Ethiopia’s House of People’s Representatives has unanimously approved the long-awaited Startup Proclamation, a landmark law aimed at fostering an innovation-driven ecosystem and creating sustainable employment opportunities across the country. The new legislation, which came into force on July 17, 2025, provides a comprehensive framework to simplify the process of starting, running, scaling, and closing startup businesses.
The Startup Proclamation marks a major milestone for Ethiopia’s emerging entrepreneurial landscape, which has long operated in a fragmented regulatory environment. Developed through extensive consultations led by the Standing Committee on Human Resource Development, Employment and Technology Affairs, the law is expected to catalyze economic growth by supporting startups that drive technological progress and job creation in the production of goods and services.
Under the new law, startups are defined as businesses established under the decree that have been operating for no longer than five years and possess a “startup account.” Businesses older than five years but still pursuing innovation are eligible to obtain an “innovative business account.” This classification facilitates targeted support and regulatory incentives for different stages of enterprise growth.
To oversee implementation, the Proclamation establishes the National Council of Startups, chaired by the Minister of Innovation and Technology with the Entrepreneurship Commission Commissioner serving as Secretary. The Council’s mandate is to nurture an enabling environment by coordinating policies that promote innovation, technological development, and job creation.
Among its key functions, the Council will manage an “Innovation Fund” designed to provide financing for startups and innovative enterprises. The fund supports activities such as scholarship programs for entrepreneurs, exemptions or reductions in startup licensing and intellectual property registration fees, and incentives for ecosystem developers. Sources of the fund include government budget allocations, loans, donations, and grants.
To qualify as a startup, businesses must demonstrate innovative or disruptive capabilities in products, processes, or services, possess growth potential and scalable business models, and have at least 25% ownership by the founding entrepreneur. Such enterprises must also fall within the micro, small, or medium enterprise categories and be no older than five years.
Innovative businesses, meanwhile, must similarly exhibit disruptive innovations and scalability but can be older than five years. Both categories benefit from tax incentives, including exemptions from income tax and value-added tax during pre-registration periods, extended tax reporting deadlines, and facilitation of customs operations as authorized economic operators.
Additional support measures include intellectual property registration assistance locally and internationally, with associated costs covered by the Innovation Fund. Startups enjoy relief from statutory pension and health plan contributions, which are also funded by the Innovation Fund, as well as collateral incentives such as guarantees covering up to 80% of borrowed capital. The legal framework also provides access to regulatory sandboxes to test innovative products or services under relaxed oversight.
The Proclamation requires startups and innovative businesses to meet growth and employment targets, maintain accurate accounting practices, and report any changes affecting their status. Non-compliance may lead to withdrawal of startup benefits and account confiscation. The National Council of Startups is tasked with conducting assessments of supported businesses every three years.
This legislation is seen as a vital step in Ethiopia’s broader economic development strategy. By formally recognizing and regulating startups, the country aims to unleash the potential of its youthful and creative population, stimulate private sector-led growth, and enhance competitiveness.
Previously, Ethiopia’s startup ecosystem has faced challenges including regulatory ambiguities, difficulties accessing finance, and limited coordination among government agencies. The new Proclamation addresses these gaps by clarifying definitions, streamlining procedures, and institutionalizing support mechanisms.
Stakeholders also anticipate that the law will encourage increased investment, foster public-private partnerships, and align with Ethiopia’s Digital Transformation Strategy and other initiatives aimed at positioning the country as a regional innovation hub.
