Ethiopia Taxation: A Guide for Foreign Investors (2025)

1. Corporate Income Tax (CIT):

• Standard Rate: Ethiopia levies corporate income tax on the profits of businesses. It is very important to check the current corporate tax rate with the Ethiopian Revenues and Customs Authority (ERCA) as it may change.
• Tax Incentives: The Ethiopian government offers various tax incentives to attract foreign investment, particularly in priority sectors such as manufacturing, agriculture, and export-oriented industries.
  These incentives may include:
  • Tax holidays.
  • Reduced tax rates.
  • Exemptions from customs duties.
• Transfer Pricing: Ethiopia has transfer pricing regulations in place, and multinational companies operating in Ethiopia must comply with these regulations.

2. Value Added Tax (VAT):

• Standard Rate: Ethiopia applies a standard VAT rate to most goods and services. It is very important to check the current VAT rate with the ERCA as it may change.
• Exemptions: Certain goods and services are exempt from VAT, such as basic food items, healthcare services, and educational services.
• Registration: Businesses exceeding a certain turnover threshold are required to register for VAT.

3. Withholding Tax:

• Ethiopia applies withholding tax on various payments, including:
  • Dividends.
  • Interest.
  • Royalties.
  • Payments to non-residents.
  • The withholding tax rates vary depending on the type of payment and the recipient.

4. Customs Duties:

• Customs duties are levied on imported goods.
• The rates vary depending on the type of goods.
• Ethiopia also has provisions for duty-free imports for certain investment projects.

5. Excise Tax:

• Excise tax is levied on specific goods, such as alcohol, tobacco, and luxury items.
• The rates vary depending on the type of goods.

6. Personal Income Tax (PIT):

• PIT is levied on the income of individuals residing and working in Ethiopia.
• The tax rates are progressive, meaning higher income earners pay higher tax rates.

7. Investment Incentives and Guarantees:

• The Ethiopian government offers various investment incentives and guarantees to foreign investors, including:
  • Investment protection agreements.
  • Repatriation of profits.
  • Access to foreign exchange.

8. Tax Administration:

• Ethiopian Revenues and Customs Authority (ERCA): The ERCA is responsible for administering and enforcing tax laws in Ethiopia.
• Tax Identification Number (TIN): Businesses and individuals are required to obtain a TIN for tax purposes.
• Record Keeping: Businesses are required to maintain accurate and complete records of their financial transactions.

Key Considerations for Foreign Investors:

• Tax Planning: Engage in proactive tax planning to optimize your tax position.
• Compliance: Ensure compliance with all tax laws and regulations.
• Documentation: Maintain accurate and complete records of all financial transactions.
• Professional Advice: Seek professional tax advice from experts in Ethiopia.
• Stay Updated: Tax laws and regulations are subject to change, so it's essential to stay updated.