Principal legislation

• Capital Market Proclamation No. 1248/2021 (This is a recent legislation that provides for the establishment of the first full-fledged capital market in Ethiopia which is expected to be operational in 2024).
• The New Commercial Code of Ethiopia Proclamation No.1243/2021

Corporate Governance

Ethiopia does not have a compiled Corporate Governance Code and provisions relating to corporate governance are found scattered in different pieces of legislation, including the New Commercial Code.

See for example:

• Articles 245-494 of the New Commercial Code referred to above
• Investment Proclamation No. 1180/2020
• Commercial Registration and Business Licensing Proclamation No. 980/2016
• Commercial Registration and Licensing Regulation No.392/2016Prevention and Suppression of Money Laundering and Financing of Terrorism Proclamation No. 780/2013

Additionally, the following Directives, issued per the relevant Proclamations, can be cited:

• Limits on Board Remuneration and Number of Employees Who Sit on Bank Board Directives No. SBB/67/2018 (as amended)
• Requirements for Information Technology (IT) Management of Banks Directive No. SBB/83/2022
• Reserve Requirement Directive No. SBB/84/2022
• Minimum Capital Requirement for Banks Directive 78/2021
• Time Limit for Reduction and/or Relinquishing Shareholding Directive No. SBB/35/2013
• Requirements for Persons with Significant Influence in a Bank Directive No. SBB/79/2021
• Requirements for Licensing and Renewal of Banking Business Directive No. SBB/56/2013
• Fraud Monitoring Directive No. SBB/59/2014
• Credit Exposure to Single and Related Counterparties SBB/53/2012
• Bank Corporate Governance Directive No. SBB/71/2019
• Insurance Corporate Governance Directive SIB/42/2015

Takeover / merger regulations

• Trade Competition and Consumer Protection Proclamation No. 813/2013

Merger Directive No. 1/2016

Regulatory body or bodies

Ethiopian Capital Market Authority (ECMA)

Listing rules

The recently established ECMA is empowered to supervise the listing and delisting of securities. The Ethiopian capital market has not yet become operational and these rules are expected to be introduced in due course.

Public offers / disclosure regulations

The Ethiopian Capital Market Proclamation provides rules for regulating public offering of securities and disclosure of information that is likely to affect the decision of buyers. “Public Offer” is the act of offering securities to the general public in order to raise capital by the promoters prior to the incorporation of a company, or by the issuing company prior to the issuance of said securities.

An issuer of securities shall obtain approval from the Authority, ECMA, for its prospectus prior to issuing or advertising securities for a public offering. Such prospectus shall be accurate, sufficiently clear, comprehensive and reasonably specific and timely. The Authority may refuse approval of the prospectus for any of the following reasons:

• it is not in accordance with the provisions of the New Commercial Code, the Capital Market Proclamation, or any other requirements to be issued in a directive by the Authority; or
• it contains any inaccurate or incomplete statement that may influence the decision of the subscriber.

Publicly traded securities shall be registered, prior to their offer or placement, by the Authority. However, this doesn’t apply to:

• Offering of securities issued by the Government of Ethiopia;
• Sale of securities under court judgments or rulings;
• Sale of securities of companies which are declared bankrupt;
• Securities offered in private placement; and
• Any other class of securities that the Authority shall, from time to time, determine as exempted securities, by directive.

An offer of asset-backed securities shall be made only if they are issued by a special purpose institution. Privately issued securities must not be publicly traded.
Once registered securities are issued, the issuer must keep the public informed of all matters which affect the value of the securities, immediately upon their becoming known to the directors of the issuer, by placing an advertisement in a newspaper of general circulation and by reports to the Authority and to any securities exchange on which they are listed. Particularly, the issuer shall inform the Authority, members of the issuer and other holders of its securities as soon as reasonably practicable of any information relating to the issuer and its subsidiaries, if any, that:

• is necessary to enable them and the public to appraise the financial position of the issuer and of its subsidiaries;
• is necessary to avoid the establishment of a false market in its securities, or might reasonably be expected to materially affect market price of its securities; and

The issuer must also disclose its audited financial statements in accordance with directives issued by the Authority or rules issued by the securities exchange and approved by the Authority. The Authority may also require the securities exchange to take all necessary actions to urge listed companies to expedite the disclosure of any material changes that may occur in any of these companies. Any person may, for a fee specified by the Authority, have access to or obtain copies of periodic publications, reports, information and statements kept at a securities exchange, which was announced or disclosed.

Current No. of listed companies

N/A

Legislation

The Trade Competition and Consumers Protection Proclamation No. 813/2013 and Merger Directive No 1/2016 regulate restrictive (anti-competitive) agreements and practices, as well as mergers.

The Proclamation also has provisions on the protection of consumers. Accordingly, the following are prohibited:

• agreements between parties that prevent or significantly lessen competition with no outweighing technological efficiency or other pro-competitive gain;
• price fixing;
• setting of minimum resale price;
• agreements for participation in tenders in a collusive manner;
• dividing markets by allocating customers, suppliers, territories or specific types of goods or services; and
• abuse of market dominance.

The Proclamation and the Directive require that all mergers with an annual turnover or assets greater than Birr 30,000,000 ($361,250), based on the prevailing exchange rate on February 13, 2018) be notified to the Trade Practice and Customer Protection Authority.

Ethiopia is also a Member State of COMESA and therefore subject to the COMESA Competition Rules and Regulations. Please see the COMESA summary in the AG section of the app, which can be found at the AG in Africa page.

Corruption Perception Index score for 2022

38

Signatories to United Nations Convention Against Corruption (UNAC)?

Yes

Corruption Perception Index rank worldwide for 2022

94

UNAC ratified?

Yes

Signatories to the African Union Convention on Preventing and Combating Corruption?

Yes

Ratified?

Yes

Signatories to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions?

No

Structure of the court system

Ethiopia has a dual court system, with two predominantly parallel court structures.

The structure of the Ethiopian federal court system is as follows:

• Federal Supreme Court – This is the highest court in the country (including the Cassation Division) and has the power to review and overturn decisions issued by the Federal Courts and State Supreme Courts involving fundamental errors of law. It also gives binding judgments on the interpretation of laws which amount to legal precedents;
• Federal High Courts; and
• Federal First Instance Courts.

The structure of the Ethiopian state court system is as follows:

• State Supreme Courts (in each state's capital city), which includes a cassation bench with powers to review fundamental errors of state law;
• State High Courts (in each zone each state); and
• State First Instance Courts.

There are municipal courts (First Instance and Appellate Courts) in Addis Ababa and in large cities across the country. Reviews of Appellate Court decisions can be brought before the respective regional Supreme Court or the Federal Supreme Court.

Kebele (Social Courts) hear property and monetary claims of up to 5,000 birr, the decisions of which can be appealed to the First Instance Municipal Courts. Some states also have Social Courts for small claims.

Sharia Courts are also established and recognised under the law. The Federal Sharia Courts are constituted in a three-level structure with a Federal First Instance Court of Sharia, a Federal High Court of Sharia and a Federal Supreme Court of Sharia.

Additionally, the Ethiopian constitution provides for the recognition of customary courts not established by law. The authority of these courts stems from tradition and local customs. Parties must voluntarily submit themselves to the jurisdiction of Sharia Courts and customary courts.

Enforcement of foreign judgments

The execution of foreign judgments is governed by the Ethiopian Civil Procedure Code and the Federal Courts Proclamation Number 1234/2021.

The power to execute foreign judgments is given to the Federal High Court, which has first instance jurisdiction over applications for the enforcement of foreign judgments or decisions.

Pursuant to Articles 456 & 458 of the Ethiopian Civil Procedure Code, unless expressly provided for by international conventions, foreign judgments cannot be executed in Ethiopia except in accordance with the following conditions:

• the execution of Ethiopian judgment is permitted in the country in which the original judgment was given;
• the judgment was given by a duly established and constituted court;
• an opportunity was provided for the judgment debtor to appear and present his case;
• the judgment in question is final and enforceable; and
• the execution is not contrary to public order.

The Ethiopian court to which the application is made will permit the party against whom judgment is to be enforced to present their observations within a certain time period, and will also decide whether pleadings may be submitted.

Enforcement of arbitral awards

Arbitration

The principal piece of legislation governing arbitration is the Arbitration and Conciliation Working Procedure Proclamation No. 1237/2021. Under this law, parties may refer an existing dispute or a dispute that may, in future, arise from a contract or non-contractual relationship to arbitration except the following:

• divorce, adoption, guardianship, tutorship and succession cases;
• criminal cases;
• tax cases;
• judgment on bankruptcy;
• decisions on dissolution of business organizations;
• all land cases including lease;
• administrative contract, except where it is  permitted by law;
• trade competition and consumers protection;
• administrative disputes falling under the powers given to relevant administrative organs by law;
• other cases that is not arbitrable under the law.  The procedure to be followed during arbitration is prescribed by the parties without prejudice to the mandatory provisions of the Proclamation. Where the parties fail to do so, it is for the arbitrator to determine the rules of procedure. The rules of procedure to be determined as such include matters relating to   admissibility, relevance and evaluation of evidence. The Proclamation applies to arbitration agreement and proceeding in which Ethiopia is designated as a seat of the arbitration and the contracting parties have not chosen the applicable law.

Court cannot intervene in matters referred to arbitration except in the following instances:

• where the arbitration agreement is void and becomes ineffective;
• where the arbitration agreement is not raised under preliminary objection; and
• where a party before or during the arbitration proceeding requests a court for provisional interim measures to be taken. An appeal from an arbitral award is not allowed unless there is a prior agreement to the contrary. Regardless of prior agreement by the parties, no appeal lies on the following issues:
• an award granted based on equity or known commercial practices where such power is expressly given to the tribunal by the contracting parties or the applicable law authorizes such application and an award reached upon by the parties’ agreement and get it registered by the arbitrator;
• on arbitral award rendered on the basis of an agreement;
• on the decision of a court on the request for an interim measure to be taken;
• on the decision rendered by a court on the application of setting aside of an award; and
• on the decision rendered by a court on the application of objection of enforcement of an award.

Appeal on arbitral award must be made to the court which would have had an appellate jurisdiction had the dispute not been referred to arbitration. Similarly, contracting parties may apply on some grounds to the court that has jurisdiction over the case had the case not been submitted to arbitration to have the arbitral award set aside.

Any arbitral award is binding and executed pursuant to the Civil Procedure Code of 1960 by applying to a court that is empowered to execute the award had the case been heard by a court. A party seeking the execution of arbitral award by a court shall submit the arbitration agreement, the original award or an authenticated copy of the award. An objection to enforcement of arbitral award may be made on some grounds provided that an application made to the court previously to have the award set aside has not been dismissed.

ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

The Arbitration and Conciliation Working Procedure Proclamation provides that foreign arbitral awards which fall under International Treaties ratified by Ethiopia may be recognized and enforced in accordance with such treaties. Ethiopia has acceded to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Award (NYC) with a few reservations. Accordingly, a foreign award is recognized and enforced in Ethiopia per the NYC provided that:

• the award relates to disputes of commercial nature under Ethiopian laws;
• The award or arbitration agreement resulting the award doesn’t predate the accession by Ethiopia of the NYC; and
• The award is rendered in a state party to the NYC.

A foreign arbitral award that is rendered in the territory of a non-member (to the NYC) state is recognised and enforced according to the Arbitration and Conciliation Working Procedure Proclamation. Such award shall be rejected where one of the following grounds exists:

• recognition and enforcement sought is not based on reciprocity;
• the arbitral award is based on invalid arbitration agreement or rendered by a tribunal which is not established  in accordance with the law of  the country in which such award is rendered;
• the arbitral award rendered cannot be enforced in accordance with Ethiopian law;
• the parties have not had equal rights in appointing the arbitrators or had in presenting their evidence and getting heard in the course of the proceedings;
• the matter on which the award is rendered is not arbitrable under Ethiopian law;  and/or
• the arbitral award contravenes public policy, moral and security.
  An application for the enforcement of a foreign arbitral award shall be submitted to the Federal High Court. The award and arbitration agreement shall also be in the language of the court and authenticated.

Foreign Investment Incentives

Some of the foreign investment incentives available in Ethiopia are:

• unhindered repatriation of funds (in respect of approved investments);
• guarantee against unlawful expropriation and nationalisation: Expropriation  may occur for public interest reasons, subject to the Government providing in advance payment of "adequate" compensation corresponding to the prevailing market value of property;
• ownership of immovable property requisite for the investment (doesn't include land);
• remittance of funds;
• foreign ivestors are entitled to the 100% ownership of their foreign direct investment, subject to required minimum capital investments of:
  • USD 200,000 for a single investment project; or
  • USD 100,000 for architectural, engineering or technical consultancy if wholly-owned;
• no restrictions on equity ownership in joint venture investments in areas open for foreign direct investment, subject to required minimum capital investments of:
  • USD 150,000 for joint investments on a single project with a domestic investor; or
  • USD 50,000 for joint investments with a domestic investor for architectural, engineering or technical consultancy;

(All of the joint investments mentioned above require an investment permit from the Ethiopian Investment Commission)

• exemption from import customs duty and other taxes levied on imports. An investor eligible under a duty incentive is also allowed to import spare parts, the value of which may not be greater than 15% of the total value of the capital goods, within five years
• potential income tax holiday for upto 10 years if conditions are met. Eligible investment areas of tax holiday include the following:
  • food Industry
  • beverage Industry
  • textile and textile products industry;
  • Leather and leather products industry;
  • wood products industry
  • paper and paper products industry;
  • chemical and chemical products industry;
  • basic pharmaceutical products and pharmaceutical preparation industry;
  • basic metlic industry (doesn’t include mining);
  • production of computer and electronic products;
  • production of electrical products;
  • production of machineries;
  • manfacture of transport vehicles and other transport equipment;
  • agricultural develpments such as forestry, fruits and vegitables, animal feeds, medicinal crops;
  • development and rental of industrial park and Information Communication Technology (ICT) park;
  • development of ICT; and
  • generation, transmission and distribution of electricity   
• investors engaging in developing industrial parks also receive 15 years of income-tax exemption
• foreign inverstors are allowed to acquire external loan and open foreign curency account in Ethiopia
• strategic foreign direct investments and public private projects are further allowed to operate offshore acount
• authorization to retain and deposit in a bank account 40% of their foreign exchange earnings for their future use in the operation of their enterprises
• employment of expats and facilitation of visa and work permit
  the Ethiopian Investment Commission provides one-stop shop services to investors by coordinating government agencies and synchronizing their daily functions;
• Quick facilitation of customs services

Foreign Investment Rules

Listing Companies N/A

General

The Constitution of the Federal Democratic Republic of Ethiopia, Proclamation No. 1/1995

Banking

• Banking Business Proclamation (Proclamation No. 592/2008)
• Monetary and Banking Proclamation (Proclamation No. 83/1994)
• Prevention and Suppression of Money Laundering and Financing of
• Terrorism Proclamation No. 780/2013
• Limits on Board Remuneration and Number of Employees Who Sit on Bank Board Directives No. SBB/67/2018 (as amended)
• Requirements for Information Technology (IT) Management of Banks Directive No. SBB/83/2022
• Reserve Requirement Directive No. SBB/84/2022
• Minimum Capital Requirement for Banks Directive 78/2021
• Time Limit for Reduction and/or Relinquishing Shareholding Directive No. SBB/35/2013
• Requirements for Persons with Significant Influence in a Bank Directive No. SBB/79/2021
• Requirements for Licensing and Renewal of Banking Business Directive No. SBB/56/2013
• Fraud Monitoring Directive No. SBB/59/2014
• Credit Exposure to Single and Related Counterparties SBB/53/2012
• Bank Corporate Governance Directive No. SBB/71/2019
• Insurance Corporate Governance Directive SIB/42/2015
• Directives to Authorize the Business of Interest Free Banking No. SBB/72/2019
• Asset Classification and Provisioning for Development Finance Institution Directive No. SBB/69/2018
• Requirements for Licensing and Renewal of Banking Business Directive No. SBB/56/2013
• Liquidity Requirement Directives No. SBB/57/2014
• Transparency in Foreign Currency Allocation and Foreign Exchange Management Directives No. FXD/67/2020 (as amended)

Insurance

• Insurance Business Proclamation No. 746/2012 (as Amended)
• Requirements for Licensing and License Renewal of Insurance Business Directive No. SIB/33/2013
• Minimum Paid-Up Capital Requirement for Insurance Business Directive SIB/57/2022
• Requirements for Persons with Significant Influence in an Insurer Directive No. SIB/32/2012
• Reinsurance Company Establishment Directive No. SRB/1/2014
  Information Exchange Scheme on Outstanding Premium Directive No. 36/2013
• Limits on Board Remuneration and Number of Employees Who Seat on the Board of an Insurer Directive No. SIB/37/2014
• Insurance and Reinsurance Business Fraud Monitoring Directive No. SIB/39/2014

Tobacco

• Tobacco Control Directive No. 77/2021
• Health Care Administration and Control Council of Ministers Regulation No. 299/2013
• WHO Framework Convention on Tobacco Control Ratification Proclamation No. 822/2014
• The Excise Tax Proclamation No. 1186/2020 (as Amended by Proclamation no. 1187/2023)

Pharmaceuticals

• Food and Medicine Administration Proclamation No. 1112/2019
• Food, Medicine and Health Care Administration and Control Council of Ministers Regulation No. 299/2013

Food, Medicine and Healthcare

• Food and Medicine Administration Proclamation No. 1112/2019
• Food, Medicine and Health Care Administration and Control Council of Ministers Regulation No. 299/2013

Advertising

• Media Proclamation No.1238/2021
• Advertisement Proclamation No. 759/2012
• Criminal Code (Proclamation No. 414/2004(See for example: Articles 643, 812, 847 and 848 of the Criminal Code)
• Trade Competition and Consumers Protection Proclamation No. 813/2013

Electronic communications

• Telecom Fraud Offence Proclamation No. 761/2012
• Computer Crime Proclamation No. 958/2016

Alcohol

• Food and Medicine Administration Proclamation No. 1112/2019
• Food, Medicine, and Health Care Administration and Control Regulation No. 299/2013
• Advertisement Proclamation No. 759/2012
• The Excise Tax Proclamation No. 1186/2020 (as Amended)

Financial services

• Customer Due Diligence of Banks (Directive No. SBB/46/2010)
• Micro Financing Business Proclamation No. 626/2009 (as Amended)

Transfer pricing

The Ethiopian transfer pricing rules are in accord with the OECD Transfer Pricing Guidelines. The Ethiopian Revenue and Customs Authority is empowered to distribute, apportion, or allocate income, gains, deductions, losses, or tax credits between parties to a non-arm’s length transaction as is necessary to reflect the income, gains, deductions, losses, or tax credits that would have been realised in arm’s length transaction.

On the other hand, a taxpayer may request that the Tax Authority enter into an advance pricing arrangement (APA) to agree an appropriate set of criteria for the determination of the arm’s length conditions for certain future controlled transactions over a fixed period of time. A taxpayer has an obligation to provide details of transactions with related persons in order to verify that the transactions are consistent with the arm’s length principle.

Stamp duty

Stamp duty is payable on a range of legal instruments, including:

• memoranda and articles of association – Birr 350 upon first execution and Birr 100 upon any subsequent execution;
• contracts, agreements and memoranda – Birr 5;
• security deeds – at 1% of the value of the deed;
• awards – 1% of the value of the award if the value is determinable; and Birr 35 if the value of the award is undeterminable;
• bonds – 1% of the value of the bond;
• warehouse bonds – 1% of the value of the bond;
• collective agreements – Birr 350 on first execution and Birr 100 on any other subsequent execution;
• leases, sublease and subsequent transfer thereof – 0.5% of the value;
• notorial acts – Birr 5;
• powers of attorney – Birr 35;
• contracts of employment - 1% of the salary; and
• registers of title to property - 2% of the value of the property.

Exchange control

The National Bank of Ethiopia (NBE) regulates entry and remittance of foreign currencies through directives applicable to residents and foreigners. Nearly all outgoing and some incoming foreign currencies are regulated. Foreign investors may open foreign exchange accounts in commercial banks with the NBE's approval and, subject to the exchange regulations of the NBE, a person with a foreign exchange account can remit foreign currency abroad.

Losses

Investors who have incurred losses within the period of income tax exemption can carry forward such losses for a further half of the income tax exemption period following the expiry of the original exemption period.

A loss incurred in a tax year may be set off against taxable income in the following five tax years, provided that:

the same person holds more than 50% of the underlying ownership of the body (compared against the loss year); and the taxpayer’s books of account displaying the loss are audited and accepted by the Authority.

As an exception, a body that experiences an ownership change of greater than 50% will be allowed to carry forward the loss if:

• the body conducts the same business in the loss year, the intervening year and the carry forward year; and
• either:
  • no new business activity is entered into before the loss has been fully deducted; or
  • if a new business activity occurs, it was not entered into with the principal purpose of utilising the body’s tax losses.

Yet, if there has been two tax years in which a taxpayer has incurred a loss, and each of the losses have been carried forward, the taxpayer is not permitted to carry forward any further losses.

Loss carry back is also allowed for long term contracts. If a taxpayer under a long term contract experiences a final year loss in relation to the contract, then the taxpayer may carry forward the loss. However, this is prohibited if the taxpayer ceases to carry on business in Ethiopia at the end of the contract.

However if there have been two tax years in which a taxpayer has incurred a loss, and each of the losses have been carried forward, the taxpayer is not permitted to carry forward any further losses.

Interest

Foreign borrowings for non-residents who receive interest from an Ethiopian source must pay 10% tax, calculated from the gross amount of the interest. Residents and non-residents with permanent establishment in Ethiopia receiving interest income from savings deposits with an Ethiopian resident financial institution pay tax at the rate of 5%. Residents pay 10% tax on any other interest income they derive.

Withholding Tax

A business person importing goods for commercial use is obligated to pay an advanced payment of business income tax equal to 3% of the CIF value of the goods.
Except for micro-enterprises, bodies having legal personality, government agencies, non-profit organisations, and non-governmental organisations have a duty to withhold tax at the rate of 2% of the gross amount of payment, in relation to:

• the supply of goods involving more than 10,000 Birr in single transaction or supply contract; and
• supply of services involving more than 3,000 Birr in single supply contract.

Personal income tax

If an individual is an Ethiopian resident, he will be taxed on his worldwide income. If the income originates from an Ethiopian source, non-residents are obligated to pay tax in Ethiopia.

The Ethiopian income tax system is a schedular system in which different rate schedules are applicable to different sources of income.

Employment Income Tax

The provided marginal tax rate is applicable for monthly employment income:

• First Birr 600 is tax free
• Next Birr 601-1,650 taxed at 10%
• Next Birr 1,651-3,200 taxed at 15%
• Next Birr 3,201-5,250 taxed at 20%
• Next Birr 5,251-7,800 taxed at 25%
• Next Birr 7,801-10,900 taxed at 30%
• Above Birr 10,900 taxed at 35%

Rental Income Tax

• The first Birr 7,200 is tax free
• Next Birr 7,201-19,800 taxed at 10%
• Next Birr 19,801-38,400 taxed at 15%
• Next Birr 38,401-63,000 taxed at 20%
• Next Birr 63,301-93,600 taxed at 25%
• Next Birr 93,601-130,800 taxed at 30%
• Above Birr 130,800 taxed at 35%

Individuals obtaining business income pay taxes at the following rates

• The first Birr 7,200 is tax free
• Next Birr 7,201-19,800 taxed at 10%
• Next Birr 19,801-38,400 taxed at 15%
• Next Birr 38,401-63,000 taxed at 20%
• Next Birr 63,301-93,600 taxed at 25%
• Next Birr 93,601-130,800 taxed at 30%
• Above Birr 130,800 taxed at 35%

Taxes on other incomes

• 5% on Royalty
• 5% on insurance premiums that a non-resident earns from Ethiopia
• 10% on dividends
• 10% on interest
• 15% on management or technical fees that a non-resident earns from Ethiopia without having a permanent establishment
• 10% on income from performances by non-resident entertainers
• 15% on income from games of chance
• 15% on income from casual rental of asset
• 15% on capital gains from immovable assets
• 30% on capital gains from shares and bonds
• 10% on undistributed profits
• 10% on repatriated profits by body conducting business in Ethiopia through a permanent establishment
• 15% on other income

Value added tax

VAT is levied on goods and services provided by persons registered for VAT. Persons are required to be registered for VAT if their annual turnover exceeds Birr 1,000,000. VAT is currently charged at the rate of 15% of the value of the goods and services. Subject to certain qualifications, export goods and services are taxed at rate of zero percent.

Capital gains tax

Gains on disposal of immovable assets are subject to capital gains tax at the rate of 15%; while gains on disposal of shares and bonds are taxed at the rate of 30%.

Payroll tax and social security

Please see above under employment tax in regards to payroll tax. In respect of Ethiopian citizens, employers and employees must make monthly contributions of 11% and 7%, respectively, of the employment income to the pension scheme.

Technical service fees

A non-resident who derives technical fees from Ethiopia is subject to withholding tax at the rate of 15%. A non-resident individual is an individual who is not:

• domiciled in Ethiopia;
• present in Ethiopia for more than 183 days in one year period; or
• an Ethiopian citizen posted abroad as a consular, diplomatic official or similar official.

An entity is non-resident if it is not incorporated or formed in Ethiopia or if it does not have a place of effective management in Ethiopia.

Dividends

Tax is imposed at the rate of 10% on dividends paid by an Ethiopian resident company. Similarly a 10% tax is levied on dividends from an Ethiopian source that are attributable to a permanent establishment of a non-resident in Ethiopia.

Corporate income tax

Corporate income tax is payable each year on the profits of a company at the rate of 30%. Other entities that are analogous to companies, referred to as “bodies” within the Income Tax Proclamation, are subject to corporate income tax at the same rate.

A body is defined as company, partnership, public enterprise or public financial agency, or other body of persons whether formed in Ethiopia or elsewhere. Bodies pay tax on their sources of income as detailed below:

• 5% on royalty
• 5% on insurance premiums that a non-resident earns from the insurance of a risk in Ethiopia
• 10% on dividends
• 10% on interest
• 15% on management or technical fees that a non-resident earns from Ethiopia without having a permanent establishment
• 10% on income from performances by non-resident entertainers
• 15% on income from games of chance
• 15% on income from casual rental of assets
• 15% on capital gains from immovable assets
• 30% on capital gains from shares and bonds
• 10% on undistributed profits
• 10% on repatriated profits by a non-resident conducting business in Ethiopia
• 15% on other income

Royalties

A resident of Ethiopia who derives royalty and a non-resident who earns royalty from an Ethiopian source are subject to a 5% tax on royalties.

Thin cap regulations

Foreign controlled resident companies and permanent establishments in Ethiopia whose average equity ratio in a tax year is in excess of 2:1 are disallowed an interest deduction for the excessive debt paid in the tax year. Nevertheless, this rule does not apply if the amount of the average debt does not exceed the amount that a financial institution would be prepared to lend to the company in an arm’s length transaction, having regard to all the circumstances of the company.

A foreign controlled resident company is defined as a resident company in which more than 50% of the membership interests in the company are held by a non-resident person either alone or together with a resident person or persons. Average debt is calculated by dividing the sum total of a company's debt at the end of each calendar month in a tax year by twelve. A similar calculation is made for average equity for a tax year.

Real property tax

Land and buildings are subject to annual property taxes also known as roof tax. The government of Ethiopia currently has tabled a new property tax law for public discussion.

Export processing zone

Export processing zones are included in Industrial Parks. An Industrial Park is defined as an area with a distinct boundary designated by the appropriate organ, intended to develop comprehensive, integrated, multiple or selected functions of industries. It must be equipped with infrastructure and various services such as road, electric power and water (i.e. a one stop shop) and have special incentive schemes aimed at achieving planned and systematic development of industries, mitigation of the impacts of pollution on environment and human beings, and the development of urban centres.

Industrial Parks comprise of special economic zones, technology parks, export processing zones, agro-processing zone, free trade zones and the like, designated by the Investment Board. Industrial parks, including export processing zones, operating in Addis Ababa and the Special Zone of Oromia surrounding Addis Ababa enjoy an income tax exemption for 10 years, while those operating in other areas enjoy an income tax holiday for 15 years.

A foreign or a domestic investor can participate in export processing zones as an industrial park developer, industrial park operator or industrial park enterprise.

An industrial park developer is any profit-making public, public-private or private developer engaged in designing, constructing or developing industrial parks in accordance with the investment laws, industrial park enterprise permits and industrial park enterprise agreements.

Industrial park operator, on the other hand, is any profit making enterprise that operates, maintains or promotes industrial parks in accordance with the investment laws, industrial park enterprise permit and industrial park enterprise agreement.

An industrial park enterprise is a public, private or public-private enterprise owned by Ethiopians, foreigners or jointly by foreigners and Ethiopians. It possesses developed land under the industrial park via a sub-lease or by renting or building a factory within the industrial park to engage in manufacturing activity or in service provision for profit.

An industrial park developer, industrial park operator or industrial park enterprise should obtain investment permit and register its business.