If you are a business company intending to open a new business here in Ethiopia or an already established business, here is the list of taxes imposed on business companies operating in Ethiopia. Basically the Ethiopian tax law provides Direct and Indirect Taxes.

The Direct Taxes are divided into five categories:

  1. Personal income tax,
  2. Rental tax,
  3. Withholding tax,
  4. Business profit tax and
  5. Other taxes. Income From Rent Of Patent And Copyright, Income From Winning Lottery, Income From Share In Company…etc fall under this category.

 
The main types of indirect taxes applicable are

  1. Value Added Tax (VAT),
  2. Customs Duty,
  3. Excise and
  4. Turn Over Taxes.

I. DIRECT TAXES

Incomes taxable under Article 6 of the Income Tax Proclamation No. 286/2002 includes:

• Income from employment (5% - 35%)

• Income from rental of building (10% - 35%)

• Income from business profit – for unincorporated entities (10% -35%);

–for incorporated ones (30%)

• Income from royalties is at flat rate of 5%

• Income paid for services rendered outside of Ethiopia is at a flat rate of 10%

• Income from games of chances (15%)

• Dividends (10%)

• Income from causal rental of property is 15% (any land, building or movable asset)

• Interest income (5%)

• Gains on transfer of certain investment property (sale or gift):

  • Building for business, factory, office (15%)
  •  Shares of companies (30%)

• Income from agricultural activities – based on proclamations issued by regional states.

• Inheritances and donations: No estate duty or other death duties are levied in Ethiopia.

Personal Income Tax Rates/Month Tax rate

No.

Employment Income per month

Tax rate

 

Over Birr

To Birr

 
 

0

150

exempt threshold

 

151

650

10

 

651

1400

5

 

1401

2350

20

 

2351

3550

25

 

3551

5000

30

 

Over 5000

----

35

Taxable business income of companies is taxed at the rate of 30% percent. Other business taxpayers, with business income ranging from ETB 1,801.00 to ETB 60,000.00, pay between 10 and 30 percent. Business Income, more than ETB 60,000, is charged 35 percent.

Taxable Business Income Tax Rates

No.

Employment Income per month

Tax rate

 

Over Birr

To Birr

 
 

0

1800

exempt threshold

 

1801

7800

10

 

7801

16800

5

 

16801

28200

20

 

28201

42600

25

 

42601

60000

30

 

Over 60000

 

35

So an individual foreigner, who lives in Ethiopia for more than 183 days in a period of twelve calendar months, whether continuously or intermittently, is regarded as being resident for the entire tax period and is taxed in accordance with the provisions of Income Tax Proclamation No. 286/2002 (Article 5.2). Article five of the proclamation, defines resident as follows:- 

  1. The one who has permanent residence address in Ethiopia or
  2. If the person has a place in Ethiopia that he frequently resides in or
  3. If the person is an Ethiopian citizen but lives abroad for the purpose of councilor office, diplomatic or for any other similar purposes.
  4. If the person was present for 183 days in Ethiopia within 12 months permanently or other way, the law regards him as an Ethiopian  resident and imposes him an obligation of paying tax from any income he gets.

However, the following are excluded from the computation of taxable income in accordance with Article 13 of the Income Tax Proclamation No. 286/2002 and Article 13 of the Regulations No. 78/2002:

  • Medical treatment;
  • Transportation allowance;
  • Hardship allowance;
  • Reimbursement of travelling expenses incurred on duty;
  • Per Diem and travelling expenses on joining and completion of employment, provided that such payments are made pursuant to specific c provisions of the contract;
  • board members’ and board secretaries’ allowances; the income of persons employed for domestic duties;
  • The contribution of the employer and the employee to the retirement or provident fund and all forms of benefits contributed by employers that do not exceed 15% of monthly salary; and
  • Payments made to a person as compensation in relation to injuries suffered by that person or the death of another person.

II. INDIRECT TAXES

A.   The Value Added Tax (VAT)

VAT replaces the old business tax system of commodity and service taxes including the sales tax and the withholding tax. The VAT rate is 15 percent of the value of every taxable transaction by a registered person and all imports of goods and services other than those VAT exempted items in Ethiopia. Taxable transactions which shall be charged with zero percent are: export of goods or services to the extent provided in the regulations. The rendering of transportation or other services directly connected with international transport of goods or passengers as well as the supply of lubricants and other consumable technical supplies taken on board for consumption during international flights.

B.    Excise Tax

Excise Tax is payable on a range of consumer goods, whether produced locally or imported, e.g., alcohol, tobacco, salt, fuel, television sets, cars, carpets and toys. Its rates vary from 10% percent on receivers, garments and textiles of any type and fabrics to 100 percent on perfumes, vehicles above 1,800 cc and alcoholic drinks. It is payable in addition to VAT.

C.   Turn Over Tax

Turn over Tax under the total value of 500,000 Birr, is applicable to pay 2% or 10% percent from annual taxable transactions on goods sold or service rendered locally. All income from domestic or foreign sources is taxed whether it is obtained as remuneration, profit or gains, from employment, business activities or any activity which brings income to the beneficiary.

For depreciation allowance, assets are categorized into different classes. The categories and rates of depreciation are:

                  i.   Buildings and structures 5%;

                ii.   Intangible assets 10%;

              iii.   Computers, information systems, software products and data storage equipment 25%; and

              iv.   All other business assets including automobiles, buses and minibuses 20%.

Every investor has a tax obligation and is required to obtain a tax payer identify caution number (“TIN”). An investor who involves in taxable activity has also an obligation to register for VAT.

D.   Export Tax

Export Tax is levied on raw and semi-processed hides and skins, and wet-blue cow hide, pickled sheep skins with wet-blue sheep and wet blue goat skins at flat rate of 150%.

E. Stamp and Transfer Duty

Stamp duty is payable on a broad class of legal instruments, such as:

  • On Memoranda and Articles of Association
  • upon first execution − a flat Birr 350
  • upon any subsequent execution − a flat Birr 100
    • Contracts and agreements and memoranda − a flat Birr 5
    • Security deeds − 1% on the value of the deed
    • Contract of employment initial stage − 1% of a month’s salary
    • Register of title to property − 2% of the value.

According to Ethiopian legal system any tax imposed is appealable. Thus any tax payer has the Right to Appeal and can submit appeal on a tax decision rendered by the Tax Authority.

If you have an additional question or comment or need to get a practical legal support in this regard please  Contact us.

“Copyright © 2003-2013 Fikadu Asfaw and Associate Law Office

Related notes

Note: This guide provides vital information on Ethiopian Tax law and practice and is not intended to substitute professional advice given with full knowledge of the specific circumstances of each case and proficiency in the law of Ethiopia such as might be provided by a tax Attorney or tax lawyer in Ethiopia. Such information about 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.