Ethiopia Tax Deductions: A Guide for Foreign Investors (2025)

1. Corporate Income Tax (CIT) Deductions:

• General Business Expenses:
  • Ordinary and necessary business expenses are generally deductible. This includes:
  • Salaries and wages.
  • Rent and utilities.
  • Office supplies.
  • Marketing and advertising costs.
  • Travel expenses (within reasonable limits).
• It is vital to maintain detailed records with proper documentation.

• Depreciation of Assets:
  • Depreciation of tangible and intangible assets is deductible.  
  • The Ethiopian Revenues and Customs Authority (ERCA) sets depreciation rates and methods. It is very important to see the current rules from the ERCA.
  • Maintain detailed records of asset acquisition and depreciation calculations.
• Interest Expenses:
  • Interest expenses on business loans are generally deductible, provided they are incurred for business purposes.
  • Thin capitalization rules may apply, limiting the deductibility of interest paid to related parties.  
  • It is very important to keep all loan agreements.
• Bad Debts:
  • Bad debts can be deducted if they are proven to be irrecoverable.
  • Adequate documentation is required to support the claim.
• Research and Development (R&D) Expenses:
  • R&D expenses may be deductible, particularly if they contribute to the Ethiopian economy.
  • It is very important to follow the Ethiopian Revenues and Customs Authority guidance on this matter.
• Contributions to Approved Pension Funds:
  • Employers contributions to approved pension funds are deductible.
• Donations to Approved Charitable Organizations:
  • Donations to approved charitable organizations within Ethiopia may be deductible.

2. Withholding Tax Deductions:

• Important Considerations for Foreign Investors:
  • Documentation:
    • Maintain accurate and complete records of all expenses.
    • Documentation is essential to support your deductions.
    • Compliance with ERCA Regulations:
    • Stay updated on the latest regulations and guidelines issued by the ERCA.
  • Tax Treaties:
    • Familiarize yourself with the relevant double taxation treaty between Ethiopia and your home country.
  • Professional Advice:
    • Seek professional tax advice from experts in Ethiopia to ensure compliance and maximize your deductions.
    • Ethiopian Revenues and Customs Authority (ERCA) Guidelines:
    • It is very important to keep up to date with the guidelines published by the ERCA.

Key Takeaway:

• Ethiopia offers a range of tax deductions to support businesses.  
• Accurate documentation and compliance are essential.
• It is always wise to seek professional tax advice.
• It is very important to keep up to date with the guidelines published by the ERCA.