LEGAL COMPLIANCE FOR TECH START-UPS IN NIGERIA.
The Nigerian Tech Ecosystem remains a leading tech hub in Africa. The Fintech sector accounts for almost half of Nigerian startup employment. It is important to note that Fintech, E-commerce, Mobility and Logistics, and E-health spaces generally account for a high percentage of tech start-ups.
A start-up must consider issues such as its corporate structure, funding, partnership agreements, shareholder agreements, and employment agreements prior to its incorporation. The choice of structure affects its compliance requirements because the compliance for each business structure differs.
Here are some compliance requirements under some legislations for Tech Startups in Nigeria:
1. COMPANIES AND ALLIED MATTERS ACT (CAMA) 2020: The Corporate Affairs Commission (CAC) is a regulatory body, established to regulate the incorporation, running and winding up of companies, business names and incorporated trustees, in accordance with the provisions of CAMA, 2020.
Companies are required to make and file annual returns and its audited accounts once every year. The annual returns are required to show that the company is a going concern and provide updated records to the CAC.
A new company is required to hold its first Annual General Meeting (AGM) within 18 months of incorporation and subsequently on a yearly basis. Failure to comply would leave the company open to penalties and the possibility of its being struck off the CAC database.
2. TAX REGULATIONS: A start-up must register with the Federal Inland Revenue Service (FIRS) or the State Inland Revenue Service, as the case may be, for the remittance of its Companies Income Tax and Value Added Tax (VAT) within 6 months of incorporation. The company will also be issued a tax identification number (TIN) which is a unique identification for all registered taxpayers in Nigeria. This TIN must be inserted on all company invoices and used when filing tax returns.
Where the company fails to register with the FIRS or the State Tax Service for tax purposes, it will not be able to withhold tax from its foreign partners, investors, and clients; it will not be able to file tax returns and obtain Tax Clearance Certificates (TCC) and; will be liable to pay the penalty for its failure to register with the tax collection authorities and for non-compliance with filing requirements within the stipulated timeline.
Under the Startup Act, tech start-ups are provided various tax incentives upon registration, such as pioneer status, employee incentives, etc.
3. DATA PROTECTION REGULATION; NIGERIA DATA PROTECTION REGULATION 2019 AND THE CYBERCRIMES (PROHIBITION, PREVENTION, ETC.) ACT: The National Information and Technology Agency Act empowers the National Information and Technology Agency (NITDA) to issue guidelines to cater to electronic governance and monitoring of the use of electronic data exchange.
The Cybercrimes (Prohibition, Prevention, etc.) Act also criminalizes data privacy breaches. It imposes an obligation on tech companies, particularly mobile networks and computer and communications service providers, to store and retain subscriber information for a period of two years.
4 .NATIONAL OFFICE FOR TECHNOLOGY ACQUISITION AND PROMOTION (NOTAP) ACT: National Office for Technology Acquisition and Promotion (NOTAP) is tasked with the responsibility of ensuring that all contracts and agreements entered into for the transfer of foreign technology to Nigerians are registered and in line with the acceptable purposes provided for in the National Office for Technology Acquisition and Promotion Act.
Where the company fails to register an agreement for technology transfer or fails to make or makes false returns in contravention of the NOTAP Act, every director, manager, secretary, or other similar officer of the company or person concerned in the management of the affairs of the company, or person purporting to act in such capacity will be severally guilty of an offense and liable to be proceeded against personally, except it is proven that the act or omission constituting the offense took place without due knowledge.
A Breach of a compliance regulation could lead to a revocation of the tech start-up’s license. A start-up is advised to pay attention to the regulations and requirements in its industry. An important step to retain and scale the growth of startups is to engage a dedicated legal team to provide these constant updates, especially those well-informed about the workings of the industry.