A Lagos company writes software for small shops. It was incorporated four years ago, two founders own most of the shares, and an angel investor has just put in money. Is it a startup in the law’s sense? If so, does it pay tax for the next three years? Does the investor get a credit?
The Nigeria Startup Act 2022 answers these questions with a label: only a startup that is labelled gets the incentives.
This topic covers the meaning of a startup, the labelling criteria, the bodies that run the system, the incentives for the labelled startup, the incentives for investors and the position after the Nigeria Tax Act 2025. The rules here come from the Nigeria Startup Act 2022 and the 2025 tax reform Acts. The previous topic covered the digital economy. The next covers the Nigeria Tax Act 2025 and which law applies.
In 30 seconds
Startup: a limited liability company registered under CAMA 2020, in existence for not more than ten years, whose business is to create, develop or produce a digital technology innovation, with at least one-third of its local shareholding held by Nigerian founders. Label: a certificate from the Secretariat (NITDA) on the Startup Portal.
Incentives: pioneer status (three years tax holiday plus two); R&D cost deducted without CITA limits; exemption from the ITF levy on in-house training; export incentives; 5% withholding tax on payments to non-resident service providers; grants, loans and a credit guarantee scheme. Investors: a 30% investment tax credit (against taxable gains) and CGT exemption on assets held for at least 24 months.
Key terms in plain English
| Term | What it means |
|---|---|
| Startup | A company of not more than ten years that builds a digital technology innovation |
| Startup label | A certificate that lets a startup claim the Act’s incentives |
| Secretariat | The office run through NITDA that labels startups |
| Pioneer status | A tax holiday of three years plus two |
| Investment tax credit | A credit of 30% of an investment in a labelled startup |
| Credit guarantee scheme | A scheme to back loans to labelled startups |
Syllabus check
This topic is in syllabus area D, company taxation. It covers:
- the startup label and its criteria
- incentives for labelled startups
- incentives for investors
CAMA 2020 and startups
The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.
| Section | What it says | Link to this topic |
|---|---|---|
| s. 377(1) and s. 378 | Directors prepare financial statements that give a true and fair view | A startup must keep accounts that support its claim for an incentive |
| s. 305 and s. 308 | Directors must act in good faith and with the care, diligence and skill of a prudent director | Directors answer for meeting the conditions of the label and for correct claims |
| s. 119 | A company must keep proper books of account | Records of shareholding, R&D spending and training support each incentive |
The rules in more depth
The Act and the bodies
The President signed the Nigeria Startup Act 2022 on 19 October 2022 to create an enabling environment for tech startups. A “startup” is a company in existence for not more than ten years whose objects are the creation, innovation, production, development or adoption of a unique digital technology product, service or process.
The Act set up the National Council for Digital Innovation and Entrepreneurship, chaired by the President, which makes policy and supports digital technology development. The Director-General of the National Information Technology Development Agency (NITDA) is its secretary, and the Secretariat manages the labelling process and the Startup Support and Engagement Portal, through which startups register with agencies, receive labels, licences and permits and get information.
Labelling criteria
To get a startup label, the company must:
- be registered as a limited liability company under the Companies and Allied Matters Act 2020 and have existed for not more than ten years;
- carry on business that includes the innovation, development, production, improvement and commercialisation of a digital technology product or process;
- hold or be the repository of a digital technology product or process, or own or author registered software; and
- have one or more Nigerians as founders or co-founders holding at least one-third of its local shareholding.
Only labelled startups can claim the incentives. If a startup defaults or ceases to meet the criteria, the Coordinator notifies it and it has 30 days to put the matter right.
Incentives for the labelled startup
| Incentive | Detail |
|---|---|
| Pioneer status | A labelled startup in an industry eligible for the Pioneer Status Incentive may apply through the NIPC for fast approval. The relief is exemption from income tax and other taxes on income or revenue for three years, with an extra two years if it is still within the startup period |
| Research and development | R&D costs wholly incurred in Nigeria are deductible, and the CITA restrictions do not apply |
| Training | Exemption from contributing to the Industrial Training Fund where it trains its staff in-house |
| Exports | Eligibility for export incentives, the Export Development Fund, Export Expansion Grant and Export Adjustment Scheme Fund, if it qualifies under the Export Act |
| Withholding tax on foreign services | It deducts only 5% withholding tax on payments to a non-resident company for technical, consulting, professional or management services |
| Funding | Access to grants and programmes of the CBN, the Bank of Industry and other bodies; a credit guarantee scheme; crowdfunding through SEC-licensed intermediaries; a seed investment fund |
| Other | Faster dealings with the CAC; help to protect intellectual property; discounted NOTAP fees; simplified fintech licensing; repatriation of foreign investment at the official rate with a Certificate of Capital Importation |
Incentives for investors
- Investment tax credit: an angel investor, venture capitalist, private equity fund, accelerator or incubator that invests in a labelled startup is entitled to a credit equal to 30% of the investment. The credit applies only against the investment gains that are subject to tax.
- Capital gains tax: no CGT on gains from the disposal of assets in a labelled startup by an angel investor, venture capitalist or private equity fund if the assets have been held in Nigeria for at least 24 months.
Details the May 2026 examination expects
- Pre-label status. A sole proprietorship or partnership that meets the other conditions except the company form gets a pre-label status for six months to comply with the first four requirements. If it fails to comply, it loses the status.
- Who is excluded. The Act does not apply to a holding company or to a subsidiary of an existing company that is not itself registered as a startup.
- Start of the relief. The three year exemption (plus two) starts on the date the startup label is issued.
- Pioneer and economic development incentives. A labelled startup in an industry covered by the Pioneer Status Incentive scheme, or by the economic development tax incentives, may apply through the Secretariat for expeditious approval by the Nigerian Investment Promotion Commission. The Federal Government may also simplify the requirements for a startup to benefit from existing fiscal incentives.
- Withholding tax on foreign services. A non-resident company that provides technical, consulting, professional or management services to a labelled startup suffers 5% withholding tax, which is its final tax.
- Investors. The Federal Government is to develop a national policy of tax credits for individuals, impact investors, angel investors, companies, venture capitalists, private equity funds, accelerators and incubators. The 30% credit applies to the gains that are subject to tax, and gains on disposal are not taxed if the assets were held in Nigeria for at least 24 months.
Example 7: Mr. Akin's fintech. Mr. Akin asks whether his Lagos fintech can get a label. It is a limited liability company registered under CAMA 2020 nine years ago, owns registered software, and Nigerian co-founders hold 40% of its shares.
- Within ten years: met.
- Digital technology product and registered software: met.
- Nigerian founders hold at least one-third (40%): met.
- It is not a subsidiary of a non-startup company, so the Act applies and it may be labelled. If it were a sole proprietorship, it would first get six months of pre-label status.
The position from 2026
The Nigeria Tax Act 2025 exempts small companies (turnover up to ₦50 million and fixed assets up to ₦250 million) from company income tax, capital gains tax and the development levy, and replaces the pioneer holiday with an Economic Development Incentive. The May 2026 Pathfinder marking guide states the investor credit as applying notwithstanding the Nigeria Tax Act 2025, so the Startup Act incentives are examined alongside the new law.
Worked examples
Example 1: eligibility. A software company was incorporated eight years ago, is registered under CAMA 2020, builds a payments app, holds registered software, and its Nigerian founders hold 60% of its shares.
- Limited liability company under CAMA 2020, within ten years: met.
- Digital technology innovation, holder of registered software: met.
- Nigerian founders hold at least one-third: met.
- It qualifies for a startup label.
Example 2: too old. A similar company was incorporated twelve years ago.
- It has existed for more than ten years, so it cannot be labelled.
Example 3: the investment tax credit. An angel investor invests ₦100 million in a labelled startup and later sells for a taxable gain of ₦40 million, with tax of ₦12 million before the credit.
- Credit = 30% × ₦100 million = ₦30 million, but it can be used only against tax on investment gains.
- It can cancel the tax of ₦12 million. Whether the unused part carries forward depends on the Act’s rules.
Example 4: the 24 month rule. A venture capitalist sells shares in a labelled startup after holding them in Nigeria for 18 months.
- The exemption from CGT requires 24 months, so the gain is not exempt under the Act.
Example 5: withholding on a foreign service. A labelled startup pays a foreign firm ₦20 million for consulting.
- It deducts 5% = ₦1 million.
- A company that is not labelled would apply the usual rate.
How to score full marks
- Give the four labelling criteria with the ten-year and one-third figures.
- Separate the startup’s incentives from the investors’.
- State the numbers: three plus two years, 5%, 30%, 24 months.
- Add the position from 2026.
Common mistakes in the exam
- Treating every small company as a startup.
- Applying the incentives without a label.
- Giving 24 months for the tax holiday or three years for the CGT exemption.
- Forgetting that the 30% credit applies only to taxable gains.
Quick revision
- Label: LLC, ten years, digital innovation, one-third Nigerian founders.
- Holiday 3 + 2; 5% WHT on foreign services; credit guarantee scheme.
- Investors: 30% credit; CGT exemption after 24 months.
Practice questions
Questions 1 to 10 are multiple choice. Questions 11 to 13 are written. Try each before opening the answer.
Question 1. A startup under the Act must have existed for not more than:
- Three years
- Five years
- Ten years
- Twenty years
Show the answer
C. Not more than ten years.
Question 2. Which body issues the label?
- FIRS
- The Secretariat (NITDA)
- CAC
- CBN
Show the answer
B. Through the Startup Portal.
Question 3. Founders’ Nigerian shareholding must be at least:
- One-tenth
- One-third
- One-half
- Three-quarters
Show the answer
B. At least one-third of local shareholding.
Question 4. The initial tax holiday is:
- One year
- Two years
- Three years
- Ten years
Show the answer
C. Three years, extendable by two.
Question 5. The investment tax credit is:
- 10%
- 20%
- 30%
- 50%
Show the answer
C. 30% of the investment.
Question 6. The credit applies against:
- All profits
- Taxable investment gains
- Salaries
- VAT
Show the answer
B. Only gains subject to tax.
Question 7. CGT exemption needs a holding period of:
- 6 months
- 12 months
- 24 months
- 5 years
Show the answer
C. At least 24 months.
Question 8. Withholding tax on foreign services paid by a labelled startup is:
- 2.5%
- 5%
- 10%
- 20%
Show the answer
B. 5%.
Question 9. Only which startups get the incentives?
- All
- Labelled startups
- Foreign startups
- Listed startups
Show the answer
B. The label is a condition.
Question 10. The company type required is:
- A partnership
- A limited liability company under CAMA 2020
- A sole proprietorship
- A cooperative
Show the answer
B. CAMA 2020.
Question 11 (10 marks). State the criteria for a startup label under the Nigeria Startup Act 2022. (8 marks)
Question 12 (10 marks). State the incentives available to a labelled startup. (10 marks)
Question 13 (10 marks). State the incentives available to investors in a labelled startup. (6 marks)
Model answers
Show the model answer to Question 11
Registered as a limited liability company under CAMA 2020 and existing for not more than ten years; (2) business includes innovation, development, production, improvement and commercialisation of a digital technology product or process; (2) holder or repository of a digital technology product or process, or owner of registered software; (2) Nigerian founders hold at least one-third of the local shareholding. (2)
Show the model answer to Question 12
Pioneer status: three years plus two; (2) R&D costs deductible without CITA limits; (1) ITF exemption; (1) export incentives; (1) 5% withholding tax on non-resident services; (1) grants and credit guarantee scheme; (2) crowdfunding; (1) repatriation of foreign investment. (1)
Show the model answer to Question 13
Investment tax credit of 30% of the investment, applied against taxable investment gains; (3) no CGT on gains from disposal of assets held in Nigeria for at least 24 months. (3)
Pathfinder on Nigeria Startup Act: the label, incentives and investor reliefs
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Revise first: Labelling criteria
Source: ICAN Pathfinder, Taxation. Diets covered: May 2026 and November 2025.
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