On 19th October 2022, Nigeria took a significant step in its quest to encourage the economic growth of startups with the assent of the Startup Bill by President Muhammadu Buhari. The Nigeria Startup Act [the Act] brings with it key provisions to encourage financial investments in startups. Our focus will be on the tax provisions of the Act.
Tax Considerations of the Act
Part VII of the Act provides for the Tax and Fiscal incentives available to labelled startups. A labelled startup is a startup that qualifies for labelling under the Act by satisfying the requirements in Section 13(2) of the Act.
As a prefatory point, we note that a startup will be labelled if its objects are focused on the commercialization of digital technology, as such, most startups will basically fall within industries captured under the Pioneer Status Incentives.
Capital Gains Tax
One key tax exemption captured under the Act is the Capital Gains Tax (CGT) exemption. Section 29(3) of the Act provides that CGT shall not be charged on gains that accrue from the disposal of assets by an angel investor, venture capitalist, private equity fund accelerators or incubators provided such assets have been held in Nigeria for a minimum of 24 months.
Although the Act did not define assets, one may infer that “assets” include shares (equity). This inference can be made from the interpretation section where an “angel investor” is defined to mean a high net-worth individual or company which provides funding to an early-stage startup, typically in exchange for equity in the startup company.
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Tax Implications of the Nigeria Startup Act 2022
Key Contacts: Partner Chukwuka Ikwuazom, SAN | Associate Emma Ndiyo | Associate Chidi Opara