In today’s rapidly evolving digital landscape, fostering innovation and supporting start-ups in the field of information and communication technologies (ICT) is crucial for economic growth.
To encourage the development of the digital economy, section 124b of the General Tax Code of Cameroon outlines a range of incentives and tax advantages for innovative start-ups. These incentives granted, if only the start-up is registered in the approved management centers, aim to provide a favorable environment for it to thrive.
In this blog post, we will explore the various incentives offered, their benefits, and the eligibility requirements for start-ups to take advantage of these opportunities.
Incubation Phase: A Launchpad for Success
During the incubation phase, which lasts for a maximum of five years, start-ups in the ICT sector can enjoy significant tax advantages. The most notable benefit is the exemption from all taxes, duties, levies, and payments, except for social security contributions.
This exemption provides start-ups with the financial freedom to focus on their core activities and foster innovation without the burden of excessive taxation. By easing the initial financial strain, the incubation phase sets the stage for start-ups to grow and thrive in the digital economy.
Transitioning to the Operation Phase: Continued Support
At the end of the incubation phase, when start-ups transition into the operation phase, they continue to receive substantial support through a range of incentives.
Firstly, in the event of a start-up being sold, a reduced rate of 10% is applied to the capital gain from the sale. This encourages investment in start-ups and provides an incentive for potential acquirers.
For start-ups that continue their operations, a comprehensive package of benefits is offered for a duration of five years.
Exemptions and Reduced Rates: A Boost for Start-ups
During the operation phase, start-ups benefit from several tax exemptions and reduced rates. These include exemption from the business license tax, which helps reduce administrative costs.
Additionally, start-ups are exempted from registration fees related to incorporation, extension, or capital increase. This reduces the financial burden of establishing and expanding the business.
Furthermore, start-ups enjoy exemption from all taxes and employer’s charges on salaries paid to their employees, with the exception of social security contributions. This exemption helps start-ups allocate resources towards attracting and retaining talent, fostering growth and innovation.
Reduced company tax rate of 15% provides start-ups with a competitive advantage, allowing them to invest more in research, development, and expansion. The application of a 50% rebate on the assessment of the advance payment and the minimum company tax collection further eases the tax burden and encourages continued growth.
Encouraging Research and Innovation
To promote research and innovation, start-ups are eligible for an income tax credit of 30% on research and innovation expenses, capped at 100 million CFA francs. This incentive encourages start-ups to invest in cutting-edge technologies, develop innovative solutions, and contribute to the growth of the digital economy.
Attractive Tax Rates on Returns
Start-ups also benefit from a reduced rate of income tax on movable capital revenue, dividends paid to shareholders, and interest paid to investors. This reduced rate of 5% makes investing in start-ups more attractive, fostering an environment of entrepreneurship and encouraging capital inflow into the digital economy.
Beyond the Fifth Year: Transitioning to Ordinary Tax System
After the five-year period, start-ups transition to the ordinary law tax system. Although the tax advantages provided during the incubation and operation phases are no longer applicable, the experience gained and the foundation established during the initial stages of growth position start-ups for continued success.
Eligibility and Approval Process
To benefit from these incentives, start-ups must obtain approval from Approved Management Centres dedicated to start-ups. These centers play a pivotal role in evaluating and granting approval for the start-up promotion scheme. The specific obligations of these centers are defined by an instrument issued by the Minister in Charge of Finance, ensuring transparency and accountability in the approval process.
The incentives and tax advantages provided under section 124b of the legislation pave the way for the growth and success of start-ups in the digital economy.
By reducing the financial burden and encouraging innovation, these incentives support the development of a thriving ecosystem for ICT start-ups. With the support of approved management centers, start-ups can take advantage of these incentives and contribute to the digital transformation of our economy.
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