According to proclamation no 28694 any person whose permanent residence is in ethiopian, has to pay tax from the income that he gets within ethiopia or abroad. The number of proclamations, regulations and directives makes it to some extent difficult to understand this area of law. House approves revised vat proclamation ethiopian news. Ethiopian revenue and customs authority withholding tax on payment declaration income tax proclamation no. Imperial ethiopian government, ethiopiastatistical abstract. An ethiopian tax and customs law is characterized by frequent repeal and amendments. The new income tax in ethiopia new income tax calculations. In addition, the costs of vat administration were briefly examined in the case of jantschers 1990 study. Uncorporate or individual businesses are taxed in accordance with the following schedule below.
Definitions a term used in this proclamation that is defined in the tax administration proclamation shall have the meaning in the tax administration proclamation unless defined otherwise in this proclamation. In addition to raising revenue, the mor is responsible to protect the society from adverse effects of smuggling. C the ministry of finance and economic cooperation mofec has announced this new tax proclamation the new income tax proclamation has employees and low earners at its benefiters. So 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. Recently, ethiopia has implemented a valueadded tax vat withholding system on payments for acquisitions by governments and government bodies with the aim of mitigating evasion and increasing revenue collection.
Tax is a compulsory payment made by an individual or a corporate establishment legal entity to the government. Withholding agent means a person liable to withhold tax from a payment. Now, therefore, in accordance with article 55 1 and 11 of the constitution of the federal democratic republic of ethiopia it is hereby procloaimed as follows. The 1 other indirect taxes mainly refer to excise taxes 2 world bank 2015, how to collect more and better revenue.
This proclamation may be cited as the income tax amendment proclamation no. The following new article 28 is added after article. This proclamation may be cited as the value added tax proclamation no. Setting up your business in ethiopia issues to consider. Since the jurisprudence of ethiopian taxation is yet to develop fully, this. Corporate businesses are required to pay 30% flat rate of business income tax. Ethiopian revenue authority may raise vat withholding december 22, 2016 the growing number of requests for tax refunds is causing the government to consider increasing the withholding percentage from value added tax vat, reports capital. For the purposes of this proclamation the following terms shall have the meanings given to them hereunder. Definitions in this proclamation, the meanings of terms defined in other laws of ethiopia apply unless a different meaning is expressly provided herein. This is direct tax, which a person pays from any income he gets. They are subjected to presumptive tax, based on a percentage of turnover. Similarly, the house approved the revised labor proclamation no.
Ethiopian chamber of commerce ecc, ethiopian business development services network ebdsn, on behalf of. Published on 01 jul 17 by australian tax forum journal article. Excise tax proclamation no 3072002 or 3071994 ec and its amendment. Definitions for the purpose of this proclamation, unless the context otherwise requires. Business profit schedule c tax rates, calculation, rates. As of the new budget year, which starts at hamle 2008 e. Corporate tax in ethiopia is imposed at a standard rate of 30%. A reflection of problems 147 of filing and payments, refunds, audits and penalties. Vat withholding is the application of the reverse charge mechanism on transactions carried out within a. Vat withholding regimes are tax collection mechanisms implemented by tax authorities to enforce and shorten the time in which vat is collected from certain taxpayers and specific economic sectors. It seizes and takes legal action on the people and vehicles involved in the act of smuggling while it facilitates the legitimate movement of goods and people. Federal income tax proclamation exclusive document. House approves newly revised income tax proclamation.
Of the federal democratic republic of ethiopia 22nd year no. All legal entities must register for income tax with the ethiopian revenue and customs authority and obtain a tax identification number tin and file annual tax returns by june of the year following the end of the tax year the value added tax vat in ethiopia is levied at a standard rate of 15%. Issued under the authority of the house of peoples representatives of the federal democratic republic of ethiopia federal tax administration proclamation federal negarit gazette extraordinary issue proclamation no. The withholding agent shall withhold or collect the tax and account to the tax authority. It is an important and most significant source of revenue of the government. Withholding tax in ethiopia is viewed and administered according to the following legal documents. By the tax authority, we mean the ethiopian revenues and customs authority erca head office or any of its. Ethiopian tax system strikes one as random, disorganized, and incoherent in places. We are more accustomed to talking if ever about income taxes even then, of specific income taxes, the value added tax, or customs duties than of the ethiopian tax system as a whole.
Gain on transfer of property declaration for building. In simple terms custom duty is tax tax imposed on goods entering and leaving the country. The direct and indirect taxes applicable in ethiopia. This proclamation may be cited as the federal income tax proclamation no. Ethiopian revenue authority may raise vat withholding. This payment is usually a small percentage of a total earning, made to assist the government in offsetting its. As per income tax proclamation no 9792016, here are the business profit tax rates in ethiopia. This study is, hence, to assess the vat withholding system in ethiopia and the implications for revenue collection and refunds. Fair market value 1 for the purposes of the tax laws and subject to article 76 of the income tax proclamation, the fair market value of goods, an asset, service, or. Employment income tax in ethiopia fikadu and associates.
Rate of turnover tax is 2% on goods sold locally and 10% on others. Income taxable under the ethiopian income tax proclamation no. This proclamation may be cited as the income tax proclamation no. Taxation in ethiopia direct and indirect taxes categories of tax payers declaration of income and assessment of taxes tax incentives addis ababa 12005 published by. The revised draft income tax proclamation, drafted by the ministry of finance and economic cooperation mofec and ethiopian revenue and customs authority ecra, proposed a revision of.
A word or term in these regulations shall have the same meaning that it has in the. Limited fiscal capacity poses a significant challenge in ethiopia. May 2020 salary income tax calculation in ethiopia. Whereas, it has become necessary to amend the value added tax proclamation no. Ethiopian ministry of revenues mor is the body responsible for collecting revenue from customs duties and domestic taxes. Now therefore, in accordance with article 55 i of the constitution of the federal democratic republic of ethiopia, it is hereby proclaimed as follows. If the person is not resident of ethiopia gets his income which has its source in ethiopia also should pay tax. In this article, we look at the ethiopian tax system, types of taxes in ethiopia applicable to everyone. The tax laws which are expected to come into force any time in 2016 are a new income tax proclamation and the tax administration proclamation. Federal income tax this regulation is issued by the council of ministers pursuant to article 5 of the definitions of powers and duties of the executive organs of the federal democratic republic of ethiopia proclamation no. Setting up your business in ethiopia issues to consider employees contribution 7% it is the employers legal responsibility to pay over employees tax and pension deductions to the ethiopian tax authorities with in 30 days following the end of the month of pay. Whereas, it has became necessary to amend the mining income tax proclamation. Development introduced draft tax laws that are aimed to streamline the process of tax administration in ethiopia.
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