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Friday, 20 March 2015 09:09

Tax Environment

CONDUCIVE TAX ENVIRONMENT

• Corporate income tax (tax on profit) is 30%

• Excise tax is levied (minimum 10%) on selected local or imported products

• Turnover tax at 2% for priority sectors such as tractors, combine harvesting, grain mill etc. and 10% on other sectors

• Customs duty on unexempted imports ranges from 0 to 35%

• Income tax ranges from 10 to 35% on monthly income of £6.00 and above

• Withholding tax is payable on imports at 3% of cost, insurance and freight

• 15% VAT is payable on businesses with a turnover above £20,000

• Dividend tax (on income derived from dividends from a share company or withdrawals of profits from a private limited company) at 10%

• Royalty tax (on income derived from technology and intellectual property rights) at 5%

• Capital gains tax – Share of companies 30%; business, factory or office buildings 15%; residences 0%

• Rental income tax (on annual rental income) between 0 and 35% dependent on level of rental income

• Stamp duty – Leasing 0.5% of value; registering title to property 2% of value; contract of employment 1% of salary; bonds 1% of value etc.

Friday, 20 March 2015 08:58

Natural Resources

STRONG NATURAL RESOURCE BASE

• Good rainfall, rich soils and favourable temperature range. Climate is identified by the UN and ICC as 'exceptional', offering ”an excellent environment for various agricultural activities”

• Unexploited mineral deposits, specifically gold, tantalum, platinum, nickel, potash and soda ash

• More than 80 million hectares of arable land and about 4 million hectares of irrigable land

• Diverse natural, historical and cultural tourist attraction with wide area of opportunity for development.

• More than 45,000mw hydropower, 10,000mw wind energy and 5000mw geothermal energy potential.

• Both urban and rural land is available for investment on leasehold basis. Lease right over land can be transferred, mortgaged or sub-leased together with on-build facilities. Leaseholders have the right to use urban land for up to 60 years in Addis Ababa and in a town designated as of the grade of Addis Ababa, and up to 80 years in other towns. The period of lease may also be renewed. The average raft estimated costs of land in industrial zones designated are as follows:

• Addis Ababa US$ 11.60-21.55 per m2 for the lease period

• Dire Dawa US$ 0.44-0.77 per m2 for the lease period

• Oromia US$ 5.55-6.55 per hectare per year

• Southern Nation, Nationalities and Peoples’ Regional State US$ 3-5 per hectare per year

• Amhara US$ 1.13-6.00 per hectare per year

• Tigray* US$ 2.36-3.16 per hectare per year

Friday, 20 March 2015 08:46

Labour and Employment

In conformity with the international conventions and other legal commitments, Ethiopia has issued a labor law to ensure that worker-employer relations be governed by the basic principles of rights and obligations with a view to enabling workers and employers maintain industrial peace and work in spirit of harmony and cooperation.

The Labor Law is believed to be consistent with the investment policy of the country. Foreign investors shall obtain work permits for their expatriate employees directly from the Ethiopian Investment Commission (EIC) during the implementation phase of the project. During the operational phase, the Ministry of Labor and Social Affairs will issue the work permit. The EIC processes applications of work permits in two hours.

The Labor Law has fixed nominal hours of work as eight hours a day and thirty-eight hours a week. Work done in excess of these hours is deemed to be overtime. The maximum number of office closure days in a year is12.

The government has strategic intervention to ensure linkage between economic growth and employment. Accordingly, most of the urban dwellers benefited from the economic growth achieved in the past years.

Ethiopia has abundant supply of skilled workers in various fields at internationally competitive rates.

Wages and salaries vary depending on the size of enterprise, type of profession and level of skill required. They are determined by agreement between the employer and the employee. Generally, the cost of labor in Ethiopia is low by African standard.

Labor disputes in Ethiopia are resolved through the application of the law, collective agreements, work rules, and employment contracts.

Data Source: Ethiopian Investment Guide 2014

Tuesday, 17 March 2015 10:02

Tips for Foreign Investors

Health Requirements

Prior to entry, all foreign visitors should be in possession of valid health certificate for yellow fever, vaccination against cholera is also required for any person who has visited or a cholera-infected area within 6 days prior to arrival in Ethiopia.

Visa and immigration requirements

Visas are required for all foreign visitors to Ethiopia, with the exception of nationals of Kenya. Visa applications may be obtained at Ethiopia’s diplomatic missions overseas. Nationals of 37 countries are now allowed to receive their tourist visas on arrival in Ethiopia. The list includes: Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Greece, India, Ireland, Israel, Italy, Japan, Republic of Korea, Kuwait, Luxembourg, Mexico, the Netherlands, New Zealand, North Korea, Norway, Poland, Portugal, Russian Federation, Slovakia, South Africa, Spain, Sweden, Switzerland, Thailand, United Kingdom and United States.

All visitors to Ethiopia (except for Kenyan and Djiboutian nationals) are required to obtain an entry visa. Since 2002, tourists from 33 countries (listed under "Visa Requirements") are able to obtain entry visas upon their arrival at Bole International Airport in Addis Ababa, and in Dire Dawa Airport. In September 2009, the fees for visa-upon-arrival was US$20, regardless of whether one is applying for a Tourist, Business or Transit Visa.

The procedure is relatively quick and painless; just look for a door with a sign "Visa" on the left hand before the immigration counters. Please note, that currently those traveling to Ethiopia by land border will face EXTREME DIFFICULTY in obtaining a Visa at an overseas consulate (e.g. Kampala) as there is a backwards policy of not granting visas to non-residents. Thus, the only way to obtain a visa  in Africa is by flying in, or posting your passport back to your home consulate. Be warned that Ethiopian consulates are currently upholding this policy with no negotiation.

By plane

Ethiopian Airlines is one of the most successful and reputable airlines in Africa. Bole International Airport in Addis Ababa is the main hub for Ethiopian Airlines and also hosts Lufthansa, Sudan Airways, Kenya Airways, British Airways, KLM, Turkish Airways, Emirates, Gulf Air, Egypt Air and fly Dubai. A new runway and international terminal, which was said to be the largest in Africa, opened in 2003.

CAUTION: Arriving in the country without a major currency such as Euros or American Dollars is not recommended, especially if one has not obtained a visa prior to arrival. Travellers cheques and cash can be exchanged at the airport.

  • If you have a prior arrangement, many hotels will send a vehicle to pick up pre-booked guests from the airport.
  • There are also other international airports in Dire Dawa, Mekele, Bahir Dar

CALENDAR

Ethiopia uses the Ethiopian calendar, which dates back to the Coptic calendar 25 BC, and never adopted the Julian or Gregorian reforms. One Ethiopian year consists of twelve months, each lasting thirty days, plus a thirteenth month of five or six days (hence the "Thirteen Months of Sunshine" tourism slogan). The Ethiopian new year begins on September 10 or 11 (in the Gregorian calendar), and has accumulated 7-8 years lag behind the Gregorian calendar. Thus, for the first nine months of 2007, the year will be 1999 according to the Ethiopian calendar. On 11 September 2007, Ethiopia celebrated New Year's Day (Enkutatesh) for 2000.

In Ethiopia, the 12-hour clock cycles do not begin at midnight and noon, but instead are offset six hours. Thus, Ethiopians refer to midnight (or noon) as 6 o'clock.

Note: Airline timetables are based on the 24-hour clock and use the Gregorian calendar

PUBLIC HOLIDAYS

Public holidays are celebrated according to the Ethiopian (Julian) Calendar (see “Time”). The calendar is seven years behind the Western or Gregorian Calendar, with the New Year falling in the month of September.

January 7: Ethiopian Christmas (Genna)

January 14: Birth of Prophet Mohammed (PBUH (Mauwlid)*

January 19: Ethiopian Epiphany (Timket)

March 2: Victory of Adwa (1896)

April 18: Ethiopian Orthodox Good Friday

April 20: Ethiopian Orthodox Easter Sunday

May 5: Ethiopian Patriots (1941) Victory Day

May 1: International Labor Day

May 5: Ethiopian Patriots (1941) Victory Day

May 28: Fall of the Dergue (1991) Day

September 11: Ethiopian New Year

September 27: The Finding of the True Cross (Meskel)

October 5: Id ul Adha (Sacrifice)*

*These holidays are subject to moon sighting.

CURRENCY

The units of currency are the birr and cents. Notes are 100, 50, 10, 5 and 1 birr. The 1 birr coin is also in circulation. ATMs (Automatic Teller Machines) are found in major Addis Ababa hotels, shopping malls and at the Bole International Airport. It is important to retain currency exchange receipts.

BANKING HOURS

Banking hours are usually 8 a.m. – 5 p.m. Monday to Friday and 8 a.m. – 4 p.m. Saturdays. Most banks work through lunchtime; however, foreign exchange services are closed during lunch hours (noon – 1 p.m.).

COURIER & MONEY TRANSFERS

Money transfers can be made through Western Union and MoneyGram. Both have representative branches in Addis Ababa and also make their services available from private and national banks. For courier services, DHL, Fedex, UPS, TNT and EMS have offices in Addis Ababa.

COMMUNICATIONS

Telephones, fax machines and Internet access are available in Addis Ababa in most hotels and at private Internet service centers around the city.

WORKING HOURS

Government office hours are 8:30 a.m. – 12:30 p.m. and 1:30 – 5:30 p.m. Monday through Thursday. Working hours on Friday are 8:30 -11:30 a.m. and 1:30 – 5:30 p.m. Private and public businesses are often open on Saturdays.

Monday, 16 March 2015 10:26

Investment Regulations

1. Legal and Juridical System


The constitution is the supreme law, overriding all other legislation in the country. The legal system depends on codified laws, including civil, penal, civil procedure, and penal procedure, commercial and maritime codes.
All proclaimed laws are published in official gazettes (Negarit Gazeta). In administering justice, courts are directed by internationally accepted principles of justice as well as by the laws of the FDRE. The practice of law is reserved for Ethiopians. However, foreign nationals have the right to appear in courts as witnesses. In such cases, the foreigner is allowed to communicate through a court-appointed translator.
The Commercial Code of 1960 provides the legal framework for undertaking business activities in Ethiopia. The constitution, in accordance with Article 40, ensures the right of every citizen to the ownership of private property, including the right to acquire, use and dispose of such property. The Investment Proclamation (769/2012) gives also a foreign investor the right to own a dwelling house and other immovable property necessary for his investment.
The Investment Proclamation (769/2012) guarantees investors against measures of expropriation or nationalization, and specifies advance payment of compensation “corresponding to the prevailing market value” of a private property earmarked for expropriation or nationalization for public interest.
Ethiopia is a member of the World Intellectual Property Organization (WIPO) and the Multilateral Investment Guarantee Agency (MIGA). Furthermore, Ethiopia has concluded bilateral investment treaties (BITs) and double taxation treaties (DTTs) with a number of countries.


2. Institutional Framework


The Investment Proclamation of 2012 and the Regulations on Investment Incentives and Investment Areas Reserved for Domestic Investors of 2012 are the main legal framework for both foreign and domestic investment in Ethiopia.
The Ethiopian Investment Commission (EIC) is an autonomous government institution accountable to the Investment Board. The Prime Minister chairs the Board. A Commissioner who is also member of the Board heads the EIC.
The EIC has restructured itself recently with a view to promoting more FDI and improving the services it renders to investors.
The major activities of the EIC and the one-stop shop services it renders to foreign investors are the following:
• Promoting the country’s investment opportunities and conditions to foreign and domestic investors;
• Issuing investment permits, business licenses and construction permits;
• Notarizing memorandum and articles of association and amendment;
• Issuing commercial registration certificates and effecting renewal, amendment, replacement or cancellation;
• Effecting registration of trade or firm name and amendment, replacement, suspension or cancellation;
• Grading first grade construction contractors;
• Registering technology transfer agreements and export-oriented non-equity-based foreign enterprise collaborations with domestic investors;
• Negotiating and, upon government approval, signing bilateral investment promotion and protection treaties with other countries; and
• Advising the Government on policy measures needed to create an attractive investment climate for investors.
The EIC also provides additional services on behalf of investors’ request to facilitate the acquisition of land and utilities (water, electrical power and telecom services), to process loan and residence permit applications, to get approval of environmental impact assessment (EIA) studies for their investment projects as well as for the issuance of tax identification number (TIN).


2.1 Registration Requirements


The minimum capital require of a foreign investor is USD200,000 per project.
If a foreign investor invests in partnership with domestic investor(s), the minimum capital required of him is USD150,000 per project.
 The minimum entry capital required of a foreign investor investing in areas of architectural, engineering works or related technical consultancy services, technical testing and analysis and publishing work is USD100,000 where the ownership is fully foreign owned. Where the investment is to be made jointly with domestic partner(s) the minimum capital required for the foreign investor is USD50,000.
 A foreign investor reinvesting his profits or dividends generated from existing enterprise is not required to allocate a minimum capital.
An individual investor may also invest as a sole proprietor, with full equity ownership. Areas open for joint-venture investment with the Government are the manufacture of weapons and ammunition and telecommunication services. Otherwise, the law encourages joint ventures with Ethiopian individuals and companies. Investment can also be effected through business organization incorporated in Ethiopia or abroad (locally registered branch companies).
As a requirement, a foreign investor should obtain investment permit first by submitting a properly filled application form with the required documents.


Commercial Registration of Company


Where the application is to establish as a new local viable venture in Ethiopia, the foreign investor applicant is required to submit the following documents.
 An application form signed by an agent of the company;
 Name clearance from the EIC in the case of creating a new company;
 A photocopy of agent’s power of attorney;
 A copy memorandum and articles of associations;
 Copy of each shareholders valid passport or identity card or photocopy of a certificate evidencing a domestic investor status;
 Tax identification number (TIN);
 An authenticated office lease agreement or title deed;
 In case of non share company, a bank statement showing that the company’s capital to be contributed in cash is deposited in a bank account and proper documents related to contribution in kind; and
 In case of share Company, a bank statement showing that at least one fourth of per value of the subscribed shares of the company is deposited in a bank account.


Commercial Registration of a Branch Company
Where the application is to establish as a branch company in Ethiopia, the applicant is required to submit the following documents:
 Legal certificate of incorporation in the country of origin;
 Notarized document of the memorandum and article of association;
 A decision stating the organizations’ intent to invest in Ethiopia, together with the amount of capital allocated for the purpose; and
 A power of attorney to the appointed agent in Ethiopia and his two passport size photographs;
 Tax identification number (TIN); and
 An authenticated office lease agreement or title deed.
Upon receiving in full the authenticated documents listed above together with property filled investment application form, the investment permit and company registration certificate will be issued within 3 hours.
Investment to be made by business organization incorporated in Ethiopia
Where the application is to be made by a business organization incorporated in Ethiopia, the foreign investor applicant is required to submit the following documents.
 An application form signed by an agent of the company;
 A photocopy of agent’s power of attorney;
 Name clearance from EIC in the case of establishing new company;
 A photocopy of its memorandum and articles associations;
 Copy of each shareholders valid passport or identity card or a photocopy of the certificate evidencing a domestic investor status;
 In case there is a business organization in the company, a photocopy of its memo random and articles of associations or similar documents of the parent company, legal certificate of incorporation in the country and an authenticated minute stating the organization’s intent to invest in Ethiopia.
Application for expansion or upgrading of an existing enterprise
Where an applicant to expand or upgrade an existing enterprise, a foreign investor is required to submit the following documents:
 An application form signed by an agent;
 Photocopy the agent’s power of attorney;
 Where the applicant is sole proprietor, a photocopy of his valid passport or identity card or a certificate evidencing a domestic investor status and his two recent passport size photographs;
 Where the applicant is a business company, a photocopy of its memorandum and articles of associations and his two recent passport size photographs of the general manager;
 A photocopy of each shareholders valid passport or identify card or a photocopy of the certificate evidencing a domestic investor status;
 In case there is a business organization in the company, a photocopy of its memorandum and articles of associations or similar documents of the parent company, a legal certificate of incorporation in the country and an authenticated minute stating the organization’s intent to invest in Ethiopia;
 A photocopy of a valid business license of the existing enterprise; and
 A photocopy of project feasibility study.
The Main Department for Immigration and Nationality Affairs issues a residence permit to a foreign investor, upon the submission of his/her investment permit. A foreign investor, who is a shareholder of a company or a branch company and an expatriate staff who has a work permit, are also entitled to have a residence permit.
NOTE:
All documents whose sources are outside of Ethiopia should be authenticated by foreign public notary, the Ethiopian Embassy, the Ministry of Foreign Affairs of Ethiopia and domestic public notary. 


2.2. Land Allocation


In Ethiopia, land is public property. Individuals, companies and other organizations have only the right to use land. There are two broad classifications of land for rent or lease purposes: rural land and urban land.
Rural land is rented mainly for agriculture. Currently, there are nearly 11.55 million ha of potential land for farming. The rental price of rural land is generally low. There is strong commitment from the government to avail the country’s fertile land for investment. The Ministry of Agriculture has been given the responsibility of providing technical support for private investors investing in agriculture. The support ranges from providing land above 5000 ha, provision of information, technical support, and facilitation for other public services.
Urban land is divided into two categories. These are land for industrial use and land for other activities. Industrial land is given much attention by the government and a number of industrial zones with the necessary infrastructural facilities (roads, electricity, water, telephone) are established in the major cities and towns in order to support the county’s drive for rapid industrialization. Industrial land in industrial zones is allocated to investors at fixed prices. Land for export-oriented industries is generally available at concessionary rate.
The Ethiopian Investment Commission (EIC) has the mandate to facilitate the allocation of land for FDI projects throughout the country. Urban land for other activities is available on a auction basis. The auction prices vary, depending on demand.
The lease and rental prices of urban and rural land vary according to location, type of investment and class of land. The land cannot be mortgaged or sold, but the lease or rental value of land and the fixed assets thereon may be mortgaged or transferred to a third party.
The Ministry of Industry is there to avail sheds or plots of land for manufacturing investment in public industrial zones on rental basis. Private industry zones are also present.

 DATA SOURCE: ETHIOPIAN INVESTMENT GUIDE 2014

Monday, 16 March 2015 09:29

Taxation and Custom Duty Exemption

Because Ethiopia is a preferred location for FDI (Foreign Direct Investment) numerous rules, regulations were in place to accommodate, attract and meet the needs of investors. By creating a conducive environment that would guarantee foreigners, ex patriots or domestic investors to invest in Ethiopia. According to Ethiopian Investment Commission literature attractive taxation system is one of the main reasons why this country is becoming the center of investors.

The Ethiopian tax law provides for the direct and indirect taxes. The direct taxes are divided into five categories: personal income tax, rental tax, withholding tax, corporation tax, etc. the main types of indirect taxes applicable are VAT, customs duty, excise and turn over taxes.

Direct Taxes

Incomes 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, dividends distributed by resident company, profit shares paid by registered partnerships, interest paid by the national, regional or local governments, and license fees. Personal income tax rates applicable at present are given in the table below:

Personal Income Tax Rates

 

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 tax payers with business income ranging from ETB 1,801 to ETB 60,000 pay between 10% and 30%. Business income above ETB 60,000 is charged 35%.

Taxable Business Income Tax rates

 

Taxable business income tax rates

Tax rate

 

Over Birr

To Birr

 

1

0

1,800

Exempt threshold

2

1,801

7,800

10

3

7,801

16,800

15

4

16,801

28,200

20

5

28,201

42,600

25

6

42,601

60,000

30

7

Over 60,000

 

35

Source: Income Tax Proclamation No. 286/2002

Capital gains 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 percent and shares of companies at 30 percent.

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 for the entire tax period and is taxed in accordance with the provisions of 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 on joining and completion of employment, provided that such payments are made pursuant to specific provisions of the contract;
  • Board members’ and board secretaries’ allowances; 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; and
  • Payments made to a person as compensation in relation to injuries suffered by that person or the 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.

Indirect Taxes

The value added tax (VAT) system, which came into effect on 4th July 2002, largely replaced the old business tax system of commodity and service taxes including the sales tax and the withholding tax. The VAT rate is 15% of the value of every taxable transaction by a registered person and all imports of goods and services other than those exempted. Taxable transactions which shall be charged with zero percent are: export goods or services to the extent provided in the regulations. 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.

Excise tax is payable on a range of consumer goods, whether locally produced or imported, e.g., alcohol, tobacco, salt, fuel, television sets, cars, carpets and toys. Its rates vary from 10% on receivers, garments and textiles of any type and fabrics to 100% on perfumes, vehicles above 1,800cc and alcoholic drinks. It is payable in addition to VAT.

Turn over tax, under the total value of 500,000 Birr, is applicable to pay 2 or 10 percent from annual taxable transactions on goods sold or service rendered locally.

All income from domestic or foreign sources is taxed whether it is obtained as remuneration, profit or gains, from employment, business activities or any activity which brings income to the beneficiary.

For depreciation allowance, assets are categorized into different classes. The categories and rates of depreciation are:

  1. Buildings and structures 5%;
  2. Intangible assets 10%;
  3. Computers, information systems, software products and data storage equipment 25%; and
  4. All other business assets including automobiles, buses and minibuses 20%.

Every investor has a tax obligation and is required to obtain a tax payer identification number (“TIN”) form the Federal Customs and Revenue Authority. An investor that will involve in taxable activity has also an obligation to register for VAT.

In summary, main taxes in Ethiopia include:

 

 

No

                    TYPE OF TAXES

                                  RATE

1

Corporate Income Tax

 30%

2

Turn Over Tax

2% and 10 %

3

Excise Tax

0% up to 100%

4

Customs Duties

0% up to 35%

5

Income Tax from Employment

0% up to 35%

6

Withholding Tax

2%

7

Value Added Tax

15%

8

Export Tax

Nil (with exception of hides and skins- 150%)

9

Royal Tax

     5%

10

Dividend Tax

    10%

 

CUSTOM DUTY EXEMPTION: Incentives according to Ethiopian Investment Commission.

To encourage exports, the Commission out lined, Ethiopian products except coffee and services destined for export are in fact exempted from the payment of any export tax and other taxes levied on exports.

Manufacturing or agricultural who has invested at least USD 200, 000 or equivalent Ethiopian Birr at the prevailing rate and created permanent employment opportunity for at least 50 Ethiopian nationals shall be entitled to import, at any time, duty free capital goods necessary for the existing enterprises:

In other area of investment eligible for customs duty and has invested at least USD 200,000 or equivalent Ethiopian Birr at the prevailing rate and created at least for 50 people permanent employment opportunity shall be allowed to import duty free capital goods necessary for the existing enterprises up to 5 years from the date acquiring a business license or other appropriate license.

Further more Custom Duty exemption of spare parts worth up to 13% of the total value of the capital goods imported.

All imported goods to Ethiopia are subjected to customs duties and taxes, unless exempted by law. Taxes applicable on imported goods are: Import (Customs) duty, Withholding Tax (a fixed rate of 3%), Excise Tax (if applicable), VAT (a fixed rate of 15%) and Surtax (a fixed rate of 10%).

Duty is tariff collected on the value of the good calculated on the basis of its actual total costs. It is levied in accordance with the rules of the international convention on the harmonized customs description and coding system. Sur-tax applies on all imported goods, except those exempted by the Council of Ministers Regulation No. 133/2007 at 10 percent rate. Excise tax is paid on imported goods with a percentage rate ranging from 0 to as high as 100. VAT on imported goods is a flat rate of 15 %. A 3 percent withholding tax applies also on imported goods. These taxes are calculated based on the cost and freight rate. But the Ethiopian Revenues and Customs Authority provides its own CD with details on prices on various goods. The rate is usually calculated as per the price on the CD.This CD is to be updated every three months.

Source: Ethiopian Investment Guide, 2015

 

Wednesday, 04 March 2015 10:13

Investment Incentives

Fiscal

The Council of Ministries Regulations No.270/2012 specifies the areas of investment eligible for investment incentives.

a) Customs Duty

To encourage private investment and promote the in-flow of foreign capital and technology into Ethiopia, the following customs duty exemptions are provided for investors (both domestic and foreign) engaged in eligible new enterprises or expansion projects such as manufacturing, agriculture, agro-industries, generation, transmission and supply of electrical energy, Information and Communication Technology Development (ICT) tourism, construction contracting, education and training, star designated hotel, specialized restaurant, architectural and engineering consultancy works, technical testing and analysis, capital goods leasing and importation of LPG and bitumen.

  • 100% exemption from the payment of customs duties and other taxes levied on imports is granted to all capital goods, such as plant, machinery and equipment and construction materials;
  • Spare parts worth up to 15% of the total value of the imported investment capital goods, provided that the goods are also exempt, from the payment of customs duties;
  • An investor granted with a customs duty exemption will be allowed to import capital goods duty free indefinitely if his investment is in manufacturing and agriculture, and for five years if his investment is in other eligible areas;
  • An investor entitled to a duty-free privilege buys capital goods or construction materials from local manufacturing industries shall be refunded the customs duty paid for raw materials or components used as inputs for the production of such goods; and
  • Investment capital goods imported without the payment of custom duties and other taxes levied on imports may be transferred to another investor enjoying similar privileges.

b) Income Tax Exemption

If an investor engaged in new manufacturing agro-processing; the agricultural products; generation, transmission and supply of electrical energy; and Information and Communication Technology Development he shall be entitled to income tax exemption as specified as follows:

Any investor who establishes a new enterprise in Gambella; Benshangul/Gumuz; Afar (except in areas within 15 kms right and left of the Awash River); Somali; Guji and Borena Zones (in Oromia); or South Omo Zone, Segen (Derashe, Amaro, Konso and Burji) Area Peoples Zone, Ben-Maji Zone, Sheka Zone, Dawro Zone, Keffa Zone, Konta nd aBasketo Special Woredas (in Southern Nations, Nationalities and Peoples Region) shall be entitled to an income tax deduction of 30% for three consecutive years after the expiry of the income tax exemption period.

  • An investor who expands or upgrades his existing enterprise and increases in volume at least by 50 percent of its attainable production or service rending capacity or introducing a new production or service rendering line at least by 100 percent of an existing enterprise is entitled to the income tax exemption period;
  • Exports at least 60 percent his products or services, or supplies the same to an exporter as production of service input will be exempted from the payment of income tax for additional 2 years.

Non-fiscal

The non-fiscal incentives given to all exporters investors who invest to produce export products will be allowed to import machinery and equipment necessary for their investment projects through suppliers credit.

Loss carry forward

Business enterprises that suffer losses during the income tax exemption period can carry forward such losses, following the expiry of the income tax exemption period, for half of the tax exemption period. For the purpose of calculating a period of loss incurred carry forward, a half year period shall be considered as a full income tax period. Any loss incurred during income tax exemption period is not allowed to carry forward such loss for more than five income tax period.

Wednesday, 04 March 2015 10:08

Export Incentives

Fiscal

The fiscal incentives given to all exporters are the following:

  • With the exception of few products (e.g. Semi-processed hides and skins – 150%), no export tax is levied on export products of Ethiopia;
  • Duty Drawback Scheme: this scheme offers investors an exemption from the payment of customs duties and other taxes levied on imported and locally purchased raw materials used in the production of export goods. Duties and other taxes paid are drawn back 100 percent at the time of the export of the finished goods;
  • Voucher Scheme: a voucher is a printed document having monetary value, which is used in lieu of duties and taxes payable on imported raw materials. The beneficiaries of the voucher scheme are also exporters; and
  • Bonded Factory and Manufacturing Warehouse Schemes: producers not eligible for voucher scheme but having licensed for bonded are entitled to operate such factory or warehouse in importing of raw materials duty free.

Non-fiscal

The non-fiscal incentives given to all exporters are the following:

  • Exporters are allowed to retain and deposit in a bank account up to 20 percent of their foreign exchange earnings for future use in the operation of their enterprises and no export price control is imposed by the National Bank of Ethiopia;
  • Franco valuta import of raw materials are allowed for enterprises engaged in export processing; and
  • Exporters can benefit from the export credit guarantee scheme, which is presently in place in order to ensure an exporter receives payment for goods shipped overseas in the event the customer defaults, reducing the risk of exporters’ business and allowing it to keep its price competitive.
Wednesday, 04 March 2015 10:03

Market Size and Access

Ethiopia has a large population and thus potentially one of the largest domestic markets in Africa. Beyond the domestic market, by virtue of its membership of the Common market for Eastern and Southern Africa (COMESA) embracing 19 countries with a population of 400 million, Ethiopia enjoys preferential market access to these countries. Ethiopia’s proximity to the Middle East also offers potential market opportunities.

            The country also qualifies for preferential access to European Union market under the EU’s Everything-But-Arms (EBA) initiative and to USA markets under the African Growth and Opportunities Act (AGOA) and the Generalized System of Preference (GSP). Thus, most Ethiopian products can enter into these markets quota and duty free.

            Furthermore, a broad range of manufactured goods from Ethiopia are entitled to preferential access under the Generalized System of Preference (GSP) in USA, most countries of the EU and other developed countries. No quota restrictions are placed on Ethiopian exports falling under the 4,800 products currently eligible for GSP treatment.

Wednesday, 04 March 2015 09:20

Setting Up Your Business

These steps vary slightly depending on the business form under which investors plan to operate their business:

Sole Proprietorship

  • Step 1: Collect information from Ethiopian Investment Commission (EIC) Information and Investment Promotion Department about requirements, incentives, etc.
  • Step 2: Collect application form from Information Desk.
  • Step 3: Submit application with passport and visa to start new investment permit application in Licensing and Registration Department.
  • Step 4: Collect bank letter from Licensing and Registration Department to open an account at National Bank of Ethiopia.
  • Step 5: Transfer/deposit cash in an opened bank account.
  • Step 6: Collect confirmation letter from bank which states the bank account is already opened and money is transferred/deposited.
  • Step 7: Collect investment permit certificate from Licensing and Registration Department.

Private Limited Company (PLC)

  • Step 1: Collect information from Information and Investment Promotion Directorate about requirements, incentives, etc.
  • Step 2: Collect application form memorandum and article of association from Information Desk.
  • Step 3: Submit draft memorandum and article of association in Licensing and Registration Department   
  • Step 3: Check uniqueness of the company name from Ministry of Trade (MoT) database
  • Step 4: Collect letter of clearance for unique company name from Licensing and Registration Department
  • Step 5: Edit and authenticate memorandum and article of association in Licensing and Registration Department.
  • Step 6: Collect letter to the National Bank of Ethiopia from Licensing and Registration Department to open an account at the bank.
  • Step 7: Open an account in the bank and transfer/deposit money.
  • Step 8: Collect confirmation letter from the bank which states the bank account is already opened and money transferred, authenticated lease agreement from documentation and authentication office and TIN number from CUSTOM and Revenue office.
  • Step 9: Fill application form /profile/ available at EIC Information Desk.
  • Step 10: Collect investment permit certificate and principal registration from Licensing and Registration Department

Branch /Multinational Company

  • Step 1: Collect information from Information and Investment Promotion Directorate about requirements, incentives, etc
  • Step 2: Collect application form from EIC Information Desk
  • Step 3: Submit application, authenticated parent (mother) company document, new company general manager’s passport and visa in Licensing and Registration Department to start new investment permit
  • Step 4: Collect a letter to the National Bank of Ethiopia from Licensing and Registration Department of EIC to open an account in a bank
  • Step 5: Open an account at the bank and transfer/deposit cash  
  • Step 6: Collect confirmation letter from bank which states the bank account is already opened and money is transferred/deposited  
  • Step 7: Collect investment permit certificate from Licensing and Registration Department
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