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Funding of Startups globally hit an all-time high in 2021 with a total investments of approximately $454 billion recorded in just the 1st to 3rd quarter; as compared to investments recorded by Startups in 2020.1
In view of the crucial role VCs are playing in funding Startups, it is useful to know the available incentives for such VCs in Nigeria. In this article, we highlight these incentives that are available to VCs under the Venture Capital (Incentives) Act of 1993.
The Venture Capital (Incentives) Act (the “Act”) grants tax reliefs and other incentives to VC that invest an amount not less than 25 per cent of the total funding required for the Venture Project. This is relevant today because most Startup projects would fall within the definition of a Venture Capital Project set out in 2 below; and therefore VCs that invest in such Startups (“Qualifying Startups”) would be entitled to take advantage of the incentives contained in the Act.
The Act lists the following as Venture Projects:
The Federal Inland Revenue Service (FIRS) is empowered to certify that a proposed venture fulfils one or more of the above criteria to qualify for the incentives under the Act.
At a glance, the Act aims to encourage Venture Capital to invest in Startups and this is applaudable. It however, needs to be reviewed in light of more recent development in the Startup/Investor ecosystem and updated to provide more practicable and easily accessible incentives.
Footnote
1. Gene Teare, 'The Q3 2021 Global Venture Capital Report: Record Funding Trend Held Strong' Crunchbase News' (6 October 2021) https://news.crunchbase.com/news/q3-2021-global-venture-capital-report-record-funding-monthly-recap/ accessed 9 December 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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