MLA Quick Guide Related to Taxes, Duties, and Tariffs in Ethiopia

• The principal taxes currently in place in Ethiopia are corporate income tax, value added tax (VAT), customs duties and excise taxes. A number of final withholding taxes are imposed on income such as income from employment, dividend, and royalties.
• Ethiopia follows a classical corporate income taxation system in which tax is imposed both at corporate and shareholder level. Corporate income tax rate is 30% and dividend tax rate is 10%. All entities (except those currently enjoying income tax holidays) that carry on business or trade are subject to corporate tax. A business or a trade is defined as any industrial, commercial, professional or vocational activity or any other activity recognized as trade by the Commercial Code of Ethiopia and carried on by any person for profit.
• Partnerships are treated as entities for tax purposes and are therefore subject to corporate income tax.
• Distribution of dividends is subject to 10% withholding tax at the time of declaration of dividends by companies. Companies are liable for withholding of dividend tax regardless of whether they distribute dividends or not unless they transfer the dividends declared to increase their capital within the time limit set down in directives issued by the tax Authorities
• Interest on bank deposits is subject to 5% with-holding tax, which is final. Interest paid on loan from foreign lender recognized as a financial institution by the National Bank of Ethiopia is subject to a 10% withholding tax, which again is final. The borrower in Ethiopia must withhold the 10% tax on a foreign loan in order to obtain deduction of the interest in Ethiopia.
• The withholding tax rates may be reduced by the provisions of an applicable double taxation treaty for non-resident shareholders but these reductions are subject to taxpayers meeting beneficial ownership limitations. Ethiopia has ratified double taxation treaties with countries like France, Israel, Romania, Russia, Turkey, South Africa, Tunisia, Algeria, Yemen and Czech Republic.
• Capital gains tax applies to transfers of shares, bonds and buildings held for business purposes. The capital gains tax rate on transfer of shares or bonds is 30% of the gain. The capital gains tax on transfer of buildings held for businesses is 15% of the gain.
• VAT is chargeable on the supply of goods or services by registered suppliers. Suppliers are normally required to register for VAT if their annual turnover of supplies exceeds one Million Ethiopian Birr. Some supplies are exempted from the VAT. These include financial services, educational, health and transportation services. Some supplies, most notably exports and international transport services, are zero-rated under the VAT regime of Ethiopia.
• Import duties are payable on imports by all persons and entities which have no duty-free privileges. The rate of customs duties ranges from 0% to 35%. Other taxes may also be imposed on imports: excise duties on selected goods (e.g., tobacco); sur tax (10%) on many imports and the VAT (15%).
• Most export products and services from Ethiopia are free from export tariffs.
• Ethiopian investment and tax laws grant tax incentives in the form of duty-free privileges for imports, income tax holidays, and in some cases income tax deductions. The tax incentives depend on the type, size and location of investments.