The Startup Business Proclamation is finally set for ratification after the Ministry of Innovation and Technology (MInT) included ratifying the proclamation in its to-do list within the next 100 days.
The proclamation has been pending for more than a year now, as different stakeholder institutions continue to forward new recommendations and updates.
“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 draft has been going back and forth between MinT, the former Job Creation Commission, the Ethiopian Investment Commission, and the Office of the Attorney General, among others.
The proclamation was initiated primarily to solve the critical challenges entrepreneurs face in accessing finance. Startups fail to access finance mainly because they lack collateral to borrow from mainstream financial sources such as banks.
Startups were also unable to get capital injection from foreign angel investors, mainly because Ethiopia’s investment code does not allow investment of less than USD 200,000. Startups usually need around USD 50,000 on average.
Thus, the draft proclamation allows startups to access finance through angel investment, among others. The draft also states that innovation funds will be established.
The fund, which will be disbursed for entrepreneurship projects, will be mobilized from government budget, loans designated for this purpose, donations, endowments, grants or gifts, from whatever source is designated for the Fund.
Startups enjoy such privilege once they undergo pre-registration, a stage before registering as a commercial business.
During this period, which lasts for two years, startups are relieved from collecting any government levies such as turnover tax; value added tax, and income tax. They are also relieved from prior expectations of office rental, which was required for new businesses to get a license.
Pre-registration is undertaken by MinT, while commercial registration is undertaken by the Ministry of Trade.
One of the new steps taken by the proclamation is that it recognizes incubation centers as ecosystem builders, which are also relieved from taxes.
Startups will get a tax break on capital gains, carry forward loss for angel-investors, facilitation of expatriation of capital gains for foreign investors; allowing debt investment, and selling shares below the price of acquisition.
Tewodros Tadesse, CEO of Xhub incubation center, who participated in the drafting process, told The Reporter that the proclamation is a promising document to create an enabling environment for start-ups under incubation.
Contributed by Amanuel Yelkal