Most tech start-ups face the challenge of determining the salient regulatory provisions of the law in their region of operation. They are required to ensure compliance with all regulations in order to operate legitimately and seamlessly. The provisions in Nigeria are even dicier as the majority of the regulatory framework for a tech start-up in this region is still in its development phase. However, the Nigerian Start-Up Bill, when passed into law would play a focal role in regulating Start-ups especially as it will ensure that Nigeria’s laws and regulations are clear, planned and work for the tech ecosystem.
This article dabbles into highlighting the critical considerations tech start-ups must consider, taking into account the first steps, the requirements of the Companies and Allied Matters Act 2020, tax requirements, data protection regulations, etc.
It is important to state briefly the preliminary considerations that a start-up must consider and the impact of its choices on its compliance requirements. Prior to its launch, a start-up must consider issues such as its corporate structure, funding, partnership agreements, shareholder agreements, and employment agreements to name a few.
The choice of structure affects its compliance requirements because the compliance for each business structure such as a business name, limited liability partnership, or limited liability company, differs. A private limited liability company would not be required to notify or seek approval from the Security and Exchange Commission (SEC) to raise funds, because, by the very nature of its structure, it is limited in the number of funds and persons that may contribute to the business, whilst a public limited liability company would be required to seek SEC approval before engaging in funding within the prescribed thresholds.
REQUIREMENTS OF COMPANIES AND ALLIED MATTERS ACT (CAMA) 2020
Flowing from the considerations above, it is expedient for a tech start-up to give consideration to the provisions of CAMA, 2020 and the Corporate Affairs Commission (CAC) in determining the most suitable company structure that would enable its growth, taking into account the minimum share capital , the members of the company and the permissible persons who can be shareholders and officials of the company.
The company is 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 also provide updated records to the CAC
It must be noted that a new company is not required to file annual returns in the year of its incorporation or the following year as long as it holds its first Annual General Meeting (AGM) within 18 months of incorporation. Failure to comply would leave the company open to penalties and the possibility of its being struck off CAC’s database.
A major consideration for a start-up is the need to avoid the remittance of endless and excessive taxes and levies. In an attempt to avoid tax, some tech start-ups operate their companies illegitimately (not registered or licensed). This, however, limits the growth of the company.
A start-up is required to 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 at the point of filing tax returns.
In compliance with its tax obligations, a company is required to withhold tax at the rate of 10% on all profits and dividends paid to its investors. If the company fails to withhold tax, it would be responsible for paying the tax from its profits, instead of deducting it from its investors’ profits.
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 penalty for its failure to register with the tax collection authorities and for non-compliance with filing requirements within the stipulated timeline.
Further, failure to deduct and remit all applicable taxes when due attracts penalties in the form of interest on the outstanding tax, fines and imprisonment of responsible company officers.
The Nigerian Government grants tech start-ups various tax incentives such as pioneer status incentives. This tax holiday entitles the company to, amongst other things, a three-year tax holiday from its commencement. This is a non-deduction of the 10% withholding tax which would have been deducted from dividends paid to company shareholders.
Also, where a company pays its tax 90 days before the due date, as provided under Section 55 of the Companies Income Tax Act (CITA), such a company will be entitled to a bonus of 2% if such company is a medium-sized company; and 1% for any other companies;
The company must also take note of sector-related taxes and incentives. For instance an information technology company is obligated to pay information technology tax. The NITDA Act 2007 provides for a levy of one per cent (1%) of the company’s annual profit before tax (where the company has an annual turnover of N 100,000,000), which would be paid to the National Information Technology Development Fund. 
Upon commencing business, a company is expected to operate a separate bank account of its own in Nigeria. A tech company will be required to obtain a Special Control Unit Against Money Laundering Certificate issued by the Special Control Unit Against Money Laundering of the Economic and Financial Crimes Commission (EFCC).
Where the company has foreign investors who intend to hold shares in the business, offer loan facilities or the likes, it will need to register with the Nigeria Investment Promotion Commission (NIPC) and obtain a Business Permit from the Ministry of Interior, after incorporation but before commencing business.
The company is also required to obtain its Certificate of Capital Importation (CCI) as required by the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act (the FEMM Act). The CCI is essential primarily for the investors (venture capital firms, angel investors, private equity companies, incubators, etc.) as it allows them to repatriate profits, dividends on imported capital, loan servicing payments and remit payments in the event of the disposal of their shares or liquidation of the company.
All capital imported into Nigeria must be received through an Authorised Dealer, and a Certificate of Capital Importation (CCI) must be obtained from the Central Bank of Nigeria (CBN) through the Authorised Dealer.
This requirement will also apply to grants the company may receive from international bodies, and is mandatory for all such funds denominated in foreign currency. Also, note that where a CCI is not obtained at the point of capital importation, the foreign investors will not enjoy free repatriation of their dividends, profits and proceeds in the event of liquidation. This poses a considerable challenge for investors whose primary interest is to make returns on their investments within the shortest time possible.
A major tool of operation for all tech companies is data. It is the source which the company builds on in developing its customer database and facilitates its publicity to name but a few. A few regulations are prescribed below:
1. 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. This necessitated the development of the Nigeria Data Protection Regulation 2019 issued by the NITDA.
2. The Cybercrimes (Prohibition, Prevention, etc.) Act also criminalizes data privacy breaches. It prescribes that anyone or service provider in possession of any person’s personal data shall take appropriate measures to safeguard such data. It imposes an obligation on tech companies, particularly mobile networks; computer and communications service providers to store and retain subscriber information for a period of two years.
Tech companies need to stay abreast with the developments of the various agencies and the regulations to remain in compliance and avoid their licenses being revoked.
TECHNOLOGY ACQUISITION AND PROMOTION
Where a company enters an agreement with a foreign investor for the transfer of technology or use of intellectual property rights or for the provision of managerial/supervisory assistance, etc. 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
The company would be required to register the relevant agreement with NOTAP who has the discretion to accept or reject such a contract per the provisions of the Act.
In granting the certificate of registration, the Director of NOTAP is guided by the provisions of Section 6(2) of the Act which sets out the specifications that should not be contravened by an applicant before a certificate can be issued. These include that the technology must not be existent in Nigeria, only fair consideration must be made for the transfer, lack of onerous limitations or restrictions on the transferee, lack of excessive privileges to the transferor, etc.
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 officers 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 offence and liable to be proceeded against personally, except (s)he can prove that the act or omission constituting the offence took place without his knowledge.
Also, the person or entity who transferred the technology or provided service will not be able to repatriate his fees.
The importance of ensuring compliance with the nation’s regulations by start-up operating in Nigeria cannot be over-emphasized. Breach of a compliance regulation could lead to a revocation of the tech start-up’s license or outrageous fines that could cripple the just starting company. A start-up is advised to pay particular attention to the regulations and requirements in the industry they operate in. For instance, a Fin-tech Start-up needs to keep up to date with all the Central Bank of Nigeria regulations and a Communication Start-up needs to be updated with the Nigeria Communication Commission regulations. Having a dedicated legal team to provide these constant updates and who are well informed about the workings of the industry is the first step to retaining and scaling the growth of the Start-up.
 Although the minimum share capital for incorporating a private company in Nigeria is 1,000,000 naira, the share capital requirement for FinTechs usually exceeds this amount. Promoters must consult the regulators and relevant laws (via their legal advisers) to determine the adequate minimum share capital and shareholding requirement for their FinTech.
 Annual returns can only be filed through accredited agents of the CAC, such as a legal professional.
 With the recently implemented Ease of Doing Business initiative in Nigeria, within a few days of incorporation of a company by the CAC, the TIN is automatically generated and electronically issued to the company using the email address used for incorporation of the company.
 Sec 80 (3) CITA
 Sec 77 5(A) CITA
 Sec 12 (2) (a) NITDA ACT
 It provides regulations on capital importation into Nigeria. Capital is defined in the FEMM Act as all cash contributions, plant, machinery, equipment, building, spare parts, raw material and other business assets, other than goodwill.
 Approved commercial banks in Nigeria are registered as Authorised Dealers with the CBN.
Written by Osama Obasoyo
Osama Obasoyo is an Associate with Marcus-Okoko & Co., and specializes in International Trade, Technology Law, and Regulatory compliance