Startups have the potential to play a very important role in the development of developing countries, especially because of their ability to create wealth by their potentials to receive foreign direct investment and also, their chances of appealing to the younger demography which constitutes a significant percentage of the country’s population.


They also have the chances to reduce unemployment by creating more job opportunities and further improve the standard of living in their respective countries through innovation.

In spite of the ability to bring immense benefits to the country, the widespread view among Nigerian startups is that the business geology and regulation offers many barriers to reach their full potentials. These include high cost of doing business, lack of infrastructure, unpredictable taxes and regulatory scrutiny.


Innovative startups in Nigeria have a range of incentives to encourage their early stage growth. Despite the availability of these incentives, a lot of Nigerian Startups miss out on these benefits majorly due to lack of knowledge of existence of the benefits.

Some of these incentives are as follows:

  1. Tax rate reduction for investors: Various incentives are provided under the Venture Capital Incentives Act of Nigeria to investors and startups involved in venture capital projects. These includes:
  • up to 30% capital allocations for eligible startups in equity investments by venture capital firms.
  • up to 100% tax exemption on capital gains that venture capital investors receive after disposing off their properties.


  1. Opportunities for Startups in Government Projects: One manner the Nigerian authorities has attempted to inspire the boom of Startups is through mandating corporations to have interaction Startups in initiatives concerning the Federal Government or any of its corporations wherein the gross fee of the mission agreement is 500 million naira or above.


  1. Exemption from corporate income tax: Small businesses with an annual turnover of less than N25 million are exempt from corporate tax. A decrease business enterprise profits tax charge of 20% is likewise supplied for organizations whose every year turnover is among 25 million to a hundred million Startups might also additionally discover this helpful in their early stages.


  1. Up to 5 years of Tax Holiday: Startups that qualify to become pioneers in Nigeria can benefit from the tax exemption for an initial period of 3 years from their first year of incorporation, renewable for an additional 2 years as established under the Nigerian Industrial Development (income Tax Relief) Act. Startups in sectors such as e-commerce, waste management, electricity and agriculture may be eligible for pioneer status incentives.


  1. Tax exemption for new enterprises in the field of agriculture: Eligible small or medium-sized corporations within the Agricultural region with an annual gross turnover of 25 million to a hundred million naira, can also additionally practice for tax exemption for four years and an additional 2 years. This incentive is created under the Finance Act, 2020 which amended the former provision under the Industrial Development (Income Tax Relief) Act.


  1. Establishment of the Nigeria Startup Act 2022: This Act signed into law by President Muhammadu Buhari was established to help startups access funds, incentives, create structure and also create enabling environment for startups to thrive. With this act, infrastructure and regulations needed for startups to succeed are put in place by the Nigerian Government to aid the booming startup market.


In conclusion

Many startups and investors are unaware of the incentives available to them in Nigeria due to the lack of a comprehensive platform or document that highlights all the incentives and relevant regulations. Without the assistance of professionals, a search by startups for such incentives can be as tedious as searching for a needle in a haystack. Although the Nigerian Startup Act did a good job in ensuring that the stress to access this information, regulation and benefit is reduced to the barest minimum, it is important that a Startup founder discuss and liaise with an appropriate legal practitioner or law firm to advise on the foregoing. This may help Startups save tons in revenue and taxes which may be ploughed back into the business to help it survive. It may also help Startup founders create a solid structure for their startup which is a requisite tool to attract foreign direct investment.


Nwaogwuwgwu Abiola Glory

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