Nigeria: Employees of startups to get 35% tax exemption as Reps pass bill for second reading

The House of Representatives has passed for second reading a bill to establish a regulatory framework for tech startups in Nigeria.

The bill, an executive bill sent to the House of Representatives on March 3 by President Muhammadu Buhari, seeks to provide the legal framework for the operation of tech startups in the country.

Section 31(1) of the bill proposes 35 per cent tax holiday for eligible employees of start-ups in Nigeria for a period of two years from the day of engagement.

“An eligible employee of a labelled startup shall be entitled to personal income tax exemption of 35% on the income of the employee for a period of two years from the date of engagement by a labelled startup,” the section reads.

The bill was considered on Tuesday by the lawmakers and passed for second reading.

The bill is coming amidst the revelation of abuse of workers by some major startups in Nigeria.

On Monday, Tech Cabal, had published a story on the working conditions at a leading fintech, Benzo Africa.

The story had caused outrage on Twitter, as employees of some of the major tech companies revealed their experiences in those companies. #Toxicworkplace was trending on Twitter on Monday and currently trending at number 8.

However, this bill is silent on working conditions in the tech sector.

Highlights of the bill

The bill seeks to create National Council for Digital Innovation and Entrepreneurship with the mandate to provide the policy direction for the council, which includes the creation of the Startup Support and Engagement Portal.

According to section 10(2a) of the bill, startups in Nigeria must get permit and licence from the council to operate in Nigeria.

Section 13 of the bill provides the criteria for a company to be labelled a startup.

A startup is eligible for labelling under this Act, where –

(a) it is registered as a limited liability company under the Companies and Allied Matters Act 2020, and has been in existence for a period of not more than 10 years from the date of incorporation;

(b) its objects are innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process;

(c) it is a holder or repository of a product or process of digital technology or the owner or author of a registered software;

(d) it has at least one Nigerian as a founder or co-founder of the startup, provided that the Nigerian founder or co-founder will share from profit or revenue from the sale of shares; and

(e) In the case of a sole proprietorship or partnership, it satisfies the conditions set out in paragraphs(b), (c) and (d) of this sub-section.

Section 17 of the bill provides the process of withdrawal of the licence of a startup.

The bill also seeks to create a startup investment seed fund to be managed by the Nigeria Sovereign Investment Authority.

The fund is to provide a labelled startup with finance, provide early-stage finance for a labelled startup and provide relief to technology laboratories, accelerators, incubators and hubs.

Section 25 of the bill proposes that a labelled startup may get “exemption from the payment of income tax or any other tax chargeable on its income or revenue for period of four years, provided that the commencement date of the tax relief shall be the date of the issuance of the startup label.”