Tax and Fiscal Incentives for Startups in the Nigeria StartupBill – Part 3
We conclude today, our three-part series on the tax and fiscal incentives in the Nigeria startup bill.
A detailed analysis of the last three tax incentives in the bill will be provided below.
Section 30 of the Bill provides incentives and reliefs for investors investing in a labeled startup. It states that the federal government through the ministry of finance and other MDA’s shall develop and also implement a national policy that will contain incentives for individuals, impact investors, angel investors, companies, venture capitalists, private equity funds, accelerators, or incubators who invest in a labeled startup or the startup ecosystem in Nigeria. This policy will contain tax credits to be enjoyed by the investors on their investments.
30(2) states, irrespective of the provisions of the Companies Income Tax Act (CITA), an angel investor, venture capitalist, private equity fund, accelerator or incubator who invests in a labeled startup shall be entitled to an investment tax credit equivalent to 30% of the investment put into the labeled startup.
Furthermore, section 30(3) provides that capital gains tax shall not be charged on the gains that accrue from asset disposal by an angel investor, venture capitalist, private equity fund, accelerator or incubator. It is important to note at this point that all the tax incentives highlighted above are with respect to labeled startupsexcept stated otherwise.
Section 31 of the Bill provides for tax incentives for employees of a labeled startup. An employee of a labeled startup who is considered eligible by the secretariat and the joint tax board will be entitled to personal income tax exemption of 35% on his or her income for two years from the date of engagement by the labeled startup
In determining whether an employee is eligible for this incentive, consideration shall be given to the following criteria;
(a)A minimum salary threshold to be determined by the secretariat and the joint tax board
(b)The level of technical skills and expertise of the prospective beneficiary
(c)The level of compliance with registration formalities as may be prescribed by the secretariat from time to time.
Section 32 of the Bill provides that notwithstanding the provisions of any other law, foreign entities that provide technical, professional, or management services to a labeledstartup will be subjected to a five percent withholding tax on income derived from the provision of such services. Provided that the payment of the withholding tax shall qualify as the final tax to be paid by a company not registered in Nigeria
We say well done to the drafters of the bill for coming up with appealing tax incentives such as these, to attract investors into the tech ecosystem in Nigeria. This will provide a viable landscape for venture capitalists and other investors to bring in their best to support innovative ideas and technologies in Nigeria.
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