Tax rates in Ethiopia

Company Tax

30%

Tax Rate For Foreign Companies

Resident entities are taxed on worldwide income; whereas non-residents are taxed on Ethiopia-source income.
Foreign companies are taxed at the same rate as national ones. If a resident taxpayer has foreign taxable income on which he has paid taxes abroad, the taxpayer will be entitled to a tax credit equal to the lesser of the income tax paid or the tax payable in Ethiopia in respect of the foreign income.
A company is considered resident for tax purposes if it is registered according to Ethiopia’s law on commercial registration or if its effective management is in Ethiopia.

Capital Gains Taxation

Capital gains from the alienation of business capital assets are taxed at the normal corporate tax rate (30%). However, gains derived from the transfer (i.e., sale or gift) of a building held for commercial purposes are taxable at a rate of 15%. Gains arising from the transfer of shares are taxed at 30%.
Capital losses may be carried forward indefinitely and offset against capital gains of the same class.

Main Allowable Deductions and Tax Credits

A number of deductions are allowable, including:
- expenditure necessarily incurred during the year in deriving, securing and maintaining a business income
- the total amount by which the depreciable assets and business intangibles of the taxpayer have declined in value during the year from use in deriving business income using the method specified in the annual Income Tax Proclamation
- the losses on the disposal of business assets (except trading stock) disposed of by the taxpayer during the tax year
- the cost of trading stock disposed of by the taxpayer during the year.

Losses may be carried forward for up to five tax years after the end of the year in which ordinary business losses have incurred. Losses may be carried back only by taxpayers engaged in long-term contracts that incur a loss in the final year of a contract that they otherwise could carry forward but are unable to do so as they are ceasing to carry on business in Ethiopia at the end of the contract.

Other Corporate Taxes

Other taxes include a turnover tax (2% on goods sold locally and contractor services; and 10% in other cases), land use tax (rates determined regionally), stamp duties, tax on gains from transfer of certain investment property (15% for building held for commercial purposes; 30% for the transfer of shares).
The employer must contribute 11% of basic salary to the social security scheme.

Other Domestic Resources

Ethiopian Ministry of Revenues

Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Tax Rate

Allowable Deductions and Tax Credits

A deduction between ETB 60 and 1,500 of the taxable amount is applied, according to the total income of the taxpayer.
Some items are exempt from employment income, including:
- employment income up to ETB 600
- pension contributions to the extent exempt from tax under the Public Servants Pension Proclamation or the Private Organization Employees’ Pension Proclamation
- employer contributions to retirement benefits up to a maximum of 15% of an individual’s monthly salary
- amounts paid by employers to cover the actual costs of medical treatment, hardship and other allowances
- transport allowances of up to the lower of ETB 2,200 or 25% of the basic salary per month
- local per diem for fieldwork up to ETB 500 or 4% of the basic salary per day, whichever is higher.

Special Expatriate Tax Regime

Individual residents are subject to tax on worldwide income, non-residents only on the income with Ethiopian source.
Any individual who lives in Ethiopia for more than 183 days during a 12-month period, whether continuously or intermittently, will be considered as resident for the entire tax period.

In addition to normal tax rates, certain payments made to non-residents are subject to a 15% withholding tax.
Certain types of income of non-resident are subject to specific rates, as follows:
• 5% of the gross amount of an insurance premium or royalty
• 10% of the gross amount of a dividend or interest
• 15% of the gross amount of the fee for management or technical fees.