Setting up business in Ethiopia

Located in the horn of Africa, Ethiopia is the largest country in the Easter sub-region next to the Republic of Sudan of over 1.14 million square kilometers of land area about 13.2 million hector of 12% is cultivable, 40% is pastureland and this together with seasonal rainfall and abundant water resource has made agriculture the mainstay of the country’s economy. Due to this Ethiopians, engaged on foreign trade, export are mainly dominated by agricultural products such as coffee, oilseeds & pulses, hides and skin and in manufacturing, textile and garments leather and leather products also make sizable contribution to export.

Current data shows that investment is rising and the economy is growing at an unprecedented rate and tangible progress in Ethiopia. Moreover, both local and foreign investors are in venture in business now. The number of tourist arrival is also increasing at significant rate.

Types of Business Entities

Ethiopian law recognizes six different kinds of business entities. Therefore in Ethiopia business can be carried out in one of the following six different kinds of business forms. These are Sole Proprietorships, Partnership, General Partnerships, Limited Partnerships, Share Companies, Private Limited Companies, and Joint Ventures. Let’s have a brief look at them.

 

Share Company

A share Company will be established as per the 1960 Commercial Code of Ethiopia and the Ethiopian Investment Laws. The purpose of the company is free but there are a few sectors limited to citizens and the public sector. The minimum number of founders of a share company is five in number. Except for some businesses a share company can be formed with a minimum capital of ETB 50,000. The share company liability is limited to the assets of the company. The cost of its incorporation is less than USD 150. Formal registration or investment certificate is required. The company’s name shall be as agreed among the share holders and shall not offend public policy nor the rights of third parties and shall include the words “share company”. Memorandum of understanding and articles of association is required. Full subscription of capital, in addition to at least 25% of the capital paid up capital is required. Contribution of share holder’s equity and sole of shares plus other financial sources is necessary. Income tax of share holders is based on the amount of dividend with progressive rate.

Private limited company

A Private Limited Company will be established as per The 1960 Commercial Code of Ethiopia and the Ethiopian Investment Laws. The purpose of the company is free but there are a few sectors limited to citizens and the public sector. The minimum and maximum number of members of a private limited company is two and fifty respectively. The minimum capital requirement to establish a Private limited company is ETB 15,000. The Liability of a Private Limited Company is limited to the company’s assets. The cost of incorporation for private limited company is not less than 50 USD. The company name shall be as agreed but with disclosing the nature of business in it and shall include the words “private limited company”. Moreover duly signed memorandum of understanding and Article of association is required. The sources of credit of a private limited company are from contribution of share holders equity and other financial sources. Income tax of share holders is based on the amount of dividend with progressive tax rate.

Joint Venture

A foreign investor may team up with a domestic investor or company for a joint investment, usually in the form of partnership or private limited company or share company. Under the investment proc.282/2002 a minimum capital of USD 60,000.00, except in consultancy service and publishing, is required from a foreign investor who intends to enter into a joint venture partnership with a domestic investor. There is no restriction at all in share ownership in a joint venture. A foreign investor who wishes to invest in partnership with domestic investors in areas of engineering, architecture, accounting and auditing services, project studies or business and management consultancy services or business and management consultancy services or publishing is required to invest USD 25,000.00 only per project. The foreign partner can satisfy this minimum equity capital either in cash and /or in kind.

Any pertinent information about investment in Ethiopia, tax in Ethiopia, can be available from an Ethiopian Investment Lawyer, Ethiopian Tax lawyer, Ethiopian, Ethiopian Employment Layer, Ethiopian Labour Relationships Lawyer, Ethiopian Immigration lawyer.

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