The principal legislation is the Federal Income Tax Proclamation.

Corporate income tax

The corporate tax year follows the Ethiopian calendar. The following table presents corporate income tax (CIT) rates according to the type of income.

Type of income CIT rate (%)
Standard business income 30
Large-scale mining operations 25
Small-scale mining operations 35
Petroleum, natural gas and oil shale operations 30

Note: last update: 2018.

Sources: Ethiopian Revenues and Customs Authority, Ernst & Young

Companies are authorised to carry forward losses during 5 years. For companies operating in the mining sector, the period is extended to 10 years.

Withholding taxes

Type of payment Rate (%) Comments
Dividends 10 Final income tax. Withheld at source for both residents and non-residents.
Interest-on deposits 5 Final income tax. Withheld at source for both residents and non-residents
Interest-on foreign loans 10

Management/technical fees

15

Only for services rendered outside Ethiopia

Branch remittance tax

10

Income from casual rental of property

15

Final income tax. Withheld at source for both residents and non-residents

Note: last update: 2018.Sources: Ethiopian Revenues and Customs Authority, Ernst & Young

Royalties

Royalties on Rate (%) Comments

The right to use artistic works

5

Final income tax. Withheld at source for both residents and non-residents

Geothermal

2

Only for holders of large-scale mining licenses

Construction minerals

3

Only for holders of large-scale mining licenses

Industrial minerals

4

Only for holders of large-scale mining licenses

Metallic minerals

5

Only for holders of large-scale mining licenses

Precious minerals

8

Only for holders of large-scale mining licenses

Semi-precious minerals

6

Only for holders of large-scale mining licenses

Salt

4

Only for holders of large-scale mining licenses

Note: last update: 2018.Sources: Ethiopian Revenues and Customs Authority, Ernst & Young

Value added tax

Value added tax is tax-neutral for businesses.

Legislation

The principal legislation is contained in the Value-Added Tax (VAT) Proclamation. Value added tax only applies to businesses with a turnover higher than ETB 1 million. Basic goods and services (e..g. healthcare, educational services, supply of electricity etc) are exempted from VAT payment.

Businesses not registered for VAT –i.e., with a turnover not exceeding ETB 1 million- are subject to a turnover tax. Rates apply as follows

2% on goods sold locally or services rendered locally

10% on services rendered locally, a reduced rate (2%) apply on the following rendered services: contractors, grain mills, tractors and combine-harvesters.

Source: IGuide Ethiopia

VAT rate

VAT is levied at a rate of 15%. Exported goods benefit from a zero-percent rate.

Customs duties

WTO accession

In 2003, Ethiopia formally submitted a request to become a member of the World Trade Organization. The accession process is still ongoing.

General customs tariffs

On average, goods imported in Ethiopia are subject to a 17% duty rate. The following table presents, for each sector, the average rate.

Sector Average import tariff (%)
Agricultural products 5
Construction 5
Consultancy 3
Financial & Banking 12
Health 5
Leather 5
Power 19
Processed food 30
Textile 18
Tourism 25

Note: last update: June, 2017Database sources: Ethiopian Revenue and Customs Authority, U.S. Ethiopia Country Commercial Guide

Excise tax

The consumption of some commodities is subject to an excise tax. The table below lists items subject to such a taxation.

Items

Excise tax (%)

Asbestos and asbestos products

20

Carpets

30

Clocks and Watches

20

Dolls and Toys

20

Dish washing machines of a kind for domestic use

80

Drink-liquid soft drinks (except fruit juices)

40

Drink-powder soft drinks

40

Drink-Bottled or canned water

40

Drink (alcoholic)- beer and stout

50

Drink (alcoholic)- wine

50

Drink (alcoholic)- whisky

50

Drink (alcoholic)- other alcoholic drinks

100

Drink (alcoholic)- pure alcohol

75

Fuel-super/regular benzene, petrol, gasoline and other motor spirit

30

Motor passenger cars, utility cars, and similar vehicles- up to 1,300 c.c

30

Motor passenger cars, utility cars, and similar vehicles- from 1,301 c.c. up to 1,800 c.c

60

Motor passenger cars, utility cars, and similar vehicles- above 1,800 c.c.

100

Perfumes and toilet waters

100

Salt

30

Sugar (solid form, except molasses)

33

Television broadcast receiver whether or not combined with gramophone, radio, or sound receivers and reproducers

10

Textile-textile fabrics, knitted or woven of natural silk, rayon, wool or other similar materials

10

Textile-garments

10

Textile-textile of any type partly or wholly made from cotton, which is gray, white, dyed or printed, in pieces of any length or width (except “Abudgedid”) and including blankets, bed-sheets, counterpanes, towels, table clothes and similar articles

10

Tobacco-cigarettes, cigar, cigarillos, pipe tobacco, snuff and other products

75

Tobacco-tobacco leaf

20

Video decks, television or video cameras

40

Washing machine of a kind for domestic purposes

30

Database source: Ethiopian Investment Commission

Other import taxes

Surtax

ERCA levies a 10% sur-tax on imports. The tax applies to all goods except those listed below.

Aircraft, spacecraft & parts thereof Capital (investment) goods Fertilizers
Motor Vehicles for freight and passengers & special purpose motor vehicles Petroleum & lubricants Goods imported by persons/organizations exempted from customs duty by law, directives or by agreement entered into by the Government

Source: Import Sur-Tax Council of Ministers Regulations (2007)

Withholding tax on imports

The Government of Ethiopia charges a 3% withholding tax on imported goods. For the “internal” purchase of goods and services, the rate is set-up at 2%. This tax acts as an advance on the corporate income tax. Indeed, “the paid amount is treated as a tax which is withheld and is creditable against the taxpayers’ income tax liability for the year” (source: ERCA).

Calculating customs duty and other taxes

The calculation of taxes must follow the sequential order presented below:

Order Import tax
1 Customs duty
2 Excise tax
3 VAT
4 Surtax
5 Withholding tax

Export taxes

Ethiopia does not apply export taxes except for semi–processed hides and skins (150%).

Ethiopia has concluded tax treaties with a number of countries. Double taxation agreements specify reduced rates for non-residents, thereby reducing the tax burden. Tax treaties with the following countries are currently in force

Treaty partners

Agreement

China
Cyprus
Czech Republic
France
India
Ireland
Israel
Italy
Kuwait
Netherlands
Portugal
Romania
Seychelles
South Africa
South Korea
Sudan
Tunisia
Turkey
United Kingdom
Yemen

Note: last update: October 2018.Sources: Ethiopian Revenues and Customs Authority, Deloitte, Ernst & Young, Pricewatercoopers