Information Information

Tax Synopsis

Tax Regime

 

Taxable income is defined in Proclamation No. 286/2002 and Regulation No. 78/2002 as the amount of income object to tax after deduction of all expenses and other dutiable items. The principal taxes that are currently in place are:

Income Tax

Some of the taxable incomes include, but not limited to, Income from employment, business and personal activities, entrepreneurial activities by non-residents, movable property anributable to a pennanent establishment in Ethiopia immovable property and appurtenances thereto, etc. 

Every person deriving income from employment is liable to pay tax on that income. The rate is specified hereunder. The marginal tax rates range from 10°0 to 35°0. 

   Table2: Income Tax from Employment 

Monthly Employment Income (Birr)

Income Tax Payable (%)

UP to 150

Exempt threshold

151-650

10

651-1400

15

1401-2350

20

2351-355

25

3551-500

30

Above 5000

35

 

Business income of juridical persons is taxable at the rate of 30%. Taxable business income of other taxpayers is shown below. 

    Table 3: Taxable Business Income other than that of Ju­ridical Persons 
 

Taxable Business Income (per year)

Income Tax Payable (%)

Up to 1,800

Exempt threshold

1,801--7,800

10

7,801--6,800

15

16,801--28,200

20

28,201--42,600

25

42,601--60,000

30

Over 60,000

35

  

Corporate Income Tax

The rate of corporate income tax on all corporate taxable projects earned by businesses is 30%. 

Turnover Tax

Turnover taxpayers are those persons who are not re­quired to be registered for Value Added Tax because the total value of their yearly taxable transactions is less than 500,000 Birr. 

A 2% tax is payable for goods sold locally and for ser­vices rendered locally. The services rendered include contractors, grain mills tractors and combine-harvesters. 10% tax is levied on other services. Base of computa­tion of the Turnover Tax is the gross receipts in respect of goods supplied or services rendered. Some goods and services are, however exempted from turnover tax. 

Value Added Tax (VAT)

This tax is levied at the rate of 15% on value added at every taxable transaction and is transferred to consumers expenditure. Value added tax is charged on those busi­nesses whose total annual turnover exceeds 500,000 Birr per year. The following tax payers are also required to register for VAT regardless of their annual sales turnover: 

  • Share Companies, Private Limited Companies and Government Enterprises
  • Grade I to Grade 9 Contractors
  • Leather and leather products manufacturers
  • Shoe factories
  • Computers and related products suppliers
  • Electronics Refrigerators, television sets. Decks suppliers
  • Importers
  • Flour producers
  • Plastic and plastic products producers Jewelers There are also products and services that are exempted from paying VAT. This includes the following:

 

  • Financial services,
  • Imported raw materials used for production of exportable produce,
  • Raw materials and packaging materials purchased domestically and used for export­able produces,
  • Medical services,
  • Human drugs,
  • Books,
  • Electricity,
  • Kerosene,
  • Water,
  • Education,
  • Milk,
  • Bread,
  • Transport service,
  • Postal services,
  • License and certification fees,
  • Used houses,
  • Fertilizer, pesticides and improved seeds and seedlings.
  • All export is under zero percent VAT rate 

Excise Tax

Excise tax is charged on 19 locally produced goods or imported goods. The base for computation of Excise Tax is the cost of production in respect of goods produced locally, and cost, insurance and freight (C.LF.) in respect of goods imported. The rate of tax depends on the type of goods produced or imported, and ranges from 10% to 100%. 

Stamp Duty

Stamp duty is levied on specific instruments. Depending on the type of the instrument, the rate of stamp duties ranges from 0.5% to 2%, for those instruments whose basis of valuation is flat; and from Birr 5 to Birr 350, for those instruments whose basis of valuation is value.

The instruments chargeable with stamp duty include Memorandum and Articles of Association of any busi­ness organization, award, bonds, warehouse bond, con­tract and agreement and memoranda thereof, security needs, collective agreement, contract of employment, lease, including sub-lease and transfer of similar rights, notarial acts, power of attorney and documents of title to property. 

Withholding Tax

Withholding tax is payable on import of goods and is set at 3% of the same cost, insurance and freight. In case of organizations, having legal personality, government agencies, private non-profit institutions, and non­governmental organizations (NGOs), the amount with­held is 2% of the gross amount of payment. 

Royalty Tax

Ethiopia recognizes patents rights and has established an office to execute laws on patents. A proclamation on breeder's right was also issued a few years ago. An entity receiving royalty payment is entitled to pay a 5% tax. 

Dividend Tax

A shareholder earning dividends is entitled to pay 10% of the dividend as tax.