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The various tax and fiscal incentives for start-up companies in Nigeria

The various tax and fiscal incentives for start-up companies in Nigeria

In a bid to encourage development, growth and investment in the Nigerian tech ecosystem, the Nigeria Startup Act 2022 introduced various tax and fiscal incentives for Start-up companies in Nigeria.
There is no doubt that tax incentives or fiscal incentives are provided by governments or their relevant agencies to encourage companies’ growth and as well investments in specific areas of the economic sector of a country.

In realizing this notorious fact and as well as in furtherance of the objectives for the enactment of the Nigeria Startup Act 2022, the Act has put in place several tax and fiscal incentives for labelled startup companies in Nigeria.
In this wise, we deem it necessary to bring out the notable but laudable provisions of the Act on tax and fiscal incentives available to Start Up companies in Nigeria.

Tax and Fiscal Incentives for Start-up companies in Nigeria
The following tax and fiscal incentives are available to labelled startup companies in Nigeria.
1. Incentives available for startup companies under Pioneer Status Incentives Schemes: There are companies which had obtained a scheme called pioneer status in some specific economic sectors of the country and as a result enjoy some tax reliefs and benefits. Start-up companies which fall under the Pioneer Status would equally qualify for all the tax and fiscal incentives available to the traditional or conventional companies that qualified for the Pioneer Status. However, such a labelled startup company must have applied through the Secretariat for the Pioneer Status and approval granted by the Nigerian Investment Promotion Commission (NIPC).
Companies which have been granted the Pioneer Status Incentives enjoy up to five years of tax holiday (three years initially and renewable for an additional two years). Examples of pioneer-status industries are information and communication, financial services, agriculture, and trade, among others.

Start-up companies coming under the above pioneer status industry are qualified to apply for Pioneer Status and upon approval by the appropriate body, then such start-up companies would enjoy the tax reliefs and benefits available to Pioneer Status companies. We humbly posited that this is a welcome development as this will encourage innovations and disruptions of technology in almost the sectors of the economy.

2. Exemption from payment of Company Income Tax: Generally, companies in Nigeria are liable to payment of 30% tax on their income. However, in order to encourage the development and growth of startup companies in Nigeria, start-up companies are exempted from payment of income tax for a maximum period of 5 years, three years initially and renewable for an additional two years and as well as other taxes chargeable on their income or revenues. This, no doubt will help the startups stand firm financially in their formative years. It must, however, be noted that the date of such tax reliefs would start from the date the startup companies were issued start-up labels.

The Nigerian Startup Act does not only make provisions for tax reliefs and fiscal incentives for Start-up companies but also makes provisions for incentives for investors investing in Startups in Nigeria.

3. Deduction of Expenses on Research and Development: In the realisation of the notorious fact that startups engaged in extensive capital-intensive research for development and in order to caution the effects this might have on the growth of startups on their financial status, labelled startup companies are allowed to deduct all their expenses on research and development. This is notwithstanding the restrictions that might be placed by the provisions of the Companies and Income Tax Act.

Read also: Lagos, FIRS sign agreement to check double taxation

4. Exemption from contribution to Industrial Training Fund: In accordance with the provisions of the Industrial Training Fund Act of 2011 (as amended), Enterprises (companies inclusive) with 25 employees on their payroll in Nigeria are mandated to contribute 1% of their total payrolls to the Industrial Training Fund on or before 1st of April of the following year of payment. However, Start-up companies in Nigeria have been given the privilege of contributing to this fund. But it must be noted that before a labelled startup company can be exempted from contributing one per cent of its total payrolls to the Industrial Training Fund, such a startup company must have been providing in-house training for its employees for the period it remains a startup.

5. Access to grants and loan facilities: The Secretariat is mandated by the Act to make sure that labelled startup companies have access to grants and as well loan facilities that may be provided by the Central Bank of Nigeria, Bank of Industry or any other statutory bodies that have been empowered to assist Small and Medium Scale Enterprises and entrepreneur in Nigeria. Another incentive provided for by the Act in a bid to support the innovation and growth of startups is Credit Guarantee Scheme.

Incentives and reliefs for investment in labelled startups
The Nigerian Startup Act does not only make provisions for tax reliefs and fiscal incentives for Start-up companies but also makes provisions for incentives for investors investing in Startups in Nigeria. This is in a bid to attract both local and foreign investors into the Nigerian tech ecosystem. The various incentives for investors investing in Startups in Nigeria are briefly discussed as follows:
1. Tax credit: The Federal Government through the relevant government ministries is mandated to develop or formulate and implement fiscal policies for incentives for all the various kinds of investors investing in startup companies on their investment up to 30%.
2. Exemption from payment of Capital Gain Tax: Investors investing in startup companies are exempted from payment of Capital Gain Tax on gains accumulated over their investments. However, before an investor can enjoy this kind of tax relief, such an investor must have held the asset of the startup company he or she wants to dispose of for a period not less than two years.

Conclusion
It is not in doubt that governments all over the world across all levels, introduce tax and fiscal incentives not only to encourage the development and growth of businesses but to as well ease the financial burdens of these enterprises. The objectives of the Nigerian Government in introducing various tax and fiscal incentives for both the startups and their investors in the Nigerian Startup Act are similar. We, therefore posit that with the proper implementation of the provisions of the Act, the Nigerian tech ecosystem would experience exponential growth and development within a short period of time.

Timothy Olamide is a lawyer at Platinum and Taylor Hill LP.