In recent years, Nigeria has emerged as a significant player in Africa’s technology sector. Thanks to funding from local and foreign investors, many Nigerian tech startups have experienced rapid growth. Young people in Nigeria are full of ideas, so experts believe the country will stay relevant in Africa’s tech arena for a long time. According to a Daily Trust report, Nigerian startups raised over US$520 million in equity funding in 2024, re-echoing the country’s position as one of Africa’s leading startup and innovation hubs despite economic challenges. That is a lot of money. In fact, over the past seven years, Nigeria has been the number one place in Africa that investors want to put their money into.
Some famous Nigerian startups include Flutterwave, Jumia, Opay, Andela, Interswitch, Moove, Chipper Cash, and Trade Depot. Most of Nigeria’s startups are based in Lagos. Also, Google recently announced that out of 60 African tech startups chosen to receive money from its 4-million-dollar Black Founders Fund, 23 were from Nigeria. But not everything is perfect. Many Nigerian startups have failed for reasons including not being able to get enough funding, changes in government policies that confuse business owners, and poor infrastructure, such as bad roads and unstable electricity.
To help fix these problems, the government created the Nigeria Startup Act 2022. This article analyzes the Startup Act, highlighting it benefits, gaps and impact for innovators and investors.
Overview of What the Startup Act Does
The Nigeria Startup Act 2022 does four main things:
1. It creates a process for startups to get an official “startup label” (like a certificate of recognition).
2. It gives benefits to labelled startups, such as tax relief.
3. It helps startups get funding.
4. It sets up a better environment for startups to grow by creating new rules and government bodies.
The Nigeria Startup Act 2022 includes several key provisions, one of which includes the creation of the National Council for Digital Innovation and Entrepreneurship. This council will make policies for startups and help different government agencies work together. The National Information Technology Development Agency (NITDA) will act as the secretary for this council. The Act applies to any company registered under Nigeria’s company law (CAMA) that receives the startup label. It also applies to any organisation that helps create, support, or grow labelled startups.
Who Can Be Called a Startup?
Under the Startup Act, a startup is a company that:
a. Has existed for not more than 10 years.
b. Creates or uses new digital technology to make a product or service.
c. Has at least one-third (1/3) of its shares owned by a Nigerian founder or co-founder.
To get the startup label, a business must meet these rules. However, a business can still operate in Nigeria without the label. The label just gives extra benefits. If a business is a sole proprietorship or partnership (not a registered company), it gets a 6-month “pre-label” period. During this time, it must register as a limited liability company. If it fails to do so within 6 months, the pre-label status is taken away.
Important: The business does not have to be 100% Nigerian-owned. Foreigners can own up to two-thirds (2/3) of the shares. That is good news for foreign investors.
How the Act Helps Startups Get Registered
The Act orders NITDA to create a Startup Support and Engagement Portal (called the Startup Portal). This is a website where startups can register with different government agencies without running from office to office. NITDA will also appoint someone to manage the portal and keep records of all labelled startups. The Act also says that NITDA and the Corporate Affairs Commission (CAC) must work together so that startups can file documents and do transactions easily through the portal. NITDA must also work with the Trademarks, Patent and Design Registry, the Nigerian Copyright Commission, and NOTAP (an office that handles technology agreements) so that startups can protect their ideas and inventions easily.
If a startup uses financial technology (like mobile money or online payments), it falls under the Central Bank of Nigeria (CBN) or the Securities and Exchange Commission (SEC). The Act allows these startups to interact with the CBN and SEC through the Startup Portal. The Council must also work with the CBN and SEC to inform startups about new rules.
Rules That Startups Must Follow After Getting the Label
Once a startup gets the label, it must:
a. Obey all Nigerian business laws.
b. Every year, report how many workers it has, its total assets, and its yearly income.
c. Keep proper accounting books.· Submit an annual report on what benefits it received and what progress it made.
d. Tell the portal coordinator within one month if there is any change in the company’s ownership or activities.
e. Follow any other rules the portal coordinator may add later.
If a startup breaks these rules, its label can be taken away. The government agencies that gave it benefits will also be told. However, the startup can apply to get the label back after fixing the problem.
Tax Breaks and Monetary Benefits For Startups
A labelled startup does not pay income tax for the first 3 years. It can get an extra 2 years if it qualifies for the Pioneer Status Incentive (a scheme that gives tax holidays to certain industries). If the startup falls under industries covered by the Pioneer Status Incentive, it can get fast approval for tax relief from the Nigerian Investment Promotion Commission (NIPC). Also, the Act creates a Credit Guarantee Scheme to help startups get loans. It also provides financial training and credit information. Startups can get grants and loans from the Central Bank of Nigeria, the Bank of Industry, and other bodies that help small businesses.
The Act also creates a Startup Investment Seed Fund managed by the Nigeria Sovereign Investment Authority (NSIA). Every year, at least 10 billion Naira (about 22 million US dollars) will be put into this fund. The money will be used to give early-stage funding to labelled startups, as well as to support tech labs, accelerators, incubators, and hubs.
Other benefits for labelled startups include:
- Full deduction of research and development expenses if the work is done in Nigeria. Exemption from paying money to the Industrial Training Fund if the startup already trains its own workers.
- Export benefits and financial help from the Export Development Fund and other export support programs.
- Foreign companies that provide technical or consulting services to a labelled startup will pay only 5% withholding tax, and that is the final tax.
- For Investors:The Act also wants to attract investors, both local and foreign. Investors can get tax credits of up to 30% of what they invest in a startup.
- Also, if an investor sells their shares after holding them for at least 24 months, they will not pay capital gains tax on the profit.
Foreign investors are allowed to take their dividends or profits out of Nigeria after paying all taxes. If the startup is sold or closed, the investor can also take home all the remaining money after taxes. This will be done through the Central Bank at the official exchange rate, as long as the investor can show a Certificate of Capital Importation (proof that the money came in through a legal bank channel).
For Accelerators and Incubators
These are organisations that help startups grow by providing training, space, or small funding. If they register with the Secretariat and are actively helping startups, they can also receive grants and other support from the government.
Also Read: Top 10 Nigerian Accelerators and Incubators Ready to Support Your Startup
Problems and Gaps in the Act
Even though the Act is a good step forward, it has some weaknesses. They include:
1. Too focused on digital technology – The Act only helps startups that use digital technology. That leaves out many innovative businesses in agriculture, manufacturing, or services that may not use digital tools but are still creative and growing. For example, a farmer who invents a new way to preserve food without digital technology would not qualify.
2. The 10-year rule is too strict – Some companies may be older than 10 years but still act like startups in terms of size, revenue, or number of employees. Under this law, they cannot get benefits. A better approach would have been to use other measures like revenue or employee count to decide if a company is still a startup.
3. The Seed Fund lacks clear rules – The Act says the NSIA will manage the Seed Fund and the Council will approve funding, but it does not explain the exact criteria a startup must meet to get money. This lack of clarity could cause confusion or unfairness.
4. Possible conflict with a new proposed NITDA law – There is a new bill being discussed that would give NITDA more power to regulate and license digital businesses. If that bill becomes law, it might clash with the Startup Act. For example, both laws might try to control the same things, causing confusion for startups.
5. Other rules still discourage foreign investors – Although the Startup Act allows foreigners to own two-thirds of a startup and gives them tax benefits, another government rule (the Revised Handbook on Expatriate Quota Administration 2022) says that wholly foreign-owned companies must have at least 100 million Naira in share capital to get a business permit. Before, it was only 10 million Naira. This big increase could scare away foreign investors, even though the Startup Act is trying to attract them.
The Nigeria Startup Act 2022 is a great achievement. It offers real help to young digital businesses through tax breaks, funding, and easier registration. It also encourages both local and foreign investors to put money into Nigerian startups. However, the Act has clear gaps. It leaves out non-digital innovators and sets an arbitrary 10-year limit on Startups. Also, other government rules may still discourage foreign investment.
For the Act to truly work, the government bodies in charge must be creative and purposeful. They should implement the law quickly, fill the gaps where possible, and make sure other policies do not block the good intentions of the Startup Act. If done well, Nigeria could become an even stronger hub for startups across Africa.
