Taxes in Ethiopia

Ethiopia's tax framework includes the Federal Income Tax Proclamation 979/2016 as amended by Proclamation 1395/2025, the VAT Proclamation 1341/2024 and VAT Regulation 570/2025, and the Tax Administration Proclamation 983/2016 as amended by Proclamation 1434/2026. The Ministry of Finance sets tax policy and issues regulations or directives. The Ministry of Revenue handles federal registration, filing, collection and enforcement. Regional and city administration revenue bureaus handle delegated functions. The Customs Commission collects import VAT and customs duties. The Tax Appeal Commission and competent courts handle disputes, while the Office of the Prime Minister can provide conciliation under the applicable procedure. A tax identification number, commonly called a TIN, identifies a taxpayer in registrations, returns, invoices and dealings with the tax authorities. Taxpayers may also need business registration, a licence, accounting records, tax invoices, withholding records and electronic tax, QRC or e-commerce records. The reviewed official rules do not establish one universal registration fee; any charge depends on the responsible office and procedure. Employment income is generally taxed through employer withholding, known as PAYE. Monthly employment income is taxed progressively: ETB 0–2,000 at 0%, ETB 2,001–4,000 at 15%, ETB 4,001–7,000 at 20%, ETB 7,001–10,000 at 25%, ETB 10,001–14,000 at 30% and income above ETB 14,000 at 35%. An employee with only one employment relationship and no separate declaration duty may normally rely on the employer's withholding receipt. Multiple employers, additional income or self-withholding can create an annual declaration duty, generally within 30 days after the end of the tax year. Investment income can carry withholding tax. Dividends are generally taxed at 15%, interest at 10%, royalties at 10%, royalties connected with art or culture at 5%, games of chance at 20% and entertainment supplied by a non-resident at 15%. Profit repatriated by a permanent establishment, meaning a taxable business presence of a non-resident, is generally subject to 15%. The applicable treatment still depends on the income type, taxpayer status and any effective treaty or special rule. Companies generally pay business income tax at 30%. Individual business and rental income uses progressive annual brackets: ETB 0–24,000 at 0%, ETB 24,001–48,000 at 15%, ETB 48,001–84,000 at 20%, ETB 84,001–120,000 at 25%, ETB 120,001–168,000 at 30% and income above ETB 168,000 at 35%. Category A generally covers a body corporate or a business with annual turnover of at least ETB 2,000,000. Category B generally covers a non-corporate business below that threshold and taxes annual gross sales at 2% for ETB 0–100,000, 3% for ETB 100,001–500,000, 5% for ETB 500,001–1,000,000, 7% for ETB 1,000,001–1,500,000 and 9% for ETB 1,500,001 to below ETB 2,000,000. Certain professional services may be excluded from the Category B treatment under current directives, so the applicable directive needs checking. Category A and Category B businesses generally pay advance income tax of 25% for each quarter within 30 working days after the quarter ends. The annual tax return settles the remaining balance. For a new Category B business, the annual payment period runs from Hamle 1 to Hamle 30 under the applicable Ethiopian calendar practice. The exact tax-year conversion should be checked with the responsible tax office when dates from the Ethiopian and Gregorian calendars are being compared. VAT means value-added tax. The standard rate is 15%; zero-rated supplies are taxed at 0%, while exempt supplies follow the relevant exemption schedules. VAT registration is generally compulsory when taxable supplies reach ETB 2,000,000, unless a Ministry of Finance directive sets a different application. Voluntary registration is generally available from ETB 1,000,000 in taxable supplies. Registration should take place within seven days after the registration requirement arises. VAT returns and payments are generally due by the end of the following calendar month. August and Pagumen are aggregated for the VAT accounting period. A foreign supplier of electronic or other taxable services may need an electronic VAT return, with quarterly filing possible where permission applies. A registered VAT taxpayer may claim input VAT credit and, where the rules allow, a refund. A refund can be held when the required VAT return is missing. Import VAT is collected at entry by the Customs Commission. Turnover Tax, excise tax, stamp duty and other import charges apply in situations defined by their separate rules rather than replacing every income-tax or VAT obligation. Tax administration includes registration, assessment, audit, interest, penalties, cooperation with officials and retention of supporting records. A supplier that lacks a TIN or business licence can trigger 30% withholding. Failure to issue a required tax invoice can result in a charge of ETB 100,000 for each invoice. Cash receipts above ETB 50,000 per transaction are generally not permitted, subject to specified exceptions. The exact electronic filing and payment channel depends on the taxpayer, tax type and responsible office. Ethiopian residents are generally taxed on worldwide income, while non-residents are generally taxed on Ethiopia-source income. Digital services supplied by a non-resident can be treated as Ethiopia-source. Technical, managerial or consultancy services can create an Ethiopia tax connection when personnel are present for more than 91 days in a tax year or relevant one-year period. A permanent establishment, source rules and income allocation can change the result. An effective double-tax treaty takes priority over an inconsistent domestic rule. Transfer pricing Directive 981/2024 applies to related international or domestic transactions where the relevant annual turnover exceeds ETB 500,000. Treaty relief, withholding tax and foreign tax credits require case-specific review. Investment incentives apply only under the Investment Incentives Regulations and depend on the sector, permit, investment conditions and any applicable treaty. Many ad hoc exemptions were repealed or limited by the 1395/2025 changes. A taxpayer can object to an assessment and use the appeal process under the Tax Administration Proclamation. Conciliation in 2026 follows an objection: the request is generally due within 30 days, and the conciliation process has a 60-day completion period. Undisputed tax remains payable while the dispute proceeds. An unresolved matter can move to the Tax Appeal Commission or the competent court under the applicable jurisdiction.