Policy & Regulations - Afrikan Heroes

Why A New Money Transfer Tax Is Brewing A War Among Mobile Money Operators In Cameroon

January 4, 2022

Since January 1, 2022, the new 0.2 percent tax on money transfers has been in effect, reviving competition in the Cameroonian market. The pioneering operators in the industry, Express Union and EMI Money, want to reclaim their customers who have been caught up in the Mobile Money monopoly dominated by Orange and MTN.

Indeed, when the operators Orange and MTN informed the public that “from January 1, 2022, a tax of 0.2 percent will be imposed to the amount of money transferred and withdrawn in application of the finance law,” Express Union and EMI Money took the opposite route, announcing as follows:

“Here, the tax is not going up! … There isn’t anything comparable. 3000–1000 frs; 30,000–500 frs; 100,000–1,400 frs; 500,000–3,500 frs; 1,000,000–4,000 frs. We continue to be the cheapest,” Emi Money declares in a message it sent to its customers.

In a similar spirit, Express Union, which was formerly the market leader in money transfers until the introduction of Mobile Money, captures the drama from another dimension:

“Our no-fee promotion allows you to transfer funds from 1 to 25,000 FCFA for free with Express Union Mobile Money! Express Union Mobile Money is completely free!” A message it sent to its customers read.

Express Union and Emi Money’s polar opposites appear in an environment where these two companies [which some assume are related despite Expression Union’s denial] had already lost ground with the debut of Mobile Money in 2011. These money transfer companies had a reputation for having lengthy procedures at the time of their glory: requiring a national identity card; filling out a form; photocopying the national identity card, several signatures, the requirement to write the names of the issuers and receivers of money orders without error, endless lines, poor reception of uses by cashiers, and so on.

With the implementation of a new money transfer tax that effectively raises the cost of this service in Cameroon, Express Union and Emi Money are attempting to set themselves apart by marketing themselves as providers that will shoulder this expense. At a time when this tax is being debated in the public eye, others argue that it should be supported by the operators.

Money transfer operations carried out by any means or technical support leaving a trace, in particular by electronic means, mobile telephony, telegraph, telex, or fax, with the exception of bank transfers and transfers for the settlement of taxes, duties, and taxes, are subject to a new tax under the 2022 finance law. Cash withdrawals made as a result of a money transfer to financial institutions or mobile phone companies are also taxed.

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Cameroon Introduces Electronic Transfer Tax Of 0.2% In Proposed New Law

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 writer

Nigeria Plans Clampdown On Illegal Lending Companies

December 29, 2021

A combined committee of the Federal Competition and Consumer Protection Commission (FCCPC), the Central Bank of Nigeria (CBN), and the Economic and Financial Crimes Commission (EFCC) will shortly shut down illegal money lending enterprises.

“The joint committee is meeting and agreeing on how to proceed but I can say that two of the entities of the joint committee will be going on the field and doing enforcement work now, very shortly. They will be closing down businesses and engaging App stores to shut down certain applications that are infringing and abusive. We are also going to be writing interim regulations and some basic information for all these money lenders to provide information so that people will know who they are. Some of them are just Apps that we do not even know who the promoters are. So we are going to provide certain frameworks for them to comply with before doing business,” an official statement from Mr Babatunde Irukera, the Chief Executive of Federal Competition and Consumer Protection Commission (FCCPC) read.

The National Information Technology Development Agency (NITDA) and the National Human Rights Commission (NHRC) are also members of the group.

Mr Babatunde Irukera, the Chief Executive of Federal Competition and Consumer Protection Commission (FCCPC)

Nigeria Joins Kenya To Target Lending Firms

The latest move by the combined committee will not be its first. Recently, the much awaited 2021 Central Bank of Kenya (Amendment) Bill was signed into law in Kenya.

The new law now requires digital lenders to submit key documents when applying for CBK licensing, including a certificate of incorporation under the Companies Act, memorandum and articles of association, and a statement of compliance with the Consumer Protection Act’s provisions.

From the date the CBK publishes the necessary regulations, players in the digital lending market will have six months to apply for licence.

By signing the new law, the CBK has now been given the authority to proverbially bell the cat, with the banking sector regulator looking to bring order to an industry that has been accused of a variety of wrongdoings, including charging borrowers exorbitant interest rates and using crude and deceptive debt collection tactics.

CBK Governor Patrick Njoroge has remained outspoken about the alleged wrongdoings, claiming that the digital lenders are a burden on not only Kenyans but also the economy.

The CBK will be able to set limitations for interest rates charged by digital lenders, and the reserve bank will have the authority to cancel licenses from players that violate the Data Protection or Consumer Protection Act’s criteria.

Meanwhile, after being kicked out of the credit information sharing (CIS) system last year by CBK, licensed digital lenders will now be able to list creditors with Credit Reference Bureaus (CRBs), thanks to the new law.

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Moroccan Real Estate Valuation Startup Agenz Secures $540k Seed Round

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 writer

New Digital Lending License In Kenya Costs Just $220. Here’s What You Need To Know

December 24, 2021

The Central Bank of Kenya doesn’t seem to have launched an all-out war against digital lenders in Kenya following the new powers it has been given under the country’s amended Central Bank Act, after all. This is because under a set of proposed regulations rolled out by the CBE, it will cost prospective digital lenders just Ksh. 25,000 (US$220) to apply for and secure a digital lending license in Kenya. However, while Ksh. 25,000 may be paid before a company may be issued with the new category of license, it costs Ksh. 20,000 (about $180) to renew the license on a yearly basis.

“Following Presidential assent on December 7, 2021, the Central Bank of Kenya (Amendment) Act, 2021, has become effective today, December 23, 2021.

….These Regulations shall not apply to — (a) an institution licensed under the Banking Act; (b) an institution licensed under the Microfinance Act; © a Sacco society licensed under the Sacco Societies Act; (d) Kenya Post Office Savings Bank supervised under the Kenya Post Office Savings Bank Act; (e) Credit arrangements involving the provision of credit by a person that is merely incidental to the sale of goods or provision of services by the person; (f) Any other entity approved by the Bank,” CBE states about the proposed regulations.

What Operations Are Allowed Digital Lending Firms Under The New Regulations?

According to the rules, digital lenders are only allowed to extend loans and engage in any other activity that the central bank deems appropriate from time to time.

The regulations specifically indicate that in the course of conducting digital lending operations, a digital lender may not invite or collect money deposits in any way.

What Are Required For Licensing?

In order to obtain the license, the digital lender must:

Be a duly registered company in Kenya;

Ensure that its major shareholders, directors and chief executive officer meet the fit and proper criteria;

It must submit a list of documents stated in the regulations (which could be found here). The documents include a detailed description of, and terms and conditions of credit products and services which the proposed digital credit provider intends to provide; the proposed digital credit provider’s data protection policies and procedures; a certificate issued pursuant to section 19 of the Data Protection Act; a statement as to compliance with the provisions of Part VII of the Consumer Protection Act, etc.

How Many Days Does It Take To Procure The License, And Is Approval Of The Application Guaranteed?

Under the rules, the central bank has sixty days (60) from the submission of a complete application to grant the license.

However, it should be noted that every application for a digital lending license does not guarantee the grant of the license. The Central Bank of Kenya will also consider the following factors:

the applicant’s background;

the professional and moral suitability of those proposed to manage or control the proposed digital credit provider;

the sources and evidence of funds to be invested by or in the digital credit provider;

the digital credit provider’s systems, policies, and procedures.

the applicant’s governance and risk management arrangements;

the public interest.

Under What Circumstances Can The License Be Suspended Or Revoked?

The Central Bank of Kenya may suspend or revoke a digital credit provider’s license if the licensee, among other things:

is found to have provided false information during the license application;

carries out activities outside the scope of licensed activities;

is in violation of the conditions of the Data Protection Act or the Consumer Protection Act;

conducts its business in a way that is harmful to its customers or members of the public

What Obligations Await Digital Lending License Holders?

Under the regulations, the holder of a digital lending license must, among other things:

ensure that customer information is not shared with any person without the customer’s consent.

shall not submit negative credit information of a customer or any other person to any credit reference bureau (to which it is required to disclose any positive or negative information about its customers) where the amount related to the credit information does not exceed one thousand shillings (approximately $10).

ensure that the customer’s consent is obtained before the submission or sharing of credit information with a credit reference bureau.

shall not (either through its officers, employees or agents) in the course of debt collection engage in any of the following conduct against the customer or any other person — (a) use of threat, or violence or other criminal means to physically harm the person, or his reputation or property; (b) use of obscene or profane language; (c) make unauthorized or unsolicited calls or messages to a customer’s contacts; (d) improper or unconscionable debt collection tactic, method or conduct. (e) any other conduct whose consequence is to harass, oppress, or abuse any person in connection with the collection of a debt.

may extend loans to its customers subject to its credit policy and any requirements of the Central Bank, and shall provide clear disclosures of the terms and conditions of the loan to the borrower including — (a) charges and fees and the circumstances under which they may be imposed; (b) interest rate to be charged and whether on a reducing balance or not; (c) total cost of credit which shall include the principal amount, interest, fees and charges; (d) the date on which the amount of credit and all interest, charges or fees are due and payable; and (e) customer complaint handling procedures.

Find others here.

When Is The Licensing Expected To Commence?

The licensing commences immediately the proposed regulations become effective.

However, any person who was operating digital lending business that was not regulated under any other written law at the time the regulations were published must apply to the Bank for a license within six months of the publication of these Regulations.

What Punishments Await Digital Lenders Who Violate The Regulations?

Anyone who engages in digital lending without first obtaining the necessary license commits an infraction and faces a fine of 500,000 shillings (($4,500) or two years in prison, or both, if convicted.

Any person carries out any activity other than the provision of loans or other activity permitted by the central bank commits an offence and shall be liable upon conviction to a fine of ksh. 500,000 ($4,500) or imprisonment for a term of five years or to both.

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Moroccan Real Estate Valuation Startup Agenz Secures $540k Seed Round

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 writer

Nigerian Startup Bill Gets Government Approval, Heads To Parliament

December 17, 2021

The Nigeria Startup Bill has been passed by the Nigerian Federal Executive Council (FEC) and will be referred to the National Assembly for consideration. Dr. Isa Pantami, Minister of Communication and Digital Economy, said this while briefing State House media at the end of President Muhammadu Buhari’s virtual council meeting at the Presidential Villa’s Council Chamber in Abuja.

“The Federal Executive Council has approved the Nigeria Startup Bill and has also directed my humble self, the Minister of Communications and Digital Economy and also the Attorney General of the Federation and Minister of Justice to ensure that we immediately liaise with and transmit them to the National Assembly to begin their legislative process of converting it into a law,” Pantami said.

The 11-chapter law, according to Dr. Pantami, replaces the National Investment and Startup Policy.

With this development, he said, his Ministry will work closely with the Attorney General of the Federation, AGF, and Minister of Justice, Abubakar Malami, to communicate with the National Assembly so that the bill may be converted into law.

Dr. Isa Pantami, Minister of Communication and Digital Economy, — Dr. Isa Pantami, Minister of Communication and Digital Economy

The Minister, who stated that if passed into law, the new bill will create an enabling environment for Nigerian startups, also stated that the bill includes provisions that allow for easy access to grants, such as a Startup Investment Safe Fund for young innovators who can apply for government sponsorship of their ideas.

Pantami also revealed that national centers will be established across the country where inventors will be able to incubate their ideas with full intellectual property protection.

The law, according to the minister, would create the National Council for Digital Innovation and Entrepreneurship, which will be in charge of coordinating with various regulatory organizations to ensure that Startups receive assistance and incentives.

“And by this, the Nigeria Startup Bill has replaced our National Digital Innovation, Entrepreneurship and Startup Policy. This bill has 11 chapters and all of them have been crafted in order to provide the enabling environment for our startups to be very successful. Firstly, the bill will establish the National Council for Digital Innovation and Entrepreneurship.

“This council is going to be chaired by his Excellency, Mr. President himself, and part of the council. He will be supported also by the Vice President. And I will also support both of them and many relevant ministers and government parastatals are part of the council.

“Furthermore, there is also the operational structure of the council in which all the relevant institutions that have a role to play in providing the enabling environment for our startups to thrive are part and parcel of this operational structure.

“Furthermore, this addresses the startup labeling process where a startup is going to be labeled. And after that, there is eligibility for grant. If a startup is looking for government grant, there is a process to follow, which is very easy and at the end, government will be able to provide the grant.

“And also, there is a process of issuing the certificate of labeling for the startup.

“In addition to that, the bill also will establish Startup Investment Safe Fund, where there is going to be a dedicated fund to be provided by the federal government for our young innovators all over the country to apply for the startup investment…safe fund in order to begin their own company if they need that.

“In addition, there are also tax and fiscal incentives where government will provide tax holidays, where government will support our startups to even liaise with international or multi tech giants globally. So government will provide tax holidays and other incentives where necessary.

“Also, there is a chapter dedicated to regulators where they have been mandated to come up with initiatives of promoting developmental regulation because today many investors and young innovators consider regulators to be doing nothing but restricting the development of their startups.

“But this bill comes up with an initiative to provide what is called developmental regulation, where regulators must make the regulation very flexible to support our innovators all over the country.

“And also in the bill, there is a plan to establish national parks all over the country, national hubs, where innovators will go and incubate their ideas.

“There is also a provision for data protection where your data is going to be protected. And also, there is provision for intellectual property rights. So, any intellectual property you have will must be protected by government.

“So, there are many provisions where even if a startup founder doesn’t have one kobo, government will support him through seed fund.

“Government will provide an avenue or an environment for him to come and work on his startup. And also, government is willing to support him when he gets any international partnership.

“This startup bill is an outcome of a very long process between the office of the Chief Of Staff, Mr. President and the federal ministry of communications and digital economy, where we engaged stakeholders in each and every zone of the Federation.

“We brought together young innovators. We listened to their complaints to government and we articulated their complaints in this bill. So this bill has adopted what is called organic approach to legislation, where we begin with a bottom-up approach.

“So the idea started from the grassroot up to the level of the federal executive council, in which all the observations of our young innovators have been accommodated in this startup and they are the owners of it. So this is the summary, the first memo has been approved by the federal executive council.

Startup Bill Nigeria

Why Investors Poured $3.2 million Into Kenya’s Wowzi To Go After Social Media Users

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 writer

Cameroon Introduces Electronic Transfer Tax Of 0.2% In Proposed New Law

December 15, 2021

The Cameroonian government has proposed a 0.2 percent tax on money transfers in 2022 as part of the country’s proposed finance law. The 0.2 percent levy applies to all traceable monetary transactions, not just Mobile Money services. The new 2022 finance bill currently before the country’s parliament, however, exempts bank transactions and transfers for the settlement of taxes and other taxes.

“Money transfers are taxed in the following ways: To the exclusion of bank transfers and transfers for the settlement of taxes, duties, and taxes, money transfer operations carried out by any means, in particular, through electronic means, mobile telephony, telegraph, or telex or fax; cash withdrawals resulting from a money transfer made to financial institutions or mobile companies,” the document reads, in part.

Here Is What You Need To Know

Under the proposed law, the aforementioned tax rate will be levied when sending and withdrawing money. It will then be transferred to the national treasury by the service providers, no later than the 15th of the month following the month in which the operations were carried out.

“The tax on money transfers is collected by the service providers and is paid monthly no later than the 15th of the month following the month in which the transactions were carried out with their corresponding tax center,” the draft bill states.

As a reminder, the Cameroonian state has, in the past, expressed its dissatisfaction with the low tax revenue it derives from monetary transactions by telephone.

However, despite the absence of specific regulatory texts, the two main providers, Orange and Mtn, already pay various taxes such as value added tax. They also claim that they are paying the administration a fee related to the aforementioned activity, which increases the costs of sending and picking up.

There is no doubt that the regulatory framework that will be set after the adoption of the next budget law by parliament will lead to further increases.

In Cameroon, financial transactions via mobile money totaled 12,151 billion FCFA in 2020, according to data from the Bank of Central African States (Beac). With a similar transaction volume in 2022, the State could earn up to $25 billion in the mobile money category alone.

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From 2021, Startups In Cameroon Will Benefit From Tax Exemptions For Up To 5 Years

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

New Digital Lending Law In Kenya Offers Respite To Fintechs On Licensing And Minimum Capital Matters

December 8, 2021

Kenyan President, Uhuru Kenyatta, has signed the much awaited 2021 Central Bank of Kenya (Amendment) Bill into law. Under the new law, digital lending companies will not be bound to minimum capital and liquidity criteria.

However, Bank of Kenya (CBK) has been given authority to oversee the contentious creditors under law

While the CBK will not impose any capital or liquidity requirements on lenders, the reserve bank has been given substantive powers to intervene in the unregulated industry, which Governor Dr. Patrick Njoroge has compared to the Wild West.

“One is minding their own business only to get a call from deep from their rural area on why they have not paid their loan. Imagine if we called your boss to say you owe us serious money only for the debt to turn out to be Ksh.2000. What would happen?” Dr. Njoroge asked in a previous news conference.

Read also Kenyan Startup Invests in Ivorian Logistics Startup Kamtar

“These (digital lenders) are little fleas. Their output in terms of credit is less than 0.14 percent, that’s less than the smallest bank around but in terms of noise and pain to Kenyans they are at 90 percent.”

Here Is What You Need To Know

The new law will now require digital lenders to submit key documents when applying for CBK licensing, including a certificate of incorporation under the Companies Act, memorandum and articles of association, and a statement of compliance with the Consumer Protection Act’s provisions.

From the date the CBK publishes the necessary regulations, players in the digital lending market will have six months to apply for licence.

By signing the new law, the CBK has now been given the authority to proverbially bell the cat, with the banking sector regulator looking to bring order to an industry that has been accused of a variety of wrongdoings, including charging borrowers exorbitant interest rates and using crude and deceptive debt collection tactics.

CBK Governor Patrick Njoroge has remained outspoken about the alleged wrongdoings, claiming that the digital lenders are a burden on not only Kenyans but also the economy.

The CBK will be able to set limitations for interest rates charged by digital lenders, and the reserve bank will have the authority to cancel licenses from players that violate the Data Protection or Consumer Protection Act’s criteria.

Meanwhile, after being kicked out of the credit information sharing (CIS) system last year by CBK, digital lenders will now be able to list creditors with Credit Reference Bureaus (CRBs).

The Implications Of The New Law On Digital Financial Services Startups In Kenya

Implied Lifting Of The Ban On Credit Lending Startups

The first implication of the new law would be to terminate the ban on credit lending startups in Kenya as regards submitting credit information on their borrowers to Credit Reference Bureaus (CRBs). Thus, with a renewed power to report customers for blacklisting to the country’s central credit information sharing center, it is only safe to say that the risks associated with their business model have become, once again, more manageable.

Licensing of Digital Financial Services Companies/Startups

Another direct implication of the new law on digital financial services startups in Kenya is that the Central Bank of Kenya will now possess recognized power under the law to issue operational licenses to startups desiring to provide services related to a digital financial product, financial product advice, market, administrative or management services or credit under a regulated credit contract in Kenya.

Regulation of Interest Rates Charged Users Of Digital Lending Services

Even though digital lenders in Kenya may still be allowed to lend, the law would however, now see that they do not charge interests on their loans excessively. This is because the CBK could now determine the maximum rate of interest they charge their customers.

The latest move to control the activities of digital lenders follows the removal of legal cap on commercial lending rates by the Central Bank of Kenya in March 2020. The cap, established far back in 2016, which set interest rates chargeable by banks at 4%, was intended to address the issue of the affordability of credit for small enterprises and working people, as they had complained for years that high interest rates had locked them out of accessing credit.

Its removal in March last year has, however, resulted in the proliferation of digital lenders, who seek to take advantage of the business opportunities it offered. For instance, Tala, Branch, which are among top players in the mobile digital lending market in the country, offer interest rates of 152.4 percent and 132 percent per year respectively.

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Kenya Bans Digital Money Lenders, Extends Loan Repayment Period For Businesses

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 writer

Tax Machines For Businesses In Kenya Get New January 15 Deadline

November 29, 2021

The Kenya Revenue Authority (KRA) has set a new deadline for implementing a new computerized register that collects and delivers all transactions, particularly invoices, to the taxman in real time. Suppliers of Electronic Tax Registers (ETR) have until January 15, 2022 to adopt new ETR machines that are equipped for real-time data transfer to the taxman’s register, according to KRA’s most recent notification.

“The Kenya Revenue Authority (KRA) wishes to notify all VAT registered taxpayers and the public that the new Electronic Tax Registers (ETRs) that are compliant with the Tax Invoice Management System (TIMS) are now subject to an automated activation process through the iTax System. In this regard, KRA will no longer issue approval letters for the purchase of non TIMS compliant ETRs to newly VAT registered taxpayers or taxpayers intending to replace their existing ETRs.

Consequently, suppliers of ETRs are notified to cease supply of Electronic Tax Registers that are not compliant with the Value Added Tax (Electronic Tax Invoice) Regulations, 2020 effective 15th January 2022,” the authority said in a statement.

Here Is What You Need To Know

ETR machines are required by law for all enterprises with an annual turnover of at least Ksh5 million ($46k) in order to keep track of daily sales and tax returns.

The earlier deadline announced by KRA was August 2022, but this seems to have been overtaken by events.

Businesses will also have to obtain authorization to use the machines outside of the designated area, or risk being locked out.

Kenya’s New Digital Service Tax Regime

Businesses in Kenya and consumers in Kenya started paying digital tax for transactions conducted on the internet-based platforms such Google, Amazon, Jumia and other online platforms from January 1, 2021. This followed the gazetting of the country’s Digital Marketplace Supply Regulations, 2020, by the National Treasury Cabinet Secretary Ukur Yatani.

The new 1.5% ‘Digital Service Tax’ imposed on the gross transaction value of services is due at the time of payment.

Additionally, under Kenya’s new 2020 Value Added Tax (Digital Market Supply) Regulations, digital marketplaces (ecommerce websites) that fail to pay Value Added Tax (at 14%) pursuant Section 5(8) of the country’s Value Added Tax Act, 2013 shall, in addition to the penalties prescribed under the law, be liable to restriction of access to their websites in Kenya until such tax is paid.

With these regulations, Kenyan Revenue Authority (KRA) is targeting ecommerce platforms with taxes to fund the Sh3 trillion ($28 billion) 2020/2021 budget.

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Digital Tax Regime Starts In Kenya. Here Is What Your Startup Should Know

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 writer

What Do The New SPAC Rules For Startups In Egypt Say?

November 27, 2021

For a long time now, authorities in Egypt have been concerned about assisting startups within its territory to thrive. They have never been more convinced than they are now. After the major successes of ride-sharing startup SWVL (which recently announced that it was going public on Nasdaq through a SPAC arrangement) and the mounting intensity of funding flowing from across the world into local startups, the government of the North African country, leaning on the usual Vision 2030 mantra, has finally put the final seal on the rules for operation of Special Purpose Acquisition Company, (SPAC).

A SPAC, also known as a blank-cheque company, is formed to raise cash through an initial public offering (IPO) in order to buy and take public an existing firm, usually a smaller one. Swvl is the second Middle Eastern company to use the SPAC method to go public. Anghami, an Abu Dhabi-based music streaming platform, announced earlier this year that it would merge with Vistas Media Acquisition Company, a SPAC, in order to go public.

The new SPAC rules in place in Egypt are far-reaching in their effects, pulling down previously luguburious standards preventing smaller companies from selling their shares to the public. According to Dr. Mohamed Omran, Chairman of the Financial Supervisory Authority, the new rules known as Resolutions No. (171)of 2021, include rules governing the operations of SPAC, as well as Resolutions No. (172) of 2021, which amended the rules for listing and writing off securities on the Egyptian Stock Exchange.

Who Can Form A SPAC Under The Rules?

Under the new rules, companies for the purpose of acquisition (SPAC) must be formed only as a venture capital company in accordance with Article (27) of Egypt’s Capital Market Law No. (95) of 1992 and its amendments.

As a result, in order to be registrable as a venture capital company, the SPAC must have at least ten million Egyptian pounds ($636k) in issued and paid-up capital, which will be paid by the founders or promoters.

The SPAC must likewise be owned in this manner:

At least 50% of the SPAC company must be owned by legal persons (natural or artificial).

At all times, the percentage of ownership of the SPAC by financial institutions and/or qualified investors shall not be less than 25%.

As for the founders and promoters, they shall contribute up to 5% of the SPAC’s capital for the SPAC. Their contribution must, however, not be less than ten million pounds ($636k) at the formation of the company.

What Are The Rules Governing The Operations Of A SPAC?

Under the new rules, registration as a SPAC comes with some heavy obligations, which include that:

The SPAC must commit to raising capital within a month of its registration with the Egyptian Authority through public subscription and/or private offering based on the investment plan to buy the target companies.

Following the SPAC’s capital raise, the board of directors must be reconstituted in accordance with a resolution passed by the SPAC’s General Assembly.

The SPAC’s managing director must also be chosen from among the founders (promoters). Such a person must also fulfil the requisite experience requirements contained in guidelines (regarding direct investment companies) issued by the Authority.

Under Resolution No. (171) of 2021, the SPAC’s articles of association must also include a provision authorizing the SPAC to deposit its entire issued capital, including the proceeds of the subscription (raised through public subscription or private placement), in a special account with one of the Central Bank of Egypt’s licensed banks.

Again, if the SPAC raises at least 100 million Egyptian pounds ($6.3 million) under the SPAC arrangement, the money must be put in low-risk financial products that can be converted into cash on demand.

Again, if the SPAC fails to achieve the minimum voting percentage required under the law for the approval of the target acquisition, the SPAC’s shares will be compulsorily written off, in accordance with the guidelines issued by the Authority’s Board of Directors. However, this can only happen under the rules if the Egyptian Stock Exchange, has in place, the Financial Supervisory Authority-approved executive procedures enabling that.

Unless two years have gone after the procedures for raising the company’s capital were completed — or the SPAC company meets the minimum capital required to carry out its operation following the capital increase, which is 100 million pounds — the SPAC company must also put in place liquidation proceedings.

Where any of the promoters or founders bears all the expenses — except for the establishment expenses, the auditor’s fees and the management fees — the founder or promoter can only obtain incentives or tax credits only after completing the acquisition of the target company (or companies), as disclosed in the prospectus.

According to the guidelines, the draft acquisition proposal (containing full information of the targeted company’s activities) must be presented to the company’s extraordinary general assembly. The assembly must be set up in such a way that the founders or promoters, as well as anyone linked with them, are barred from voting on the acquisition proposal.

If any shareholder objects to the acquisition proposal before the General Assembly, such shareholder must leave the company within thirty days following the General Assembly’s approval of the acquisition resolution. The exit can take one of three forms: i) the SPAC company selling objecting shareholders’ shares on the stock exchange; (ii) the SPAC company buying back their shares (treasury shares); or (iii) or the SPAC company by acquiring additional financiers for their shares.

SPACs have a single goal under the new rules: to acquire ownership percentages in entities or companies within two years of completing the capital raise. The acquisition can be accomplished in one of three ways: i) 100% capital or voting rights acquisition, followed by a merger with the target company; or ii) acquisition of a controlling majority of the target company’s capital or voting rights in such a way that the percentage required to make a merger decision is exceeded by such acquisition; or iii) acquisition of an absolute majority of the target company’s capital or voting rights.

By Resolution No. (172) of 2021, the new rules also altered the previous rules for the listing and delisting of securities on the Egyptian Stock Exchange. In place of the previous provisions, the rules have added an item authorizing the registration of SPAC shares. They also exempt SPACs from producing financial statements for the two fiscal years prior to their application for SPAC registration.

At the time of the application for registration, the primary shareholders of the SPACs must, however, own at least 51 percent of the shares in the capital of the SPAC.

The rules also provide that the net profit percentage in the previous fiscal year prior to the SPAC’s application for registration should not be less than 5% of the capital of the SPAC.

The SPAC must also maintain its treasury shares for three months after filing the application.

The proceeds realised from the capital increase by the SPAC must be deposited in an Egyptian bank account — designated as a special account — operated by a bank licensed by the Central Bank of Egypt. The proceeds to the deposited in the account cover proceeds raised through public subscription and/or private placement, but excludes expenses necessary for the establishment and licensing of the company, the auditor’s fees and the management fees.

The SPAC must also appoint an independent financial advisor who is registered with the Authority to evaluate the target company.

What Are Required Of Target Companies Subject To SPAC Acquisitions?

The new guidelines state that companies subject to acquisition (such as tech startups) must follow the rules for stock market listing. The target company is, however, exempt from the provisions of items (5, 7, 8) of Article (7) of the rules for listing and delisting securities on the Egyptian stock exchange if it is one of the developing or promising companies working in the fields of technology, innovations, and digital technologies.

The rules define a company with the sole purpose of acquisition (SPECIAL PURPOSE ACQUISITION COMPANY «SPAC») as a company that is established and licensed as a venture capital company, with the sole purpose of acquiring one or more companies as target companies, and providing them with the necessary financing.

The Space For Tech Companies Is Still Small On The Egyptian Exchange

Compared to other sectors, there are currently only about six companies classified as tech on the Egyptian Exchange, out of over 220 companies listed on the exchange. And out of the six, only Egypt’s leading fintech firm, Fawry, may rightly be classified as a digital company in the true sense of the word.

However, even though there are only a few tech companies listed on the platform, they have outperformed other sectors in terms of trading volume.

For instance, the total trading value of the shares of tech companies listed on the exchange amounted to 3.7 billion Egyptian pounds in the first quarter of 2021, compared to 5.6 billion Egyptian pounds which accrued to listed banks, even though there are 14 banks currently listed on the exchange.

*Breakdown of market capitalization on The Egyptian Exchange, March 31, 2021. Source:* *The Egyptian Exchange*

International Investors Are Interested In Egypt’s IPOs

The greatest insights, and the key to understanding the future of startup exits through IPOs on The Egyptian Exchange lie in the investors’ demographics.

Of the investors who participated in Fawry’s public listing, Egyptians represented 80.3% of the IPO and 50% of the private placement; while Arabs and Foreigners represented 19.7% of the IPO and 49.3 of the private.

This was expected; while the private placement was done by a foreign firm -Netherland Holding BV — the IPO was local and closer to Egyptians via the exchange.

But what is even more intriguing is the demographics of the participants in all the four IPOs that held on The Egyptian Exchange in 2019.

Valued at EGP 5.14 billion (compared to EGP 5.2 billion in 2018), the four IPOs saw 67.36% participation of foreigners, and only 32.64% of Egyptians, although Egyptians dominated total annual transaction deals (67.06% to 32.94%).

*Foreign participation on The Egyptian Exchange, 2019. Source:* *The Egyptian Exchange*

Overall, while investors from the United Kingdom accounted for 30.09 percent of total foreigner transactions in 2019, the United States of America, Luxembourg, and the Kingdom of Saudi Arabia, each had a share of 13.28 percent, 10.98 percent, and 7.17 percent, respectively.

New SPAC Rules Egypt New SPAC Rules Egypt New SPAC Rules Egypt New SPAC Rules Egypt New SPAC Rules Egypt

With Fawry’s Unicorn Status, Does Egypt’s Stock Exchange Hold The Unicorn Wand For Tech Startups In Egypt?

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 writer

Proposed Startup Act Nears Completion In Ethiopia

November 22, 2021

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.

Tewodros Tadesse, CEO of the Xhub incubation center

“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.

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.

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.

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

Key Things To Note About The New Open Banking Regulations In Egypt

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

Key Things To Note About The New Open Banking Regulations In Egypt

November 20, 2021

The Central Bank of Egypt’s (CBE) Board of Directors has adopted a new set of open banking regulations governing the instant payments network’s (IPN) services in Egypt.

This is part of the country’s National Payments Council’s policy to assist the digital economy’s transition and provide new services that would make financial transactions easier for citizens.

Amany Shams Eldin, First Sub-Governor Banking Operations

The IPN links different banks and financial services providers, allowing payments sent between accounts at different banks to be credited and debited instantly. It is one of the most important means to provide access to banking services efficiently and effectively, thus enhancing financial inclusion.

“The IPN regulations adopted by the CBE represent an important step on the path to providing the appropriate infrastructure for payment services and systems nationwide. It will allow approved mobile phone applications to provide payment services and instant transfers, in a way that supports the improvement of the financial services provided, and contributes to creating new competitive opportunities that will attract new customers to the banking sector and provide banking services in an advanced manner, while ensuring the complete safety of all transactions,” Amany Shams Eldin, First Sub-Governor Banking Operations, said.

The new regulation is the first of its type to apply the requirements of open banking transactions to real-time bank account management via application programming interfaces (APIs).

The new network, which is slated to go live in the current quarter of this year, will allow customers to send money instantly using their phone number or a real-time payment address. Customers will also be able to monitor all of their bank accounts and make transfers to any bank using a single application, allowing for the provision of new financial services that will help to reinvigorate the national economy and reduce reliance on cash.

What Do The New Regulations Provide?

According to the new regulations, a bank seeking a license to participate in the instant payments network must apply to the Central Bank of Egypt for the appropriate licenses and take into account the following: Follow the Central Bank of Egypt’s guidelines, as well as any modifications; Follow the rules set forth by the immediate payment network, as well as any modifications.’

Under the regulations, the issuing bank is mainly responsible for approving any transactions of its customers dealing on the instant payments network, whether through the applications of payment service providers or through the bank’s electronic channels.

If the customer utilizes the approved service providers’ applications, the issuing bank is required to set appropriate restrictions for the values and number of monthly operations in accordance with the bank’s risk management vision, and not to exceed the following limits: Maximum transaction value: 50,000 Egyptian pounds (fifty thousand); Maximum Daily Transaction Value: 60,000 Egyptian pounds (sixty thousand); Maximum Monthly Transaction Value: 200,000 Egyptian pounds (two hundred thousand).

Based on the bank’s license as a bank offering payment services through electronic channels, the bank can extend these restrictions if it uses additional means of authentication through its electronic channels (Pre-authorized PSP Bank).

Find out more about the new laws here.

Open Banking Regulations Egypt Open Banking Regulations Egypt

Knife Capital Pours $2m Into South African Open-source Intelligence Startup VoxCroft

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