Authored by: Chinedum Mbagwu
INTRODUCTION
In a bid to drive home its objective of providing a legal and institutional framework for development of startups; the Startup Act, 2022 made profound provisions on tax reliefs and incentives for the burgeoning startup ecosystem.
Generally, taxes are levied on the income made by a company; aside the tax on the income, companies are also required under the law to remit withholding tax, value-added tax and stamp duties to the government. Taxable incomes are charged at thirty or twenty percent depending on the turnover of the company. Chargeable income for Startups may be income derived from services rendered, transaction fees, subscription services, interest on loans etc.
LABELLED STARTUPS
A Startup Label under the Act is a certificate issued by the Secretariat to a startup upon fulfilment of labelling requirements. Startups who are labelled, are considered to be within the Pioneer Industries and therefore entitled to enjoin pioneer industry tax reliefs and incentives under the PSI Scheme. Startups can only be eligible for labeling under the Act, if it has been in existence for a period not more than ten years from the date of incorporation.
INCENTIVES
A labelled Startup under the Startup Act can enjoy the following incentives:
- Exemption of Income tax for an initial period of three years subject to additional two years extension, so far as it is within the period of labelled startups. A startup label is only valid for ten years from the date of issuance.
- Full expenses on research and development of a labelled startup are deductible expenses for tax purposes, in so far as such expenses are wholly incurred in Nigeria.
- Non-resident companies that provide technical and professional services to a labelled startup enjoy five percent withholding tax.
- A labelled startup shall be exempted from contribution to the Industrial Training Fund, where it provides in-house training to its employees within the period designated as a labelled startup.
- Access to export facilities, incentives and financial assistance under the Export (Incentives and Miscellaneous Provision) Act.
- Access to government grants, loans and facilities administered by CBN, BOI and other bodies statutorily empowered to assist Small and Medium Scale enterprises and entrepreneurs.
CONCLUSION
No doubt that startups who can skillfully leverage on these of fiscal reliefs and incentives stand a better chance of scaling and experiencing quicker growth. Be that as it may, these can only avail those who have obtained startup label.
Chinedum Mbagwu is a startup lawyer and a partner at Bucklers Law Firm
