The Federal Democratic Republic of Ethiopia has enacted a landmark piece of legislation: Startup Proclamation No. 1396/2025, marking a pivotal moment in the nation's strategy to become an innovation-driven economy. This Proclamation is designed to foster a successful and conducive startup ecosystem by providing a clear legal framework and a robust set of incentives.

For foreign investors, local entrepreneurs, and ecosystem builders, understanding this new law is crucial to strategically positioning your business for maximum benefit.

What is the Ethiopian Startup Proclamation No. 1396/2025?

The Proclamation is the cornerstone legal framework establishing a distinct category for innovative, technology-enabled, and scalable businesses in Ethiopia (referred to as a "Startup") and those who support them (referred to as a "Startup Ecosystem Builder"). Its primary goal is to accelerate economic growth by providing unprecedented legal protections, financial incentives, and streamlined administrative processes.

What is the most important legal mechanism?

The most important mechanism is Designation. While operation is not mandatory, obtaining the Ministry of Innovation and Technology's Designation status is the prerequisite for any Startup or Ecosystem Builder to access the full range of benefits and privileges outlined in the Proclamation.

  • Startup Designation: Typically valid for two years.

  • Ecosystem Builder Designation: Typically valid for five years.

What are the key benefits for a Designated Startup?

Designated Startups are entitled to significant financial and regulatory incentives, including:

Incentive Type Description  Impact/Action Point
Tax Exemption Exemption from certain income tax, tax on dividends, and withholding tax. Income earned by foreign nationals employed by the startup is also exempt. Crucial for structuring employment and investment agreements.
Loss Carry Forward Designated Startups can carry losses forward for up to three years. Investors can deduct 100% of a loss in a Designated Startup from their own financial statement. Directly impacts financial planning, due diligence, and investor agreements.
Duty-Free Privilege Designated Startups and Ecosystem Builders may import essential capital goods duty-free. Essential advice for firms handling import/export and supply chain issues.
Finance & Guarantee Establishment of a Startup Grant Program and a National Credit Guarantee Fund to address initial financial barriers and credit risk. We assist in navigating the application criteria for these new funds.
Regulatory Sandbox Allows Startups to test and introduce new products/services under controlled regulatory authority prior to full market introduction. A critical framework for Fintech, Insurtech, and other regulated sectors.
Foreign Work Permits Foreign nationals joining a Designated Startup can obtain a work permit valid for three years; a new "Startup Visa" is also established for foreign employees. Simplifies and speeds up legal immigration and employment processes.
Legal Protection Protection against replication, utilization, or appropriation of the product, service, or process for which a Startup obtained its Designation. Enhances Intellectual Property rights protection for the designated innovation.

This Proclamation has introduced new definitions, compliance requirements, and government functions (primarily under the Ministry of Innovation and Technology and the National Digital Economy Council).

Liku Worku Legal Services is prepared to guide both local and foreign clients through this transformative landscape. Our services include:

  1. Designation Compliance: Advising on the eligibility criteria and preparing comprehensive applications to secure and maintain Designation status for Startups and Ecosystem Builders.

  2. Corporate Structuring: Structuring investment vehicles (including Venture Capital and Angel Investing entities) to maximize the tax and loss-carry-forward benefits provided under the new law.

  3. Regulatory Sandbox Navigation: Assisting technology-driven clients in securing approval for and operating within the new regulatory sandbox framework.

  4. Incentive Utilization: Providing legal opinions and transactional support to fully leverage the duty-free, tax exemption, and foreign employment privileges.