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Taxation and Customs

 

 

 

   

 

 


 Taxation procedures  [top]                                                                             


According to the Ethiopian Income Tax Proclamation No. 286/2002, “Business” or “Trade” shall mean any industrial, commercial, professional or vocational activity or any other activity recognised as trade by the Commercial Code of Ethiopia and carried out by any person for profit.
 

Types of taxes and their conditions

The different types of taxes, their meaning, rates and conditions, as provided by the Federal Inland Revenue Authority (FIRA), are presented below.     
 

1.   Value Added Tax (VAT) is a sales tax based on the increase in value or price of product at each stage in its manufacture and distribution. The cost of the tax is added  to the final price and is eventually paid by the consumer.

The rate and impose of VAT:

  • The rate of VAT is 15% of the value for every taxable transaction by a registered person, all imported goods other than an exempt import and an import of services;

  • The export of taxable goods or services to the extent provided in regulations for zero tax rate are:

    • The export of goods or services to the extent provided in the regulation;

    • The rendering of transportation or other services directly connected with international transport of goods or passengers, as well as the supply of lubricants and other consumable technical supplies taken on board for consumption during international flights;

    • The supply of gold to the National Bank of Ethiopia; and

    • A supply by a registered person to another registered person in a single transaction of substantially all of the assets of a taxable activity or an independent functioning part of a taxable activity as a going concern, provided a notice in writing, signed by the transferor and transferee, is furnished to the authority within 21 days after the supply takes place and such notice includes the details of the supply.
       

2.   Excise Tax is imposed and payable on selected goods, such as, luxury goods and basic goods which are demand inelastic. In addition, it is believed that imposing the tax on goods that are hazardous to health and which are cause to social problems will reduce the consumption thereof. Excise tax shall be paid on goods mentioned under the schedule of 'Excise Tax Proclamation No. 307/2002' (a) when imported and (b) when produced locally at the rate prescribed in the schedule. Computation of excise tax is applied (a) in the case of goods produced locally, production cost and (b) in the case of imported goods, cost, insurance and freight /C.I.F./. Payment of excise tax for locally produced goods is by the producer and for imported goods by the importer. Time of payment of excise tax for imported goods is at the time of clearing the goods from the customs area, and for locally produced goods it is not later than 30 days from the date of production.
 

3.   Turnover Tax is an equalisation tax imposed on persons not registered for value-added tax to fulfil their obligations and also to enhance fairness in commercial relations and to complete the coverage of the tax system. Administrative feasibility considerations limit the registration of persons under the value-added tax to those with annual transactions to the total value exceeding 500,000 Birr.

Rate of turnover tax is 2% on goods sold locally and 10% on others. For further details refer to 'Excise Tax Proclamation No. 307/2002'.
 

4.   Income Tax. Income taxable under the Ethiopian 'Income Tax Proclamation No. 286/2002' shall include, but not be limited to:

  • Income from employment;

  • Income from business activities;

  • Income derived by an entertainer, musician, or sports person from his personal activities;

  • Income from entrepreneurial activities carried  out by a non-resident through a permanent establishment in Ethiopia;

  • Income from movable property attributable to a permanent establishment in Ethiopia;

  • Income from immovable property and appurtenances thereto, income from livestock and inventory in agriculture and forestry, and income from usufruct and other rights deriving from immovable property that is situated in Ethiopia;

  • Income from the alienation of property referred to in (e);

  • Dividends distributed by a resident company;

  • Profit shares paid by a resident registered partnership;

  • Interest paid by the national, a regional or local Government or a resident of Ethiopia, or paid by a non-resident through a permanent establishment that he maintains in Ethiopia;

  • License fees including lease payments, and royalties paid by a resident or paid by a non-resident through a permanent establishment that he maintains in Ethiopia.
     

5.   Business profit tax

  • Taxable business income of bodies is taxable at the rate of 30%

  • Taxable business income of other taxpayers shall be taxed in accordance
    with the following expenses:

Deductible expenses

a) In the determination of business income subject to tax in Ethiopia, deductions shall be allowed for expenses incurred for the purpose of earning, securing, and maintaining that business income to the extent that the expenses can be proven by the taxpayer and subject to the limitations specified by the 'Income Tax Proclamation No. 286/2002'.

b) In the determination of taxable business income, the owner of the business assets may deduct depreciation  of business assets. The following two categories of business assets shall be depreciated according to a pooling system at the following rates:

(i) Computers, information systems, software products and data storage equipment: Twenty-five percent (25%);

ii)  All other business assets: Twenty percent (20%).

 

Non-deductible expenses

The following expenses shall not be deductible:

  • The cost of the acquisition, improvement, renewal and reconstruction of business assets that are depreciated pursuant to Article 23 of this Proclamation;

  • An increase of the share of capital of a company or the basic capital of a registered partnership;

  • Voluntary pension or provident fund contributions over and above 15% of the monthly salary of the employee.

  • Declared dividends and paid-out profit shares;

  • Interest in excess of the rate used between the National Bank of Ethiopia and the commercial banks increased by two (2) percentage points;

  • Damages covered by insurance policy;

  • Punitive damages and penalties;

  • The creation or increase of reserves, provisions and other special-purpose funds unless otherwise allowed by this Proclamation;

  • Income Tax paid on Schedule C income and recoverable value-added Tax;

  • Representation expenses over and above 10% of the salary of the employee;

  • Personal consumption expenses;

  • Expenditures exceeding the limits set forth by this Proclamation or Regulations issued hereunder;

  • Entertainment expenses;

  • Donations or gifts.

Under "Documents", you will find detailed information for download in the publication on "Taxation in Ethiopia".
 

 


 Customs   [top]                                                                                                  


Information gathering in relation to the Ethiopian customs and duty procedures is of equal importance to that of business registration and taxation. Customs and duties are concerned with the import and export of goods. The concerned authority for controlling the import and export of goods is the Ethiopian Customs Authority (ECuA). The ECuA is responsible for collecting duties, taxes and other charges levied in relation to imports and exports according to government laws, regulations and directives. It also controls and prevents illegal trades that are detrimental to social well-being and economic development.

 

Ethiopian Customs Declaration (ECUD) form

The Ethiopian customs declaration is the only declaration form that is issued for all customs procedures. The ECUD consists of a primary sheet, and where necessary one or more continuation sheets depending on the number of items to be declared.

The information required to fill in the ECUD primary sheet (taken from the web page of the Ministry of Revenue) is presented below.
 

  • Name exporter/consignor and assigned number;

  • Name of importer/consignee and assigned number;

  • Declarant/agent and assigned number;

  • Clearance office;

  • Manifest number;

  • Way bill number;

  • Frontier office/port of exit;

  • Date of arrival/departure;

  • Total items;

  • Total packages;

  • Voyage/flight/vehicle/rail registration number;

  • Country of consignment;

  • Country of origin;

  • Port of loading/discharging;

  • Country of final destination;

  • Account holder /prepayment number;

  • Mode of transport;

  • Name, vehicle owner/ driver/ organisation;

  • Nationality of transporter;

  • Declarant reference;

  • Guarantee number;

  • Guarantee amount;

  • Terms of payment;

  • Item number;

  • Goods description;

  • Marks and numbers/container number;

  • Currency, rate of exchange customs value;

  • Valuation method/ruling;

  • Gross and net weight (kg);

  • Warehouse code/name;

  • Bank/branch reference;

  • Commodity code;

  • Agreement code;

  • Insurance;

  • Type of package;

  • Estimated period in warehouse/transit;

  • Invoice value;

  • Revenue information such as tax type, tax base code, base value, duty and tax due, attached documents code, bank permit number, invoice number, other charges.

Under "Documents", you will find detailed information for download in the publication on "Taxation in Ethiopia".
 

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