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Jonathannwokpor89
- September 12, 2025
- 0 Comments
- blog
With the rising number of startups in fintech, agritech, healthtech, etc., the Nigerian government has introduced various incentives to encourage innovation, investment, and economic diversification. These incentives help reduce the tax burden on startups, make them more attractive to investors, and improve viability in early years. Key laws guiding these are the Nigeria Startup Act 2022, the Finance Acts, the Companies Income Tax Act (CITA), and policies under the Nigerian Investment Promotion Commission (NIPC).
What Is a “Labelled Startup”
To access many of the incentives, a startup must be “labelled” under the Nigeria Startup Act (NSA) 2022. Labelled startups are those recognized by the government (via the relevant agency, e.g. NITDA, or equivalent) as meeting certain criteria (such as innovation, scalable business model, etc.). This label unlocks access to tax reliefs and other fiscal/policy incentives. siao.ng+2The Cable+2
Major Tax Incentives for Startups
Here are the key tax/fiscal incentives available to startups in Nigeria. Some are general SME incentives; others are specific to labelled startups under the Startup Act.
| Incentive | What It Offers | Who Qualifies & Conditions | Key Details / Duration |
|---|---|---|---|
| Pioneer Status Incentive (PSI) | Corporate Income Tax (CIT) holiday — no tax on profits for initial years | Both labelled startups and other companies in eligible (pioneer) industries (manufacturing, ICT, agriculture, mining, etc.) may apply via NIPC. Labelled startups can more easily access it under NSA. africataxreview.com+3Mondaq+3The Cable+3 | Usually 3 years initially, renewable for another two years if conditions are met. Businessday NG+2Mondaq+2 |
| Income Tax Exemption for Labelled Startups | Exemption from income tax or any tax chargeable on income/revenue | Must be a labelled startup under the NSA | The tax holiday / exemption begins from date of issuance of startup label. Time frames similar to pioneer status (3 years + possible extension). LawGlobal Hub+2siao.ng+2 |
| Exemption from Capital Gains Tax (CGT) | Investors (angel, VC, private equity, incubators) in labelled startups are exempt from CGT on gains when they dispose of their equity, provided assets held for a minimum time | Must invest in a labelled startup; hold assets for at least 24 months. LawGlobal Hub+2siao.ng+2 | This encourages long-term investment rather than short-term flips. LawGlobal Hub+1 |
| Investment Tax Credit for Investors | Investors in labelled startups can get a tax credit equal to a percentage of their investment, applied to taxable gains | Must be angel investors, VCs, private equity, incubators, etc., investing in labelled startups. LawGlobal Hub+2siao.ng+2 | Under the NSA: 30% investment tax credit. LawGlobal Hub+1 |
| Deductibility of R&D Expenses | Research & development expenses wholly incurred in Nigeria are fully tax-deductible (without restriction) for labelled startups | Labelled startups carrying out R&D in Nigeria. Mondaq+2siao.ng+2 | Immediate deduction regardless of some of the usual limitations under CITA. Helps innovation-oriented startups. LawGlobal Hub+1 |
| Reduced or Zero Corporate Income Tax for SMEs / Small Companies | SMEs with low turnover are either exempted from or pay reduced CIT rates | Under Finance Acts and the 2025 Nigeria Tax Act: companies with turnover up to ₦100 million and fixed assets not more than ₦250 million are exempt from CIT, Capital Gains Tax, etc. Vanguard News+2MyTax Nigeria+2 | Also, previously smaller thresholds (₦25 million turnover) were used; these have been expanded. innerkonsult.com+1 |
| Withholding Tax (WHT) / Dividend / Non-resident Service Fee Reliefs | Labelled startups may enjoy exemptions or reduced rates from certain withholding taxes; dividends paid by labelled startups may be exempt; non-resident service/consulting fees may attract lower WHT | Must be a labelled startup; certain service providers, etc. Mondaq+1 | E.g., reduction in withholding tax from non-resident firms providing technical / consulting / professional services from 10% to 5%. Mondaq |
| Exemptions on Industrial Training Fund (ITF) Contributions | If labelled startup runs in-house training, may be exempt from some obligations under the ITF during their labelled period | Labelled startups with in-house training of employees. Mondaq+1 | Helps reduce costs for early-stage firms needing to train staff. |
Recent Changes & The 2025 Tax Act
Some of the incentives have been updated or expanded under newer legislation. Key points from recent reforms:
- Nigeria Tax Act 2025 expands reliefs for SMEs: companies with turnover not exceeding ₦100 million and fixed assets not more than ₦250 million are now exempt from Companies Income Tax, Capital Gains Tax, and the Development Levy. Vanguard News
- SMEs with turnover up to ₦50 million will enjoy profit exemptions from income tax; withholding tax on profits is eliminated. Vanguard News
- Corporate Income Tax rates are being gradually lowered: from 30% to 27.5% in 2025, and possibly further. Vanguard News
- SMEs can claim tax credits on VAT for eligible capital purchases. This reduces input costs. Vanguard News
These updates represent a major move toward recognizing the financial pressures startups and small businesses face, especially in growth phases.
How to Access These Incentives: Requirements & Process
To benefit from these incentives, startups (or their investors) must satisfy certain conditions and follow certain procedures:
- Be Labelled: Under the Startup Act, you need to apply and be certified as a “labelled startup.” Without this, many of the startup-specific incentives are off limits. The Cable+1
- Be in an Eligible Sector: For Pioneer Status or the PSI, the startup must operate in industries qualifying for pioneer status. These include manufacturing, agriculture, ICT, mining, waste management, professional services, etc. Mondaq+2PwC Tax Summaries+2
- Meet Employee & Other Startup-Specific Criteria: The NSA sometimes requires a startup to have certain characteristics (number of employees, experience levels, innovation, etc.) to qualify for labelled status. The Cable+1
- Maintain Proper Records and Compliance: Even when exempt or reduced, you must file required returns, maintain books, etc. Failure can result in loss of incentives or penalties. FSC Professionals+1
- Apply Through Appropriate Authorities: For pioneer status, applications go through NIPC; for startup label, through NITDA or relevant authority. For tax exemptions and other reliefs, ensure you reference the Startup Act, PSI scheme, etc. Mondaq+1
- Investors Must Hold Investments Long Enough (for CGT Exemption, etc.): Typically, the asset or equity stake must be held for at least 24 months. LawGlobal Hub+1
Benefits & Impacts
- Improved Cash Flow: Tax holidays and reduced rates free up funds that can be reinvested in product development, staffing, scaling.
- Attracting Investors: CGT exemptions and investment tax credits make investing in startups more appealing.
- Innovation Incentivised: Full R&D deductibility encourages research, experimentation, and value-adding innovation.
- Lower Barrier to Entry: For early-stage ventures, reducing tax on turnover or small profits reduces risk.
- State Level Support: Some states (e.g. Lagos) are working on their own Innovation Bills to complement federal incentives. Nairametrics
Challenges & What to Watch Out For
Even with good incentives on paper, there are practical hurdles:
- Lack of Awareness: Many startups don’t know about these incentives or don’t realize they qualify. businesscardinal.com
- Bureaucracy & Delays: Approval for PSI or startup labelling sometimes takes time, which delays realization of benefits.
- Compliance Costs: To maintain eligibility, startups must keep good financial records, file returns even if exempt, etc., which may require paying for accountants or lawyers.
- Risk of Mis-qualification: If criteria are not exactly met, benefits can be denied, or after-the-fact penalties may apply.
- Policy Changes: Tax laws change; what’s valid today might be amended. For example, updates in the 2025 Tax Act modified thresholds. Always check current law.
- Multiple Taxes Across Levels: Even with federal incentives, state or local government taxes may still apply (or remain burdensome). Harmonization is sometimes lacking.
What Startups Should Do to Maximize These Incentives
- Begin by confirming if you can apply for labelled startup status. If yes, apply early.
- Keep thorough, transparent financial records from day one. Document R&D expenses, investment amounts, employee data, etc.
- Choose your business model / structure with incentives in mind (sector, employee base, location).
- Engage tax professionals or legal advisors familiar with the Startup Act, PSI, Finance Acts, etc.
- Monitor policy changes: new Finance Acts, tax laws, court judgments may change eligibility or rates.
- Make sure all filings (even when exempt) are done on time to avoid losing incentives.
Conclusion
Nigeria has made significant strides in structuring tax and fiscal incentives for startups over the last few years. The Startup Act 2022, recent Finance Acts, and expanded SME-friendly tax regimes are helping lower barriers to entry, improve investor appeal, and encourage innovation and growth. For a startup that qualifies as labelled, and is proactive about compliance, these incentives can make a real difference in financial sustainability and growth trajectory.