Novel Legislation Grants Foreign Startups Exemption From Investment Capital Requirements

Foreign startups and ecosystem builders will no longer be bound by Ethiopia’s stringent capital thresholds, following the enactment of the nation’s first Startup Proclamation.

The landmark legislation explicitly exempts them from the minimum capital requirements stipulated in the Investment Proclamation ratified five years ago, a shift that lawmakers say is designed to attract global innovators and strengthen the country’s nestling entrepreneurial ecosystem.

Article 39 of the Startup Proclamation makes the exemption clear, “The minimum capital requirement stipulated under the Investment Proclamation No. 1180/2020 shall not apply on Foreign Startups and Foreign Startup Ecosystem Builders who establish or invest on Startups in Ethiopia.”

The same provision offers these ventures access to Ethiopia’s new startup incentive regime, but excludes them from a federal startup grant program.

The new law effective from July 14, 2025, establishes a grant program under the administration of the Ministry of Innovation and Technology with funding from the Finance Ministry and other donors.

The Finance Ministry is expected to issue a directive to govern the management, administration, and operation of the grant program.

The law’s exemptions for foreign startups stand in sharp contrast to long-standing rules under the Investment Proclamation, which requires that “any foreign investor, to be allowed to invest under this Proclamation, shall be required to allocate a minimum capital of USD 200,000 for a single investment project.”

The threshold for joint ventures with local investors is set at USD 150,000 in the Investment Proclamation, with further reduction for consultancy and publishing work.

The Investment Proclamation ratified in 2020 allowed only narrow exemptions to the capital requirements, such as for foreign investors re-investing profits or dividends, persons elected as members of board of directors, or a foreign investor buying the entirety of an existing enterprise owned by a foreign investor or the shares therein.

The authors of the Startup Proclamation describe it as “a transformative milestone in the country’s journey toward innovation-driven economic growth.” However, despite the sweeping legal reforms, Ethiopia’s startup ecosystem continues to grapple with structural hurdles.

The most pressing challenges include regulatory complexity, limited access to finance, and a lack of specialized talent. Many entrepreneurs remain bogged down by bureaucratic licensing procedures, inconsistent tax policies, and a legal framework that historically lacked provisions tailored to startups.

Experts also contend that the digital divide deepens inequality. They argue that it exacerbates inequality in access to entrepreneurial opportunities, particularly in rural areas. Meanwhile, observers note that only a few angel investors and venture capitalists in Ethiopia’s nascent startup ecosystem are actively engaged in early-stage funding with these systemic barriers leading into high startup mortality rates and constraining the growth of promising ventures.

The Startup Proclamation was the product of nearly five years of drafting, revisions, and inter-ministerial negotiations and was finally ratified unanimously after approval by the Council of Ministers last month.

It introduces the country’s first ever comprehensive framework for startups and establishes supporting institutions including the Startup Ethiopia Council, the National Designation Committee, and a Startup Innovation Fund.

Designated startups are also allowed to carry forward losses for up to two years under a new income tax exemption provision and can access duty free privileges for the import of capital goods essential to a startup’s operations, with these benefits extending for as long as four years.

Supporters of the law argue that it has the potential to reset Ethiopia’s innovation economy. Critics point towards bureaucratic sluggishness, fragmented support systems, and limited access to finance