TAX

Ethiopia Fiscal Guide 2012/13

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Introduction: Ethiopia Fiscal Guide 2012/13

Income tax
Business income Income tax is charged on all the income of an entity having a permanent establishment in Ethiopia. An administrative branch, branch, factory, workshop, mine, quarry or any other place for exploitation of natural resources, and a building site or place where construction and/or assembly works are carried out, is considered to be a permanent establishment. Income tax applies to residents of Ethiopia with respect to their worldwide income, and non-residents of Ethiopia with respect to their Ethiopian-sourced income.

Rates
Resident companies Corporate tax Dividends Interest on deposits-local Royalties 30% 10% 4% 5%

Resident individuals Individual (employment) tax Taxable income Up to 151 651 1 401 2 351 3 501 Above (Birr) 150 650 1 400 2 350 3 500 5 000 5 000 Rate of tax (%) Exempt threshold 10 15 20 25 30 35

Non-Residents Interest on borrowings-foreign Technical services from abroad Royalties 10% (maximum) 10% 5%

Individuals (sole proprietors) income tax table Taxable income Up to 1,801 7,801 16,801 28,201 42,601 (Birr) 1,800 7,800 16,800 28,200 42,600 60,000 Rate of tax (%) Exempt threshold 10 15 20 25 30

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Capital gains tax

Certain gains of a capital nature are subject to capital gains tax (CGT), such as: building held for business, factory, ofce 15% CGT rate shares of companies 30% CGT rate.

Treatment of losses
Business enterprises (registered investments) that suffer losses during a tax holiday period can carry forward such losses for half of the income tax exemption period following the expiry of the exemption period. In addition, a loss incurred in a tax period may be set off against taxable income in the next ve tax periods, provided that ownership of a body does not change by more than 25% in that tax period. Losses may be carried forward and deducted only for two periods of three years.

Transfer pricing and thin capitalisation rules

The Income Tax Proclamation provides that, where conditions are made or imposed between persons carrying on business in their commercial or nancial relations, which differ from those which would be made between independent persons, the Tax Authority may direct that the income of one or more of those related persons is to include prots. The Tax Authority may make agreements in advance with persons carrying on entrepreneurial activities, subject to conditions, if necessary, that specied conditions between related persons do not differ from those which would be made between independent persons. The debt to equity ratio for companies that are thinly capitalised as provided for in the Income Tax Proclamation is 4:1.

Inheritances and donations

No estate duty or other death duties are levied in Ethiopia.

Transaction daxes
Value-added tax (VAT) VAT is charged, under the Value Added Tax Proclamation introduced as from 1 January 2003, on the supply of goods and services by registered persons, and on the importation of goods and services into Ethiopia and services performed by a non-resident person (not registered for VAT in Ethiopia) who performs services for a resident in Ethiopia. The rate of VAT is 15%. Turnover tax (ToT) ToT is charged under the Turnover Tax Proclamation introduced as from 1 January 2003. ToT is charged at a rate of 2% on the supply of goods and supply of services relating to contractors, grain mills, tractors and combine harvesters and at a rate of 10% on other services. Excise tax Excise tax is payable on certain goods when imported on CIF and when produced locally. Rate varies from 10% to 100% on the cost of production.

Stamp and transfer duty

Stamp duty is payable on a broad class of legal instruments, such as: On Memoranda and Articles of Association upon rst execution a at Birr 350 upon any subsequent execution a at Birr 100 Contracts and agreements and memoranda a at Birr 5 Security deeds 1% on the value of the deed Contract of employment initial stage 1% of a months salary Register of title to property 2% of the value.
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Double tax treaties and reduced rates

Ethiopia has signed double tax agreements (DTAs) with several countries. These DTAs do not provide for reduced taxation rates.

Investment information
Investment rules Ethiopia has a longstanding, stable and positive attitude towards foreign private investment with sound macro-economic policies and a stable foreign exchange environment. Investment opportunities exist in: Agriculture main stay of the economy providing employment to 85% of the population. Contributes about 45% of the GDP and 62% of total exports Agro-processing Manufacturing Mining Tourism.

Incentives
Income tax holiday Any income derived from an approved new manufacturing and agro-industry investment or investment made in agriculture, is exempt from the payment of income tax for a specied number of years of investment, depending on the volume of exports and the location in which the investment is undertaken. Customs import duty 100% exemption from the payment of import customs duties and other taxes levied on imports is granted to an investor to import all investment capital goods as well as spare parts worth up to 15% of the value of the imported investment capital goods. Investment capital goods imported without the payment of import customs duties and other taxes levied on imports may be transferred to other investors enjoying similar privileges. Exemptions from customs duties or other taxes levied on imports are granted for raw materials necessary for the production of export goods. Export custom duties All exports are exempt from customs duty and other taxes levied on exports. The export trade incentive schemes that can be utilised by manufacturers include: Duty draw-back scheme Voucher scheme Bonded manufacturing warehouse scheme.

Exchange control
Exchange and remitting funds The National Bank of Ethiopia (NBE) regulates the entry and remittance of foreign currencies in Ethiopia through specic directives applicable to both Ethiopians and foreigners. The directives govern the ow of foreign exchange. Virtually all outgoing and some incoming foreign currencies (such as foreign loans) are regulated. Foreign investors may, with NBEs approval, open foreign exchange accounts in commercial banks. Eligible exporters of goods and recipients of inward remittances may also open foreign-exchange accounts without the prior approval of the NBE. Subject to the exchange regulations of the NBE, a person with a foreign exchange account can remit foreign currency abroad.

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A foreign investor has the right to make the following remittances out of Ethiopia in convertible foreign currency. Prots and dividends accruing from investments Principals and interest payments on external loans Payments related to technology agreements Proceeds from the sale or liquidation of an enterprise Proceeds from the sale or transfer of shares or partial ownership of an enterprise to a domestic investor Compensation paid to a foreign investor Expatriates employed in an enterprise may remit, in convertible foreign currency, salaries and other payments accruing from their employment in accordance with the foreign exchange regulations or directives of the country. According to UNCTADs consultations, the foreign exchange regime generally is not a big problem but there is dissatisfaction with its application in the area of trade-related payments.

Annual budget announcement

The annual budget is announced by the Parliament through a Proclamation before the beginning of the budget year. The scal year runs from 8 July to 7 July.

Trade and bilateral agreements

Trade and bilateral agreements are signed with many countries. Guarantee against expropriation The constitution of the Federal Democratic Republic of Ethiopia protects private property. The investment Proclamation also provides investment guarantees against measures of expropriation and nationalisation that may only occur for public interest and in compliance with the requirements of the law. Should expropriation arise, the government guarantees to provide adequate compensation corresponding to the prevailing market value of property and such payment shall be effected promptly. Other guarantees Ethiopia is a member of the World Bank afliated Multilateral Investment Guarantee Agency (MIGA) Ethiopia has concluded bilateral investment promotion and protection agreements with a number of European, Middle East and African countries Ethiopia has also signed the World Bank treaty, The International Convention on Settlement of Investment Disputes between States and Nationals of Other States (ICSID).

Economic statistics
Prime interest rate According to information obtained, there has been no lending by the Central bank. The inter-bank lending rate is 7.5%. Birr17.31 2012 General estimate 33.9% ofcial (actual is higher) US$38.53 billion (2011 est.)

US$ exchange rate (31 December 2011) Ination GDP

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Travel requirements
Visas may be available at the airport for foreigners coming from certain countries. Flights numerous international carriers y into Ethiopia and there are regular ights from regional and certain international hubs. Inoculations are not mandatory but advisable.Yellow fever immunisation certicates must be produced on arrival.

Currency
The Birr (Birr) is the ofcial currency of Ethiopia.

Languages
The ofcial language of Ethiopia is Amharic although English is widely spoken and legislation is issued by Proclamation in both Amharic and English. French, Italian and various local languages are spoken.

Ofcial holidays
Fixed dates: 7 January (Ethiopian Christmas) 20 January (Ethiopian Epiphany) 2 March (Victory of Adowa) 19 March (Birthday of Prophet Mohamed) 25 April (Ethiopian Good Friday) 27 April (Ethiopian Easter) 1 May (International Labour Day) 5 May (Ethiopian Patriots Victory Day) 28 May (Downfall of the Derg) 11 September (New Years Day) 27 September (Finding of the True Cross) 1 October (Id Alfatar/Ramadan) 8 December (Id Al Adha/Arafa-). Variable dates: Good Friday, End of Ramadan, Arafa and Birthday of the Prophet.

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Key contacts Richard Ndungu Director Tax T: +254 (20) 280 6000 E: rndungu@kpmg.co.ke

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