It’s the startups that get the business world talking. Big-ticket acquisitions by some of the world’s largest companies give homegrown entrepreneurs the confidence to dream big. Egypt’s startup ecosystem, which is also home to many venture capital funds, acceleration programs, and co-working spaces, has matured significantly over the past decade.

But more needs to be done.

Last month, Egypt unveiled new tax incentives to enhance economic efficiency and streamline the system for small businesses, startups, freelancers, and professionals with annual revenues below $311,000 (EGP 15 million). 

“The government aims to broaden the tax base to ensure the interests of both the state and investors while also improving services for citizens,” Finance Minister Ahmed Kouchouk said in a press conference.

To encourage businesses in the informal sector to formalize, the government offers penalty-free tax return submissions for 2021-2023 and simplified tax procedures. 

Measures include expanding sample audits, capping late payment penalties, and expediting dispute resolutions. Additionally, a centralized settlement system will be introduced for investors, and the VAT refund process will be streamlined. Legal penalties for non-compliance will follow a tiered approach based on business size.

This announcement comes after Egypt announced a five-year tax exemption for startups last year.

Tarek Seif El Nasr, Head of Venture Growth at Falak Startups, says the newly introduced tax incentives mark a crucial development for the startup ecosystem.

“We’ve witnessed how administrative and financial burdens hinder growth, especially for early-stage startups. These reforms are highly beneficial. The leniency on past tax errors and clearer policies highlight the government’s intention to foster a startup-friendly environment.”

Ahmed Nasser, Founder of the consultancy firm Stride, adds that the newly introduced tax incentives will strengthen the business landscape by reducing the tax burden, fostering growth, and encouraging new ventures amid a tough economic climate.

“With lowered tax liabilities, startups can reinvest their savings into scaling operations, hiring talent, and driving innovation,” says Nasser. 

“Moreover, the incentives aim to improve the relationship between businesses and the tax authority, fostering a more transparent, growth-oriented financial climate, crucial for Egypt’s long-term economic resilience.”

HURDLES FACING BUSINESSES

Despite Egypt’s resilient startup ecosystem, the country’s economic crisis continues to deepen, driven by a national debt that consumes 96.4% of its GDP and an inflation rate of 32.5%, exacerbated by the ongoing energy crisis. 

As a result, the Egyptian startup scene saw a sharp downturn in the first half of the year, with only 33 startups securing $83 million—an 80% drop compared to last year.

While there were moments of optimism, with record-breaking investments in January, concerns over economic instability and currency fluctuations caused a significant downturn soon after. The floating of the Egyptian pound in March helped stabilize investor sentiment, leading to a modest recovery in funding during May and June.

El Nasr highlights how inflation and economic uncertainty impact startups, prompting them to reassess their operations.

“The challenges have led to a renewed focus on efficiency —cutting costs, being strategic with spending, and seeking opportunities in markets with stronger currencies.”

Nasser notes that economic instability and rising inflation present significant hurdles for startups, especially in securing affordable capital and managing operational expenses.

“Many are showing remarkable resilience by pivoting their business models, cutting non-essential expenses, and leveraging digital solutions to stay competitive. Sectors like fintech, e-commerce, and edtech are seeing sustained interest as they address immediate consumer needs.”

“Nonetheless, for many startups, securing investment and maintaining cash flow remains a top concern, which is why the new tax facilitation package is a timely and welcomed relief,” Nasser adds.

THE NEED FOR NEW POLICIES

A study by the African Development Bank titled Policy Recommendations to Address the Establishment of Startups Outside Egypt outlines the challenges facing startups and entrepreneurs in the country, particularly the disparity between Egypt’s business environment and those of more startup-friendly countries.

Startup-friendly countries, such as the UAE, offer competitive advantages regarding laws and regulations. They provide essential legal requirements for shareholder agreements, which are crucial for startups and investors.

The study calls for the General Authority for Investment, free zones, and the Financial Regulatory Authority to create a list of legal principles to help startups secure investments at various growth stages, including clearly defining key startup concepts in Egyptian laws.

In addition to tax incentives, Nasser urges implementing policies to improve access to capital, simplify regulatory compliance, and promote public-private partnerships will be crucial for business growth.

“Simplifying the process of registering new ventures and offering more accessible government grants or no-interest loans would reduce barriers for entrepreneurs,” Nasser says. “Furthermore, creating targeted initiatives that encourage tech adoption in traditional sectors and providing incentives for research and development.”

He underscores the importance of R&D in driving innovation. Egypt could benefit from stronger incubator and accelerator programs linking startups to local and international markets.

El Nasr adds that, alongside official policies, implementing targeted talent development programs is essential to ensure startups have access to skilled professionals, a key factor for growth.

“At Falak, many startups struggle to recruit and find the right talent, which is a real bottleneck. We need tailored training initiatives, and a centralized hub like Station F in France—where entrepreneurs can access all the resources they need. This would make a significant difference in helping startups scale.”

WHAT THE FUTURE LOOKS LIKE

However, the future looks promising.  The government and the private sector are launching new initiatives to facilitate the growth and success of new startups and businesses.

Earlier this week, Egypt launched the Entrepreneurship and Startups Unit at the General Authority for Investment and Free Zones (GAFI)to support entrepreneurs and startups. The platform will facilitate communication between the government and the entrepreneurial community to identify challenges and develop solutions.

The unit will offer an overview of Egypt’s entrepreneurship ecosystem, detailing government support services, financing options, and the overall startup environment. 

Additionally, a voluntary advisory council will be formed, consisting of private sector representatives and entrepreneurs, to recommend policies and regulations that foster the growth of emerging companies in the country.

Meanwhile, T-Vencubator, a venture capital firm and incubator, has launched Where’s the Problem? campaign to bridge the funding gap and support aspiring Egyptian startups. 

The fund plans to invest in five startups by 2025, offering them an opportunity to showcase their ideas and the necessary resources for success.

Looking ahead, Nasser foresees a dynamic evolution for Egypt’s startup ecosystem over the next ten years, particularly in technology-driven sectors like fintech, e-commerce, healthtech, and edtech. “The convergence of government support, an increasingly tech-savvy population, and rising foreign investment will create fertile ground for innovation.”

“With improved access to capital, mentorship, and global market opportunities, Egyptian startups are likely to play a critical role in driving regional economic transformation,” Nasser says. “If regulatory frameworks continue to evolve in favor of entrepreneurship, Egypt could become a key startup hub in the MENA region.”

Echoing the same sentiment, El Nasr says the country’s startup ecosystem could evolve into a more attractive environment for entrepreneurs “if initiatives offering comprehensive support in one place are implemented”

Support from institutions like the EBRD makes a difference. These initiatives, along with reduced tax burdens for startups, will create an ecosystem that promotes growth and encourages impactful investments, adds El Nasr.