Direct Taxes

Income taxable under Income Tax Proclamation No. 286/2002 Article 6) include incomes from employment, business activities, personal activities, entrepreneurial activities by non-residents, movable property, immovable property, alienation property, dividend distributed by resident company, profit shares paid by registered partnerships, interest paid by the national, regional of local governments, and license fees. Personal income tax rates applicable at present are given below:

  No. Employment Income per month   Tax Rate
Over Birr To Birr  
1 0 150 Exempt threshold
2 151 650 10%
3 651 1400 15%
4 1401 2350 20%
5 2351 3550 25%
6 3551 5000 30%
7 Over 5000   35%

Source: Income Tax Proclamation No. 286/2002

Taxable business income of companies is taxed at the rate of 30%. Other business taxpayers with business income ranging from ETB 1.801 to ETB 60.000 pay between 10 and 30%. Business income beyond ETB 60.000 is charged 35%.

Taxable Business Income Tax Rates 

No. Taxable Business Income Tax Rates Tax Rate
Over Birr To Birr
1 0 1800 Exempt threshold
2 1,801 7,800 10
3 7,801 16,800 15
4 16,801 28,200 20
5 28,801 42,600 25
6 42,601 60,000 30
7 Over 60,000   35

Source: Income Tax Proclamation No. 286/2002

Capital gain tax under Income Tax Proclamation No.286/2002 (Article 37) is payable on gains obtained from the transfer of buildings used for business, factory, or office purposes at 15% and shares of companies at 30%.
An individual foreigner, who lives in Ethiopia for more than 183 days in a period of twelve calendar months, whether continuously or intermittently, is regarded as being resident of entire tax period and is taxed in accordance with the provisions on Income Tax Proclamation No. 286/2002 (Article 5.2)
However, the following are excluded from the computation of taxable income in accordance with Article 13 of the Income Tax Proclamation No. 286/2002 and article 13 of the Regulations No. 78/2002:

  • Medical treatment
  • Transportation allowance
  • Hardship allowance
  • Reimbursement of travelling expenses incurred on duty
  • Per diem and travelling expenses on joining and completion of employment, provided that such payments are made pursuant to specific provisions of contract
  • Board members’ and board secretaries’ allowance; the income of persons employed for domestic duties;
  • The contribution of the employer and the employee to the retirement or provident fund and all forms of benefits contributed by employers that do not exceed 15% of monthly salary
  • Payments made to a person as compensation in relation to injuries suffered by that person or death of another person.
    Other direct taxes applicable are royalties (5%), income paid for services rendered outside of Ethiopia (10%), income from games of chance (15%), dividends (10%), income from rental of property (15%), and interest income (5%) and are payable at flat rates in accordance with Article 31-36 of the Income Tax Proclamation