Ethiopia’s Startup Proclamation Explained: Who Qualifies and How It Operates

January 18 2026

Regulatory Compliance, , Corporate & Commercial Law, , Investments, ,

Introduction

Ethiopia’s Startup Proclamation No. 1396/2024 creates a separate legal framework for innovation-led, early-stage businesses. Before this law, startups were regulated in the same way as ordinary Micro, Small, and Medium Enterprises (MSMEs), even though startups typically face higher risk. The Proclamation changes this approach by introducing a formal startup designation system. Businesses are not automatically treated as startups just because they are new. Instead, qualifying enterprises must be officially recognized as startups to access incentives, regulatory support, and government programs. This insight explains:

What a “startup” means under Ethiopian law,
The legal criteria for qualification,
Which authority administers the regime, and
What incentives and facilitation measures may follow.

Definition: What Is a “Startup” Under Ethiopian Law?

Under the Proclamation, a startup is: A person or group with no or limited business history that creates economic value by introducing, creating, adapting, or reverse‑engineering a product, service, or process based on innovation or technology, with the potential to scale and change markets. Key takeaway: Not every new or small business is a startup. The law focuses on innovation, early-stage status, and growth potential, rather than size alone.

Criteria: Who Qualifies as a Startup?

To qualify, an enterprise must meet all of the following core requirements, subject to verification and designation by the competent authority: (a) Early-Stage Operation

The business must be in its early years of operation.
As a general benchmark, this is expected to mean not more than five (5) years from the date of its first business license, subject to clarification by future directives.

(b) Innovation-Driven Activity

The business must be built around innovation.
This includes:
- New or improved products or services,
- New or improved processes,
- New or improved business models.
The innovation must create added economic value or solve a real market problem.

(c) Scalability and Growth Potential

The business model must be capable of expansion beyond a small or local market.
This may be achieved through:
- Technology,
- Replicable processes, or
- Broader market reach.

(d) Legal Registration in Ethiopia

The enterprise must be registered under a recognized business form in Ethiopia.
In practice, the most common forms are expected to be:
- Private Limited Companies, and
- One‑Person Companies.

Ownership and Structural Conditions

In addition to the core criteria, the Proclamation imposes specific ownership rules:

Founder ownership requirement:
- At least 25% of the company’s capital must be held by the founding entrepreneur(s).
- This ensures that founders retain meaningful control and economic interest.
Exclusion of public companies:
- Publicly listed companies cannot be designated as startups.
- The regime is reserved for independent, founder‑driven ventures.

Authority: Who Regulates Startups?

Lead Authority The Proclamation designates the Ministry of Innovation and Technology (MInT) as the main government body responsible for:

Implementing the startup regime,
Designating startups,
Coordinating the national startup ecosystem.

Coordinating Bodies To support MInT, the law establishes a National Startup Designation Committee, chaired by MInT and composed of representatives from relevant federal institutions. Its role is to:

Coordinate implementation,
Provide oversight, and
Support policy alignment across government bodies.

Digital Startup Portal and Compliance

The Proclamation creates a Digital Startup Portal as the main entry point for:

Startup designation applications,
Regulatory interaction, and
Reporting obligations.

Designated startups must:

Use incentives responsibly, and
Submit periodic performance and financial reports to the competent authority.

MInT may also establish a regulatory sandbox, allowing selected startups to test innovative products or services under temporary and controlled regulatory flexibility.

Interim Registration Call by MInT: Practical Guidance

The Proclamation requires further regulations and directives before it becomes fully operational. Until then, MInT has issued a public call for startups to register using an official Startup Registration Form. What This Interim Registration Means

It is an administrative, preparatory step.
It does not confer legal startup status.
It helps MInT to:
- Identify active startups,
- Map the ecosystem,
- Build communication channels, and
- Prepare for formal designation.

Practical Guidance for Founders

Startups that believe they meet the legal criteria should consider registering.
Registration may:
- Improve visibility to regulators,
- Facilitate early engagement with support programs,
- Position the startup for faster formal designation once directives are issued.

Incentives and Facilitation Measures

Formal designation is the legal gateway to incentives and regulatory support.

Possible Incentives

Designated startups may become eligible for:

Duty‑free import of capital goods,
Tax exemptions,
Loss carry‑forward benefits.

The exact scope and conditions will be set by future regulations and directives.

Regulatory Facilitation

Designated startups may access:

Regulatory sandboxes,
Temporary regulatory flexibility for pilot projects,
Structured engagement with regulators.

Foreign Participation

Foreign investors may:

Invest in Ethiopian startups,
Act as founders or shareholders,
Participate in startup ecosystem activities.

However:

Existing foreign investment and sectoral laws still apply.

Conclusion

Ethiopia’s Startup Proclamation creates a clear legal category for innovation‑driven, early‑stage, and scalable businesses. Startup status is not automatic and depends on formal designation by MInT. Until full regulations are issued, founders and investors should: