Ethiopia has a residence-based tax system in terms of which residents are subject to tax on their world-wide income, whereas non-residents are subject to tax only on their Ethiopian sourced income.
A company is resident in Ethiopia if it is incorporated or formed in Ethiopia or its place of effective management is in Ethiopia.
corporate tax rate
Resident companies and permanent establishments of foreign companies are subject to corporate income tax at the rate of 30%. Mining and petroleum companies are subject to corporate income tax at the rate of 25%.
|capital gains tax (“CGT”)|
Capital gains arising from the disposal of business assets (other than immovable property) are subject corporate income tax at the rate of 30%, whereas gains from the disposal of immovable property is subject to CGT at the rate of 15% and shares at the rate of 30%.
withholding tax (“WHT”) rates
WHT rate (%)
|branch profits|| N/A||10%|
5% (interest of deposits)
10% (other interest)
5% (interest of deposits)
10% (other interest)
|management, consulting and technical service fees|| 2%||15% |
| || |
double tax agreements (“DTAs”)
DTAs are in force with China, Cyprus,* Czech Republic, Egypt, France, India, Ireland, Israel, Italy, Korea (Rep of),* Kuwait, the Netherlands, Poland,* Portugal, Romania, Russia, Saudi Arabia, Singapore,* South Africa, Tunisia, Turkey, the United Kingdom and Yemen.
* Effective from 8 July 2018.
Losses may be carried forward for a period of five years. However, a company that has incurred losses for two tax years, each of which has been carried forward, is not allowed to carry forward any further losses in the future.
Losses in respect of mining or petroleum operations may be carried forward against the business income derived from mining/petroleum operations in the licensed area for a period of 10 years.
In terms of Ethiopia’s transfer pricing rules, ERCA has the power to distribute, apportion or allocate income, gains, deductions, losses or tax credits between parties to a transaction that is not an arm’s length transaction in order to reflect the amounts that would have been realised in an arm’s length transaction.
A company is related to another person if the relationship between the two persons is such that one person may reasonably be expected to act in accordance with the directions, requests, suggestions or wishes of the other person, or both persons may reasonably be expected to act in accordance with the directions, requests, suggestions or wishes of a third person. The following are presumed related persons:
a corporate body and a member of the corporate body, when the member, either alone or together with a related person or persons, controls, either directly or through one or more interposed bodies, 25% or more of the rights to vote, dividends or capital in the corporate body; and
two corporate bodies if a person, either alone or together with a related person or persons, controls, either directly or through one or more interposed bodies, 25% or more of the rights to vote, dividends or capital in both corporate bodies.
|thin capitalisation||In terms of Ethiopia’s thin capitalisation rules, the maximum accepted debt : equity ratio is 2:1.|
|employee taxes||The income tax rates applicable to resident individuals, effective 1 July 2011, are:|
|annual chargeable income (ETB)||tax rate |
|first 7 200|| 0%|
|7 201-19 800|| 10%|
|19 801-38 400|| 15%|
|38 401-63 000|| 20%|
|63 001-93 600|| 25%|
|93 601-130 800|| 30%|
|Above 130,800|| 35%|
Both private-sector employers and employees must make social security contributions to the Private Organization Pension Fund.
The employer contribution rate is 11% of the employee’s basic salary, whereas the employee contribution rate is 7% per month.
|payroll taxes||There is no payroll tax in Ethiopia.|
|stamp duty |
Stamp duty is levied under the Stamp Duty Proclamation on a number of instruments at the time of issuance or transfer of a specified instrument.
Stamp duty at a rate of 1% is payable on the value of bonds and security deeds transferred.
Stamp duty on the transfer of movable and immovable property is levied at 2% of the value of the property.
|taxable supplies ||VAT is levied on the supply of goods and services in Ethiopia and on the importation of goods and services.|
Any person who carries on business in Ethiopia and has an annual taxable turnover / expected annual taxable turnover exceeding ETB1-million must register for VAT purposes.
Businesses whose turnover is below the registration threshold may apply for voluntary registration, provided that they regularly supply at least 75% of their goods or services to registered businesses.
|reverse VAT on imported services|
Resident companies are required to account for output VAT in respect of imported services rendered by non-resident companies.