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Africa Tax Landscape

Ethiopia

30 Dec 2022

Ethiopia's tax landscape overview highlights the country's tax landscape together with other regulatory considerations of setting up an entity in Ethiopia.

Doing business in country

Overview of tax system (residence versus source)

The Ethiopian tax system is based on residency.

Type of companies that can be set up (e.g., Close corporation, Partnership etc.,)

Private limited and share company.

Requirements for locals to own shares/stake in the company

The Company's Act requires that 50% of the directors should be residents.

Implications of physical presence versus online presence

If an individual is present for more than 183 days in Ethiopia he/she will be considered as a resident.

Process of opening a bank account

A Company can open a bank account by submitting its incorporation documents to a bank of its choice and can use the services in an instant.

Corporate income tax

Viable option from a tax perspective (branch versus subsidiary)

Taxpayers are obliged to pay CIT at the same rate (i.e. 30%) under both options.

Process of registering and setting up a branch or subsidiary

Foreign companies are subject to minimum capital requirements of up to USD 200k to register an office in Ethiopia. Further, they shall submit authenticated incorporation documents to the Trade Registry to establish the branch or subsidiary.

Lodging of tax returns with the local Revenue Authority

Within four months from the end of the financial year.

Corporate tax rate for branches and subsidiaries

The normal corporate tax rates for both are 30% (2022). Rates vary depending on the industry a company is operating and if they have tax incentives.

Tax rules on repatriation of after-tax profits for branch and subsidiary

Any branch profits distribution is taxed at 15%.

Withholding taxes applicable

WHT is at the rate of 15% for residents and 20% for non-residents.

Capital gains tax implications

CGT is applicable on the transfer of immovable assets (15%) and shares (30%).

Value-Added Tax (VAT)

VAT rate applied

15%.

Imposition of VAT

VAT is applicable on every taxable transaction by a registered person including the import of goods and services.

System of submitting VAT returns (manual versus automated)

Electronic filing.

What are the export requirements that must be adhered to?

An exporter is required to obtain an export permit from relevant authorities and shall bring all the export earning to the country.

VAT registration requirements

If taxable activities at the end of any period of 12 calendar months exceeded ETB 1,000,000 or is expected to exceed ETB 1,000,000, then VAT registration is mandatory.

VAT on electronic services

There is no VAT on electronic services provided from outside Ethiopia.

VAT registration requirements for the registration of a Group/Branch

Company registration documents and certificates will be required when registering for VAT. There is no group registration in Zambia, each company must be registered separately.

VAT refunds for non-residents

There is no refund for foreigners.

Recordkeeping requirements

Companies are required to maintain documents in soft and hard copies for ten years.

Employees Tax

Tax year for Individuals

8 July - 7 July.

Is employees’ tax is collected from employers via payroll?

Yes, employers withhold income tax from employees and remit the same to the tax authority.

Collection of Unemployment Insurance Fund (UIF) and Skills Development Levy (SDL)

Even though these funds are not available in Ethiopia, the tax authority acts as a collecting agent for pension fund.

Should employers register and file returns with both the Revenue Authorities?

Employers and employees shall register with the tax authority to obtain a Tax Identification Number (TIN).

When is the monthly submission and payment of the EMP201 tax return due for each month following the collection?

Within thirty days after the payroll month.

Submission of the employee's tax reconciliation return?

Not applicable.

Method of calculating individuals tax

Yes, the Ethiopian tax law follows the progressive taxation rates where the tax rate increases upon the increase of an individual's income.

Labour law registration requirements for employers

No.

Is the system manual or automated?

Electronic filing.

Transfer pricing

Transfer pricing documentation guidelines or regulations

Yes.

Transfer pricing documentation materiality limits or thresholds in relation to transactions or revenue

The annual turnover threshold to prepare and maintain TP documentation is K50 million.

Statutory deadline for submitting transfer pricing documentation

Within 30 days of the written request being duly issued by the Commissioner-General.

Penalties imposed for non-submission and/or incomplete documentation.

Yes, K24,000,000.

International tax

Tax nexus (Permanent Establishment)

Furnishing of services, including consultancy services by a person, through employees or other personnel engaged by the person for such purpose, but only when activities of that nature continue for the same or connected project for a period or periods aggregating more than 183 days in any one-year period is considered as a permanent establishment.

Effective Management

A place of management, branch, office, factory, warehouse or workshop will create a PE risk.

Controlled Foreign Company

No.

Exchange control

No.

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