition to the above, the Startup Law grants exclusive incentives to accelerators and incubators that are registered with the Ministry (“registered accelerators and incubators”) and that actively participate in the provision of vital goods, services or financing. for operations and growth of new companies in Nigeria. Registered accelerators and incubators will also be entitled to:
- grants and support for research, development, training and expansion; Y
- grants awarded under Nigeria’s Digital Innovation, Entrepreneurship and Start-up Policy.
- National Incentive Policy: In addition to the incentives highlighted above, the Startup Law also establishes that the Federal Government must develop and implement a national incentive policy for relevant stakeholders who invest in a labeled startup or in the startup ecosystem to enjoy of tax credits. about your investment.
Funding initiatives such as the Fund, CGS, and available tax and tax incentives are laudable goals designed to encourage investors and drive investments in start-ups. While the Startup Act is silent on the sources of the Fund, it is not expected to cover any additional levies or taxes that the federal government imposes on start-ups.
In general, the public-private nature of the Startup Law design process has resulted in legislation that represents the multiple ideas and demands of the Startup sector. It will be helpful for the government to keep the inclusive spirit of the process alive through regular meetings with the start-up ecosystem to get community feedback and position Nigeria as a leading start-up investment country.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought according to your specific circumstances.
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