Ethiopia’s
Startup Proclamation No. 1396/2024 establishes a dedicated legal framework to nurture innovation-led, early-stage businesses. Prior to this law, startups were treated like any other Micro, Small, and Medium Enterprises (MSMEs) despite their unique high-risk, high-growth profile. The new proclamation changes that by
introducing an official “startup” designation. Importantly,
startup status is not automatic for new businesses – qualifying ventures must apply and be
formally designated as startups to access special incentives, regulatory support, and government programs.
What Is Considered a “Startup” Under Ethiopian Law?
The proclamation defines a
“startup” as an enterprise (founded by an individual or team with little to no prior business history) that
creates new economic value through innovation or technology, and has the
potential to scale up and disrupt markets. In simpler terms, a startup in Ethiopian law isn’t just any small or newly-formed company – it’s a young business built on a novel idea or technology
with strong growth potential.
Key point: The focus is on innovation, early-stage status, and scalability. A traditional small business (like a local retail shop or franchise) would not qualify unless it’s doing something markedly innovative with potential for rapid expansion.
Criteria for Startup Designation
To be officially designated as a startup, a business must meet
all of the following core criteria (which will be verified by the competent authority during the application process):
- Early-Stage: The company is in its early years of operation. While the law doesn’t fix an exact age limit, guidance suggests roughly 5 years or less from the date of its first business license as a benchmark for “early-stage.” (Future regulations may clarify this timeframe.)
- Innovation-Driven: The business is built around innovation – meaning it offers a new or significantly improved product, service, process, or business model. The innovation should provide added economic value or solve a real market problem. In short, the venture must be doing something novel or better than what existed before.
- Scalable: The business model is designed for growth beyond a small local market. This typically implies leveraging technology or replicable processes to expand reach. A qualifying startup should be capable of serving a broader market or rapidly increasing its user/customer base if conditions allow.
- Legally Registered in Ethiopia: The enterprise must be an officially registered business in Ethiopia. In practice, most startups will register as either a private limited company or a one-person company under Ethiopian commercial law. (Informal ventures or NGOs, for example, would not count.)
If a company checks all these boxes, it can
apply for startup designation. Remember, the designation is not automatic – even an innovative new business must go through the
recognition process to be legally considered a startup under this framework.
Ownership and Structural Requirements
Beyond the basic criteria above, the Startup Proclamation imposes two important structural conditions on who can qualify:
- Founder Equity – 25% Minimum: The founding entrepreneur(s) must collectively hold at least twenty-five percent (25%) of the company’s capital. This requirement ensures that the original founders retain a meaningful ownership stake and control in the venture. It’s designed to keep startups founder-driven, preventing scenarios where founders are diluted too early or lose control to outside investors.
- No Public Companies: A publicly-listed company cannot be designated as a startup. The startup regime is intended for independent, private ventures – typically small teams led by founders – not companies that have already gone public or are part of large corporate groups. In other words, the business should be a standalone startup, not a subsidiary of a public corporation or an entity trading on a stock exchange.
These conditions ensure that the spirit of the law is preserved: it’s targeting genuine startups – agile, founder-led companies with innovation at their core – rather than established corporations or shell companies trying to claim benefits.
Who Regulates and Endorses Startups?
The proclamation assigns clear responsibility for administering the startup program:
- Ministry of Innovation and Technology (MInT): MInT is the lead government body for the startup initiative. It is tasked with implementing the startup regime, evaluating applications, designating eligible businesses as startups, and coordinating the overall national startup ecosystem. In practical terms, entrepreneurs will be interacting primarily with MInT (likely through a dedicated platform, as described below) to get recognized as a startup and to access any related support.
- National Startup Designation Committee: To support MInT, a multi-agency committee has been established. Chaired by MInT and composed of representatives from other relevant government institutions, this National Startup Designation Committee coordinates the rollout, provides oversight, and helps align policies across different ministries and agencies. The committee’s involvement means that the startup program benefits from inter-ministerial support – for example, ensuring the Ministry of Finance, Revenue authorities, etc., are on the same page regarding incentives or regulatory adjustments for startups.
For a startup founder, the key takeaway is that
MInT is your go-to authority for anything related to startup status. The existence of the committee in the background is a positive sign, as it should lead to smoother inter-government cooperation (which is crucial when it comes to things like tax incentives or import duty waivers).
Digital Startup Portal & Compliance Obligations
To streamline the designation process and ongoing compliance, the proclamation calls for a
Digital Startup Portal. This will serve as the one-stop online platform for startups to interact with the government. Through the portal, entrepreneurs will be able to:
- Apply for Startup Status: Submit applications for official startup designation, including providing required information and documentation about the business and how it meets the criteria.
- Access Regulatory Support: Communicate with regulators or seek guidance on compliance as a recognized startup (for instance, queries about tax treatment, or requests to participate in a regulatory sandbox).
- Reporting: Designated startups will have to submit periodic reports (likely covering performance metrics, financials, and status updates) through the portal to the competent authority. Essentially, once you’re in the program, you need to regularly show that you’re using the benefits appropriately and making progress. Using any incentives “responsibly” is emphasized, meaning the government will keep an eye on whether the startup is actually furthering innovation and growth as intended.
Compliance Note: Just as startups enjoy special support, they also accept certain monitoring. Failing to comply with reporting duties or misusing incentives could jeopardize one’s startup status.
Additionally, the proclamation empowers MInT to establish
“regulatory sandboxes.” A sandbox is a controlled environment where select startups can
test innovative products or services with temporary regulatory relief. For example, a fintech startup might get to pilot a new service without immediately needing a full license, under close supervision. This portal would likely be the place to apply for and manage any sandbox participation as well.
Interim Startup Registration (Pre-Designation Phase)
Since the proclamation requires detailed regulations and procedures (which may still be under development as of early 2026), the government has introduced an
interim step to kickstart the ecosystem:
MInT’s Interim Startup Registration: MInT has invited startups to
voluntarily register using an official Startup Registration Form (prior to the full implementation of the designation system). This interim registration is essentially a preparatory measure. Here’s what it means:
- No Legal Status Yet: Registering now does not grant you formal “startup” status under the law (since the official designation process isn’t live yet). It’s an administrative exercise for the time being.
- Ecosystem Mapping: By registering, startups put themselves on MInT’s radar. MInT uses this information to identify active startups, map out the startup ecosystem, and build communication channels with founders. This helps the government understand the landscape – how many startups are out there, in which sectors, what support they might need, etc., well ahead of rolling out incentives.
- Why Founders Should Consider It: If you believe your company meets (or will meet) the criteria, it’s worth registering in this interim phase. Early registrants may benefit from being first in line for news, pilot programs, or support initiatives. It can potentially improve your startup’s visibility to regulators and position you for faster formal designation once the system officially launches. Think of it as signaling serious intent and staying informed as policies develop.
In short, interim registration is a
no-risk, high-upside move for eligible startups: it doesn’t confer benefits yet, but it plugs you into the network and conversation early on.
Incentives and Support for Designated Startups
One of the big motivations for getting formally designated is the package of incentives and support the government is preparing for startups. While the proclamation sets the stage, the
specific incentives will be detailed in subsequent regulations or directives. However, based on the law and policy goals,
designated startups are expected to gain access to:
Potential Financial Incentives:
Once officially recognized, a startup could become eligible for various benefits to reduce early-stage costs and financial friction, such as:
- Duty-Free Import of Capital Goods: Ability to import machinery, equipment, and possibly software or other capital items without paying import duties, making it cheaper to acquire the tools needed to build the business.
- Tax Breaks: Tax incentives might include exemptions or reductions (for example, an income tax holiday for a few years, or exemption from certain business taxes) to help startups reinvest what they earn.
- Loss Carry-forward: Early-stage companies often incur losses in their first years. The law signals that designated startups may be allowed to carry forward these losses to offset taxable profits in future years, easing the tax burden when they finally become profitable.
(The exact scope and duration of these incentives will be specified by implementation regulations. Startups should look out for detailed guidelines on which sectors or activities qualify and any conditions attached.)
Regulatory & Ecosystem Support:
Beyond financial perks, the startup designation is likely to offer
regulatory facilitation, for example:
- Regulatory Sandboxes: As mentioned, certain startups might be allowed to operate in a sandbox environment – basically, a time-limited relaxation of specific regulations – especially useful in sectors like fintech, healthtech, or other innovative fields where the standard regulations are stringent.
- Eased Compliance/Fast-Track Procedures: Government agencies may provide bespoke guidance or faster processing for startups on things like business licenses, certifications, or other necessary approvals. The idea is to cut red tape for young innovative firms.
- Mentorship and Networking Programs: While not explicitly in the law, in practice, designated startups could be funneled into government-supported incubator or accelerator programs, given access to mentorship, or connected with potential investors as part of the ecosystem development.
All these incentives and supports aim to tackle common startup challenges: high initial costs, regulatory barriers, and lack of resources. By lowering these hurdles, Ethiopia hopes to foster a vibrant startup culture that can drive innovation, create jobs, and diversify the economy.
Foreign Participation in Startups
The Startup Proclamation does
welcome foreign participation – there’s no clause that limits the nationality of founders or investors in designated startups. This means
foreign investors and entrepreneurs can co-found or invest in Ethiopian startups and benefit from the regime (for instance, their startup can still qualify for incentives if it meets the criteria).
However, it’s crucial to note that
general foreign investment laws still apply. The startup framework doesn’t override existing rules on which sectors are open to foreign investment or any capital requirements. For example, if a certain industry is restricted to Ethiopian nationals or requires a joint venture structure by other laws, those restrictions remain in force. Likewise, any foreign investor will need to comply with currency regulations and obtain any necessary investment permits from the Ethiopian Investment Commission or related bodies.
In summary, international founders and venture capitalists are encouraged to participate in Ethiopia’s startup scene, but they should do so in consultation with legal advisors to ensure compliance with broader investment regulations. The proclamation creates a more enabling environment, but it isn’t a free pass to ignore other laws.
Conclusion and Next Steps
Ethiopia’s Startup Proclamation No. 1396/2024 is a landmark development, signaling the government’s commitment to cultivate a thriving startup ecosystem. By clearly defining what constitutes a startup and laying the groundwork for targeted incentives, the law provides much-needed
legal clarity and support for entrepreneurs and investors.
That said, the regime is in its
early days. Much will depend on the forthcoming regulations and how effectively the program is implemented by MInT and the coordinating committee. In the meantime, here are a few
practical takeaways for founders and stakeholders:
- Stay Informed: Keep an eye on announcements from MInT regarding the startup designation process, portal launch, and detailed incentive guidelines. New directives or regulations will flesh out the rules.
- Use the Interim Registration: If you run a startup that fits the criteria, consider registering now via MInT’s interim form. It’s a good opportunity to engage early and ensure you don’t miss out on communications or pilot opportunities.
- Prepare Documentation: Start gathering the information you’ll need for a formal application – business registration documents, a pitch or business plan highlighting your innovation and scalability, proof of founders’ ownership stakes, etc. Being prepared will make the designation application smoother once the portal opens.
- Consult Advisors: Especially for nuanced issues like foreign investment or tax planning around incentives, consult with legal and financial advisors. They can help navigate any sector-specific rules and position your startup to maximize the benefits once available.
In conclusion, the Startup Proclamation is poised to
catalyze innovation and entrepreneurship in Ethiopia. It ensures that startups are recognized as a distinct class of business – one worthy of encouragement and mindful regulation. For entrepreneurs, it’s an exciting development: if you bring the innovation and vision, the legal framework is evolving to meet you with support. As the saying goes,
“fortune favors the bold” – and Ethiopia is taking bold steps to favor the innovators shaping its economic future.
