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Other than fund domicile, perhaps the most important consideration when setting up a venture capital fund in Nigeria is tax planning and tax leakage avoidance. For angel investors, venture capital funds, private equity firms, and accelerators, careful structuring can mean the difference between maximising returns and losing value to unnecessary tax leakages. This article highlights two of some of the key tax incentives available to venture capital investors in Nigeria and some practical considerations for venture capital fund structuring.
1. Investment Tax Credit for Venture Capital Investors and Angel Investors in Nigeria
One of the most significant incentives available to venture capital and angel investors in Nigeria is the Investment Tax Credit. Investors in labelled startups in Nigeria are entitled to a tax credit equal to 30% of their investment, which can be applied against gains on the investment that are subject to tax.
2. Capital Gains Tax Exemption for Venture Capital Investors and Angel Investors in Nigeria
In addition to the investment tax credit, Nigeria offers a full capital gains tax exemption for gains arising from the disposal of assets in labelled startups, provided the assets have been held for at least 24 months.
Some Practical Considerations Venture Capital Investors and Angel Investors in Nigeria
1. Under Nigeria's new capital gains tax rules, gains from the disposal of offshore assets are also taxable. This means that, flipping a Nigerian startup to Delaware, as is often done, will not ordinarily exempt venture capital investors and angel investors from Nigerian capital gains tax. A key structuring consideration for capital gains tax purposes remains the domicile of the venture capital or private equity fund.
2. Non-resident investors are generally subject to capital gains in Nigeria only with respect to assets located in Nigeria. A key structuring consideration is the question as to whether a Delaware holding company of a Nigerian technology start-up should be considered a Nigerian asset for capital gains tax purposes. To the extent that the holding company is incorporated in Delaware, the shares in the holding company can be rightly considered as "foreign" assets and should ordinarily be out of the remit of Nigerian capital gains tax. However, the FIRS may take the position that the gains on disposal of a Delaware holding company shares represents gains on Nigerian assets, on the premise that the operational entity derives value from Nigerian assets. Under the Nigeria Tax Act, 2025, gains derived by a non-resident person from disposal of chargeable assets are taxable in Nigeria where the gains relate to (a) a trade, business, profession or vocation carried on by the non-resident person in Nigeria; (b) any asset located in Nigeria; or (c) any asset deemed to be located in Nigeria. With some measure of industry support, we expect that the FIRS will not re-characterise the shares in a Delaware Holding company merely because the operational entity/subsidiary sits in Nigeria.
3. The Investment Tax Credit and the Capital Gains Tax exemption are designed to serve different time horizons and stages of investment realization. Used together, they can help a venture capitalist or angel investor optimize overall tax efficiency across the investment lifecycle.
Key Takeaways
For venture capitalists and angel investors in Nigeria, tax planning is as crucial as identifying the right startups. Several variables, ranging domicile, form, timing and structure of exits and nature of investments can impact the tax situation of a venture capital investor. It's often strategic to plan for tax efficiency early.
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.
