After the Ministry of Innovation and Technology (MInT) added ratifying the Startup Business Proclamation to its to-do list for the next 100 days, the proclamation is now scheduled for ratification in Ethiopia.
The proclamation has been on hold for over a year while several stakeholder institutions continue to submit new recommendations and revisions.
“We already included the idea of finishing the ratification of the proclamation on our 100 days plan, which started on October 4, 2021. We have already assigned a team to follow-up the ratification,” said Huria Ali, State Minister of MinT.
The document has been sent back and forth between the Ministry of Transportation, the previous Job Creation Commission, the Ethiopian Investment Commission, and the Attorney General’s Office, to name a few.
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The declaration was made in order to address the key problems that entrepreneurs confront when it comes to obtaining financing. Startups are unable to obtain funding mostly due to a lack of collateral to borrow from traditional financial institutions such as banks.
Startups also struggled to raise funds from overseas angel investors, owing to Ethiopia’s investment regulation, which prohibits investments of less than USD 200,000. On average, startups require roughly USD 50,000.
As a result, the draft proclamation allows businesses to obtain funding through a variety of methods, including angel investment. The document also mentions the creation of innovation grants.
The fund, which will be used to support entrepreneurship projects, will be sourced from the government’s budget, loans allocated for this purpose, donations, endowments, grants, and gifts, as well as other sources.
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Pre-registration, a stage before registering as a commercial business, gives startups this advantage.
Startups are exempt from collecting any government taxes such as turnover tax, value added tax, and income tax during this two-year period. They are also free of the burden of office rental, which was formerly necessary for new firms to obtain a license.
MinT is in charge of pre-registration, whereas the Ministry of Trade is in charge of commercial registration.
One of the proclamation’s new features is that it acknowledges incubation centers as ecosystem builders who are also exempt from paying taxes.
Startups will benefit from a capital gains tax break, the ability to carry forward losses for angel investors, the facilitation of capital gains expatriation for international investors, the ability to borrow money, and the ability to sell shares for less than the purchase price.
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The proclamation, according to Tewodros Tadesse, CEO of the Xhub incubation center, who was involved in the drafting process, is a promising document for creating an enabling atmosphere for incubated startups.
Startup Act Ethiopia Startup Act Ethiopia
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning write