The draft Startup Proclamation is mandated to regulate startup businesses, innovative businesses, and ecosystem builders and investors.  

According to Enkopa, the Startup Act provides a unique opportunity for any labeled startup or innovative business to access a regulatory sandbox, in order to test their economic model with access to: Financial and Fiscal Incentives Streamlined Business Processes.

  • Startups: High-growth innovative Micro, Small and Medium Enterprises (Micro, Small and Medium Enterprises) with maximum 5 years of establishment.
  • Innovative Businesses: High-growth Innovative Enterprises with minimum 5 years of establishment.

7 Things You Might Want to Know About Ethiopia’s Draft Startup Proclamation

  1. A two-year pre-registration certificate will be given to new businesses. The draft proclamation removed the requirement to get a company license before starting operations, and a startup will not be obliged to taxes like income tax and VAT during the pre-registration period.
  2. Following the two-year grace period, start-ups will be eligible for tax incentives, an extended reporting period, and the ability to act as an authorized economic operator for import and export.
  3. The draft proclamation allows startups to have a forex bank account and entitled startups to have access to credit cards.
  4. An innovation fund will be established with the goal of assisting and funding startups and businesses. According to the proclamation, the fund will be used to cover costs such as startup scholarships, replacement of workers on startup leave, intellectual property registration fees, administrative support (legal assistance during registration, accounting, human resource costs), and provision of guarantee for eco-system builders and investors (for 80 percent of the loan).
  5. Capital gains tax breaks, loss carryforward, expatriation of profit for foreign investors, allowing debt investment, and allowing share sales below par value are the key incentives for investors who invested in the startups business. And funding for startup incubation fees and tax advantages are among the incentives available to eco-system builders.
  6. Individual entrepreneurs are entitled to a one-year, renewable startup leave without pay from public or private employers, and start-ups are not obliged to contribute to employees’ pensions.
  7. Bonus marks for startups that submit tenders for bids.

In 2020, Ethiopia has listed among the top 100 of StartupBlink’s Global Startup Index, and Addis Ababa is the only Ethiopian city among the top 500, in the global top 1,000 startup-friendly cities. In 2020, Ethiopian startups raised $2.245 million in announced investment, up from $0.65 million in 2019. According to a 2018 study, there are nine operational tec-hubs in Addis Ababa and International development agencies, private charities, and foundations provide most of the financing in Ethiopian Startups ecosystem.

Article Source: Gabriella Law Office

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