Katalatto Emerging Markets: New Startup Act aims to promote Entrepreneurship in Tunisia
Tunisia’s news startup act — passed earlier this year — could propel the north African country to become the region’s next entrepreneurial hotspot. Here’s why.
The act (the Tunisia Startup Act) includes 20 measures that aim to encourage entrepreneurship, make it easier to start and end a business, as well as easier to access funding and international markets.
The act is structured around five main theme areas. These themes are defining startups; encouraging entrepreneurship; creation of an environment that allows for the formation and liquidation of companies; access to funding; and access to international markets.
The law still needs to be applied to the various measures in the act.
Here some interesting points from the document of Tunisia’s Ministry of Communication Technologies and Digital Economy.
Label and governance
The act defines a startup as any company that is: no more than eight-years-old; has an annual revenue, and total balance sheet of less than 15-million Tunisian Dinar (about $6-million) and fewer than 100 employees.
The act also defines startups as companies that have an “innovative business model and significant growth potential”.
The startup label will be assigned to companies by Tunisia’s Ministry of Communication Technologies and Digital Economy, based on the advice of a Labelling Committee. The committee will consist of 10 members including a president, five venture capitalist (VC) fund, and startup accelerator representatives, as well as two public sectors officials.
Companies that have secured funding from approved VC funds will be fast-tracked through the labeling process.
The act will aim to encourage innovators to start enterprises through four-way:
a) a startup leave,
b) a stipend,
c) employment programmes and
Furthermore, employees who wish to found a startup will be granted a one-year long “Startup Leave”. The leave, which is extendable to two-years, will only be granted to employees with “at least three years of experience within their initial company”.
Perhaps one of the most outstanding measures in the act, is that up to three founders per startup will be granted an as yet unspecified stipend. The amount of the stipend is to be calculated “based on the average previous income for employees and a fixed allowance for those unemployed”.
In a bid to reduce the cost of hiring employees, the act will also maintain employment programmes like the Stage “d’initiation à la vie professionnelle” (SIVP) “for graduates who launch a startup, or join one as an employee”.
For years, SIVP has been one of Tunisia’s largest active labor market programmes. The initiative incentivizes employers to take on new employees by initially offering them hiring credit, and from 2004 by paying the subsidy directly to graduates.
In addition, the act also aims to cover patenting fees for startups locally, and internationally.
Creation, development, and liquidation
Four of the act’s measures are based around making it easier to start, run and end a business. The law will do this through the setting up of a startup portal, reform of the Commercial Companies Code and tax exemptions
The startup portal will be a “point of contact” for startups where administrative and regulatory processes around the creation, development, and the liquidation of startups will be settled.
Under the new act, the country’s Commercial Companies Code will be reformed to allow for simplified share companies, preferred shares, free shares, and warrants.
The act also stipulates that startups be exempt from corporate tax. In addition, the state will also take charge of employer, and employee social taxes for startups.
A total of five measures in the act cater to issues around funding for startups.
The first covers tax relief for individuals and entities that directly invest in startups or that subscribe to venture capital funds investing in startups, “within the limits of income or profit subject to taxation”.
The second, a tax relief on capital gains, exempts investments into startups from capital gain taxation. The act also has a provision allowing startups to issue “several convertible bonds, regardless of the option period for conversion”.
In addition, startups that opt to raise capital via a contribution in kind will be authorized to designate themselves their own contribution auditors.
Another measure meant to ensure startups have access to funding “guarantees VC funds investment in startups for up to 30% of the amount invested”.
Under the new law, startups will be considered as small business as per Tunisia’s Article 20 of Decree 2014-1309,” for which any public purchaser must reserve 20% of the annual budgeted amount of its good, services and studies contracts”.
Access to international markets
The startup act raises the maximum amount startups can pay through a prepaid card that allows web users to pay for online transactions in foreign currency.
The startup act raises the maximum amount startups can pay through the card — the International Technology Card (launched in 2015 by the country’s postal service) — to Tunisian Dinar 100 000 ($39 000) per year.
In addition, the act has a provision allowing for each startup to open a “special foreign exchange account” in the country.
Startups will be allowed to use the accounts meant for capital contributions, quasi-capital, and revenue in foreign currencies. Moreover, companies will be able to invest the assets of these accounts abroad “freely and without any authorization”.
The law also classifies startups as “authorized economic operators” under its customs code, with the companies being exempt from certain imports and customs procedures, particularly around telecoms, and electronic equipment.
For now, it remains to be seen what impact the act will have on teach startups in Tunisia — as laws pertaining to some of the measures will have to be introduced or amended for some of the measures to be affected.