Ethiopia VAT: A Guide for Foreign Investors (2025)

Key Features of Ethiopia VAT:

• Standard VAT Rate:
  • Ethiopia applies a standard VAT rate on most goods and services.
    It is very important to verify the current standard rate with the Ethiopian Revenues and Customs Authority (ERCA) as it may change.
   
• VAT Registration:
  • Businesses with taxable supplies exceeding a certain threshold must register for VAT.  
  • Foreign businesses conducting taxable activities in Ethiopia are also required to register, even if they don't have a physical presence.
   
• Exempt Supplies:
  • Certain goods and services are exempt from VAT. Examples may include essential food items, healthcare services, and educational services.  
  • It is very important to check the Ethiopian Revenues and Customs Authority (ERCA) website for the most current list of exempt items.
   
• Zero-Rated Supplies:
  • Exports are generally zero rated.
   
• Input VAT Recovery:
  • Businesses can recover input VAT incurred on eligible purchases related to their taxable supplies.  
  • Accurate record-keeping is essential for input VAT recovery.
   
• Reverse Charge Mechanism:
  • The reverse charge mechanism may apply to certain transactions, particularly those involving services provided by non-residents.
  • It is very important to check the current rules regarding this mechanism with the ERCA.
   
• VAT Returns and Payment:
  • Businesses must file VAT returns periodically, as determined by the ERCA.  
  • VAT payments are due by the deadlines specified by the ERCA.
   

Important Considerations for Foreign Investors:

• VAT Registration Obligations:
  • Determine your VAT registration obligations based on your business activities in Ethiopia.
• Accurate Record-Keeping:
  • Maintain accurate and complete records of all VAT transactions.
• Compliance with Deadlines:
  • Ensure timely filing of VAT returns and payment of VAT.
• Professional Advice:
  • Seek professional VAT advice to ensure compliance and avoid penalties.
• ERCA Guidelines:
  • It is very important to stay updated with the latest guidelines and regulations issued by the ERCA.

Key Takeaway:

• Ethiopia's VAT system has specific rules and regulations that must be followed.  
• Compliance is essential to avoid penalties.
• It is important to stay updated with the ERCA guidelines.