Ethiopia: Business Environment

Accounting Rules

Tax Year: The fiscal year runs from the 8 July to the 7 July of the following calendar year.
Accounting Standards: The Financial Report Proclamation of Ethiopia - issued in 2014 - requires companies including banks to follow IFRS standards in their financial statement presentation.
Accounting Regulation Bodies: Accounting and Auditing Board of Ethiopia (AABE)
Accounting Reports: The annual report has to include a balance sheet, a profit and loss account and a cash flow statement.
Publication Requirements: Any reporting entity shall submit its financial report to the Accounting and Auditing Board of Ethiopia, within the schedule set by the Board itself.
The Director of the reporting entity shall ensure that copies of financial statements and consolidated financial statements, together with a copy of the auditor's report on those statements, are delivered to the Board for registration within 20 working days from the date financial statements and any consolidated financial statements of the reporting entity, as the case may be, are required to be signed.
Professional Accountancy Bodies: Ethiopia Professional Association of Accountants and Auditors
Certification and Auditing: The auditing standards to be used by auditors in Ethiopia shall be the International Standards for Auditing issued by the International Federation of Accountants.
The director of a reporting entity shall ensure that the financial statements of this entity, as well as its consolidated financial statements, if requested, are audited. This should be done according to the international standards for auditing. The financial statements and any consolidated financial statement should be audited by an auditor, in line with the Commercial Code of Ethiopia or other relevant laws.
Accounting News

Tax Rates

Consumption Taxes

Nature of the Tax: Value added tax (VAT)
Tax Rate: 15%
Reduced Tax Rate: Exports of goods and services are zero-rated.
Other Consumption Taxes: Excise duties are in force for certain products, such as tobacco, alcohol, soft drinks, sugar, salt, perfumes, motor passenger cars, etc.
A turnover tax is levied at a rate of 2% on goods sold locally and contractor services; and 10% in other cases.

Corporate Taxes

Company Tax: 30%
Tax Rate For Foreign Companies: Resident entities are taxed on worldwide income; whereas non-residents are taxed on Ethiopia-source income.
Foreign companies are taxed at the same rate as national ones. If a resident taxpayer has foreign taxable income on which he has paid taxes abroad, the taxpayer will be entitled to a tax credit equal to the lesser of the income tax paid or the tax payable in Ethiopia in respect of the foreign income.
A company is considered resident for tax purposes if it is registered according to Ethiopia’s law on commercial registration or if its effective management is in Ethiopia.
Capital Gains Taxation: Capital gains from the alienation of business capital assets are taxed at the normal corporate tax rate (30%). However, gains derived from the transfer (i.e., sale or gift) of a building held for commercial purposes are taxable at a rate of 15%. Gains arising from the transfer of shares are taxed at 30%.
Capital losses may be carried forward indefinitely and offset against capital gains of the same class.
Main Allowable Deductions and Tax Credits: A number of deductions are allowable, including:
- expenditure necessarily incurred during the year in deriving, securing and maintaining a business income
- the total amount by which the depreciable assets and business intangibles of the taxpayer have declined in value during the year from use in deriving business income using the method specified in the annual Income Tax Proclamation
- the losses on the disposal of business assets (except trading stock) disposed of by the taxpayer during the tax year
- the cost of trading stock disposed of by the taxpayer during the year.
Losses may be carried forward for up to five tax years after the end of the year in which ordinary business losses have incurred. Losses may be carried back only by taxpayers engaged in long-term contracts that incur a loss in the final year of a contract that they otherwise could carry forward but are unable to do so as they are ceasing to carry on business in Ethiopia at the end of the contract.
Other Corporate Taxes: Other taxes include a turnover tax (2% on goods sold locally and contractor services; and 10% in other cases), land use tax (rates determined regionally), stamp duties, tax on gains from transfer of certain investment property (15% for building held for commercial purposes; 30% for the transfer of shares).
The employer must contribute 11% of basic salary to the social security scheme.
Other Domestic Resources: Ethiopian Ministry of Revenues; Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Country Comparison For Corporate Taxation

	Ethiopia	Sub-Saharan Africa	United States	Germany
Number of Payments of Taxes per Year	29.0	36.6	10.6	9.0
Time Taken For Administrative Formalities (Hours)	300.0	284.8	175.0	218.0
Total Share of Taxes (% of Profit)	37.7	47.3	36.6	48.8

Source: Doing Business - Latest available data.

Individual Taxes

Tax Rate

Income tax from employment	Progressive rates from 0 to 35%
Up to ETB 600	0%
ETB 601- 1,650	10%
ETB 1,651 - 3,200	15%
ETB 3,201 - 5,250	20%
ETB 5,251 - 7,800	25%
ETB 7,801 - 10,900	30%
Above ETB 10,900	35%
Business Income
Up to ETB 7,200	0%
ETB 7,201 - 19,800	10%
ETB 119,801 - 38,400	15%
ETB 38,401 - 63,000	20%
ETB 63,001 - 93,600	25%
ETB 93,601 - 130,800	30%
Above ETB 130,800	35%
Rental income	35%

Allowable Deductions and Tax Credits: A deduction between ETB 60 and 1,500 of the taxable amount is applied, according to the total income of the taxpayer.
Some items are exempt from employment income, including:
- employment income up to ETB 600
- pension contributions to the extent exempt from tax under the Public Servants Pension Proclamation or the Private Organization Employees’ Pension Proclamation
- employer contributions to retirement benefits up to a maximum of 15% of an individual’s monthly salary
- amounts paid by employers to cover the actual costs of medical treatment, hardship and other allowances
- transport allowances of up to the lower of ETB 2,200 or 25% of the basic salary per month
- local per diem for fieldwork up to ETB 500 or 4% of the basic salary per day, whichever is higher.
Special Expatriate Tax Regime: Individual residents are subject to tax on worldwide income, non-residents only on the income with Ethiopian source.
Any individual who lives in Ethiopia for more than 183 days during a 12-month period, whether continuously or intermittently, will be considered as resident for the entire tax period.
In addition to normal tax rates, certain payments made to non-residents are subject to a 15% withholding tax.
Certain types of income of non-resident are subject to specific rates, as follows:
• 5% of the gross amount of an insurance premium or royalty
• 10% of the gross amount of a dividend or interest
• 15% of the gross amount of the fee for management or technical fees.

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed: List of double taxation treaties signed by Ethiopia
Withholding Taxes: - Dividends
Residents: 10%
Non-residents: 10%
- Interests
Residents: 5%
Non-residents: 10%
- Royalties
Residents: 5%
Non-residents: 5%
- Technical service fees
Residents: 2%
Non-residents: 15%/10% for mining

Sources of Fiscal Information

Tax Authorities: Overview of Ethiopia's tax measures in response to Covid-19
Ethiopian Ministry of Revenues
Other Domestic Resources: Ministry of Finance
Ethiopian Customs

Intellectual Property

National Organisations: You can contact the Ethiopian Intellectual Property Office (EIPO) by email.
Regional Organisations: African Regional Intellectual Property Organization (ARIPO)

Legal Framework

Independence of Justice: According to the U.S. State Department Human Rights report, the law in Ethiopia provides for an independent judiciary. Nevertheless, although the civil courts operate with relatively great independence, the criminal courts remain weak, overburdened, and subject to political influence.
Equal Treatment of Nationals and Foreigners: Nationals and foreigners are formally granted equal treatment under Ethiopian law.
The Language of Justice: Amharic language is the sole official language of Ethiopia.
Recourse to an Interpreter: It is possible to have access to an interpreter in Ethiopia.
Sources of the Law and Legal Similarities: Ethiopia's legal system is based on civil law. The main source of the law is the Constitution of 1995. The Constitution establishes a two-house parliament for the federal government: the House of Peoples’ Representatives and the House of Federation, who are entrusted with legislative power.
Checking National Laws Online: Library of the Congress website

Standards

National Standards Organisations: Ethiopian Standards Agency
Integration in the International Standards Network: The ESA is a member of ISO. The Agency is also an Affiliate Plus member of IEC and participating member of the Codex Alimentarius Commission (CODEX). It also contributes to regional standards harmonization activities of the Common Market for Eastern and Southern Africa (COMESA) and is a founding member and Council member of the African Regional Organization for Standardization (ARSO).
Classification of Standards: SO 3166-2:ET
Online Consultation of Standards: See the ISO catalogue.
Certification Organisations: Ethiopian National Accreditation Office

Business Practices

General Information
Opening Hours and Days: Government offices work 39 hours in a week. Office hours normally go from 8.30am. to 5.30pm (with a one-hour lunch break) Monday through Thursday, and from 11.30 am to 1.30pm on Fridays.
Most banks are open from 8am. to 4pm., including lunch hours, Monday to Friday. Most banks are also open on Saturday from 8am to noon.
Most shops are open up to 6pm, Monday to Saturday. Some shops, particularly supermarkets, are open on Sundays and public holidays.

Public Holidays

2019 Public Holidays
7 Jan	Ethiopian Christmas Day
20 Jan	Epiphany
2 Mar	Adwa Victory Day
26 Apr	Ethiopian Good Friday
28 Apr	Ethiopian Easter Sunday
1 May	International Labor Day
5 May	Freedom Day
28 May	Derg Downfall Day
5 Jun	Eid ul Fitr
12 Aug	Eid al-Adha
12 Sep	Ethiopian New Year
27 Sep	Meskel
10 Nov	The Prophet's Birthday

Holiday Compensation: All workers have a paid day off on national holidays. Anyone who is required to work on a national holiday is guaranteed to be paid twice the amount paid on regular working days.

Periods When Companies Usually Close

According to Lunar calendar

Eid al-Adha

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