By Ferdinand Doh Galabe, Partner

Start-ups have been, in the last decades, the greatest engine of economic growth and development. This has moved the Government of Cameroon to classify the digital sector as one of its priority areas, as captured by the Strategic Plan for the Digital Economy in Cameroon-2020 (in French, Plan stratégique de l’Economie numérique au Cameroun), which is the precursor of the Cameroon National Development Strategy for horizon 2030 (SND30). The SND30 goes farther than the 2020 strategy paper in that it focuses on the structural transformation of the economy, with priority given to the intensive development of high-productivity service sectors.

In line with the SND30, a critical decision was taken in September 2021 to approve the Acceleration of the Digital Transformation of Cameroon Project (PATNuC). The Project aims to pursue reforms and policies in the Information and Communication Technologies (ICTs) sector, to improve the digital skills of citizens, to promote the development of digital applications and services, and to increase the reach and use of digital services to stimulate employment and entrepreneurship in Cameroon.

The Government is currently implementing measures to increase Internet access and facilitate the inclusive use of ICTs in the country’s economic development fabric. The objective is also to promote the expansion of digital networks in rural areas by focusing on under-served localities, mainly through public-private partnerships (PPPs), with a view to improving the mobile broadband service offer in these localities. A new PPP legal framework was recently adopted to create greater space for collaboration between the public sector and the private investors. The new PPP law widens the scope of public actors who can now recourse to PPPs as a means of financing public projects, to now include sub-national entities (municipalities and regions), public establishments and public corporations.

The PATNuC project is implemented under the overall guidance of the Ministry of Posts and Telecommunications (MINPOSTEL), the Ministry of Agriculture and Rural Development (MINADER), the Ministry of Livestock, Fisheries and Animal Industries (MINEPIA) and the Ministry of Economy, Planning and Regional Development. Other agencies such as the Telecommunications Regulatory Board (ART) and the National Agency for Information and Communications Technology (ANTIC), as well as concessional operators (MTN, CAMTEL, ORANGE and VIETTEL), take part in certain activities relating to the supply of digital communication services.

In view of the SND30 and the digital transformation strategy, institutional, structural and legal reforms have been implemented at different levels to accompany and enable Cameroon’s digital transformation. A personal data protection law and an implementing regulation are equally in the pipeline, to add to the already robust ICT legal framework. Another key area of reform is in the tax sector through incentives provided by Cameroon’s General Tax Code to boost innovation in the ICT sector.

The above incentives are available for innovative start-ups in the ICT sector grouped under the umbrella of management structures set up as state approved management centres (in French, ‘‘structures d’encadrement érigés en centres de gestion agréés’’). These management structures are provided by the 2010 law on the promotion of SMEs as amended in 2015 and usually take the form of business incubators.

Although there are different definitions of the term start-up, it is commonly agreed that this term refers to young companies of 0 to 5 years founded to develop a unique product or service and bring it to the market. It literally means a “company just starting up” and is associated to the notion of experimenting with a new activity in an emerging market. Under the Cameroon General Tax Code, the idea of innovation is central to the notion of start-ups, and is the central criteria for consideration as an eligible innovative start-up, for the purposes of benefitting from the tax incentives reserved for these start-ups.

The tax incentives available to eligible start-ups under the provisions of the General Tax Code are in two (02) phases and include:

Phase I: Incubation phase of the start-up (0 to 5 years)

This phase is a five (05) years phase during which eligible start-ups enjoy exemption from all taxes, duties, levies and payments with the exception of social security contributions.

Also, where by the end of the 5 years incubation phase the owners of a start-up decide to transfer the ownership of the start-up to third parties, they shall benefit from a reduced rate of 10% on capital gains tax. Where the company is sold to a corporate body the corporate income tax rate applies as the capital gains tax rate at 33%, while a 16.5% rate applies to physical persons. The application of the reduced rate of 10% on capital gains brings these rates down to 22% and 6.5% respectively.

This model seems to be patterned after Silicon Valley start-ups initiated by young American innovators who sold their business a few years down the line. A good example is WhatsApp which was sold to Facebook (now Meta) only five (05) years after its creation in 2014 at $ 19 billion. A similar story is that of Instagram which was founded in October 2010 and sold by its owners to Facebook only two years later at $ 1 billion. LinkedIn which was founded in 2003 was equally bought in 2016 by Microsoft at $ 26.2 billion.

Phase II: Operational phase of the start-up (5 to 10 years)

At the entry of the operational phase, after the first five (05) years, the start-up benefits for a further period of five (05) years, of the following incentives:

  • Exemption from the business licence tax (known in French as ‘‘patente’’);
  • Exemption from tax registration on instruments relating to the registration, extension or share capital increase of the start-up;
  • Exemption from all tax and employer’s charges on salaries paid to their employees with the exception of social security contributions;
  • Application of a reduced company tax rate of 15% (instead of 33%);
  • Application of a 50% rebate on the basis of the tax assessment of the advance payment (2.2% actual tax regime and 5.5% for simplified tax regime) and the minimum company tax collection;
  • Income tax credit of 30% concerning research and innovation expenses capped at one hundred (100) million CFA francs.
  • Application of a reduced rate of income tax on movable capital revenue of 5%, on dividends paid to shareholders and interest paid to investors.

Phase III: End of operational phase

At the end of the five (05) years operational phase, the business reverts to the ordinary tax regime applicable to all enterprises.

Processing applications for eligibility to incentives for innovative start-ups

Applications are submitted to state approved management centres dedicated to start-ups who must give their approval to eligible start-ups before they can benefit from such tax incentives. These entities are initially created by law to provide administrative, tax and accounting support for SMEs.

The obligations of state approved management centres dedicated to start-ups are set out in a text issued by the Minister of Finance.

State approved management centres

Otherwise, state approved management centres were established in Cameroon for the first time by the Finance Act for the 1996/1997 financial year. These centres were set up by Decree no. 2000/002/PM of 06 January 2000, amended by Decree no. 2007/0456/PM of 29 March 2007, which also set out the tax benefits granted to members of the centres. The terms of application of the aforementioned decree were laid down by order no. 079/PM of 29 March 2007.

Dayspring Law Firm is an OAPI licensed intellectual property law firm. We specialize in intellectual property law and new technologies, including information and communication technologies. We have advised and helped establish several start-ups in the digital economy in Cameroon, including in the fintech and software industries.

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