Ethiopian source income except to the extent that it is attributable to a business. New income tax rates in ethiopia, salary income tax. Incomes taxable under article 6 of the income tax proclamation no. Definitions in this proclamation, the meanings of terms defined in other laws of ethiopia apply unless a different meaning is expressly provided herein. Ethiopia before, during, or after any activity conducted by the individual in ethiopia. If the person is not resident of ethiopia gets his income which has its source in ethiopia also should pay tax. Ethiopian ministry of revenues mor is the body responsible for collecting revenue from customs duties and domestic taxes. Withholding tax rates on creditable income taxes expanded bir form 1601 e. The following is the progressive rate table for monthly employment income. By the tax authority, we mean the ethiopian revenues and customs authority erca head office or any of its branch offices established in any part of ethiopia and the tax authorities of the regional state. The 1 other indirect taxes mainly refer to excise taxes 2 world bank 2015, how to collect more and better revenue. 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.
No withholding tax imposed on dividend distributions from profits earned as from 1 january 1996. In the determination of business income subject to tax in ethiopia, deductions would 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. Guide to fiscal information key economies in africa 2018. Coronavirus live update live statistics and coronavirus news tracking the number of confirmed cases, recovered patients, and death toll by country due to the covid 19 coronavirus from wuhan, china. The personal income tax rates in ethiopia stands at 35 percent. Dec 22, 2016 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. 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. As of the new budget year, which starts at hamle 2008 e.
Employers must withhold taxes from each employees paycheck. If you dont use the software you can use this simple table and a tool we have developed below. While the africa tax guide should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the. Bank interest 20% withholding tax no withholding tax if paid to a resident financial institution. The direct and indirect taxes applicable in ethiopia fikadu and. This is direct tax, which a person pays from any income he gets. In the first four months of the budget year over 2. Public finance and taxation in ethiopia pdf in a moment of dismissive hubris, the ethiopian tax system may be. A reflection of problems wollela abehodie yesegat abstract this paper examines vat administration in ethiopia and identifies key problems including lack of sufficient number of. Withholding tax is that which is deducted at source such that one does not need to make. Withholding tax on payment declaration income tax proclamation no. Ethiopian revenue authority may raise vat withholding. If taxpayers are not given the right to claim a refund, then the withholding tax is in effect a minimum tax collected by withholding, which does. The value of a taxable import is the customs value of the goods, determined in accordance with the customs legislation of ethiopia, plus the sum of duties and taxes payable upon the import of the goods into ethiopia, excluding vat and income tax withholding.
Royalties royalties paid to a nonresident are subject to a 25% withholding tax. This proclamation may be cited as the income tax proclamation no. For example, if capital gains are included in the tax. The direct and indirect taxes applicable in ethiopia. In this article, we look at the ethiopian tax system, types of taxes in ethiopia applicable to everyone. Rate income distribution to beneficiaries of estates and trusts. The article will end with a conclusion and some recommendations. Withholding tax in ethiopia is viewed and administered according to the. It will start with a brief look at the history of income taxes in ethiopia and will go on to look.
Through the legal and institutional arrangements that have made the ethiopian tax system into what it is in spite of the gaps and loose ends, the article aims to draw. The tax withholding liability imposed by the income tax proclamation shall be treated as a tax liability for purposes of any article. Many jurisdictions also require withholding tax on payments of interest or dividends. For the purposes of this proclamation the following terms shall have the meanings given to them hereunder. Turn over tax under the total value of 500,000 birr, is applicable to pay 2% or 10% percent from. The withholding agent is required to pay the withhold tax to the ministry of revenue within 30 days after the end of the month in which the withholding income was paid. The amount withheld for federal taxes is determined from tax tables published by the irs. 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. Jul 08, 2016 new income tax in ethiopia incorporated in businesstyc tax software businesstyc tax will keep all employees for you and track their payroll according to the new income tax proclamation. Ethiopia fiscal guide 20152016 2 business income income tax is charged on all the income of an entity having a permanent establishment in ethiopia. By the tax authority, we mean the ethiopian revenues and customs authority erca head office or any of its branch offices established in any part. The withholding tax on dividends will not be more than 5% of the gross dividends amount, if the recipient is the beneficial owner of the dividends. The tax is calculated at 20% of income after allowing certain deductible expenses. A c is a citizen of ethiopia and a consular, diplomatic or similar official of ethiopia posted abroad.
A withholding tax, or a retention tax, is an income tax to be paid to the government by the payer of the income rather than by the recipient of the income. An administrative branch, factory, workshop, mine, quarry or any other place for the exploitation of natural resources, and a building site or place where construction andor assembly works are. Chapter 14 employees, payroll and account reconciliation. The focus in this chapter is the use of a presumption to. Tax regulations in ethiopia get quick facts on ethiopias tax regulations now.
Its production was made possible by the efforts of. An introduction to the africa centre for tax including relevant contact details is provided on page 2. Royalties 20% withholding tax fees no withholding tax rents 20% withholding tax no withholding tax if obtained by real estate companies managing their own property. Chapter 14, individual income tax 4 moreover, whatever the basic definition of income, distinctions are often made in the legislation for a range of policy and technical reasons. Basically the ethiopian tax law provides direct and indirect taxes. In this type of tax system all incomes are taxed at a single uniform rate, irrespective of whether tax payers income is high or low. This study is, hence, to assess the vat withholding system in ethiopia and the implications for revenue collection and refunds. Branch profits tax the calculation of tax on the taxable profits of branch offices of nonresident companies is the same as for other business. Lencho, income tax assignment under the ethiopian constitution. In addition to raising revenue, the mor is responsible to protect the society from adverse effects of smuggling. For expatriates working in ethiopia, taxable income includes, but is not limited to income from employment to the extent. Tax reform discourse and its implication on development. 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. The tax is thus withheld or deducted from the income due to the recipient.
Cyprus ethiopia double tax treaty cyprus is continuing to develop its network of double taxation treaties through the signing of a new dtt with the federal democratic republic of ethiopia, on 30th december 2015. 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. Chapter two will introduce the students to the income tax in ethiopia. New income tax rates in ethiopia, salary income tax calculation. Ethiopia tax rate for 20162017, 20152016, 20142015 ethiopia income tax rate 20152016. Income tax is charged on all the income of an entity having a permanent establishment in ethiopia.
The provincial tax is in effect the same as a central government tax. Mar 08, 20 tax treaties and related documents between the uk and ethiopia. Public tenders 4% and 3% of the transactions vat exclusive royalties 15% repatriation of branch profits 15% burundi fiscal guide income tax basis of taxation. The focus in this chapter is the use of a presumption to supplant the entire tax base, or an entire category of taxable income. The federal democratic republic of ethiopia ethiopian revenue and customs authority withholding tax on payment declaration income tax proclamation no. Technical service fees technical service fees paid to a nonresident are subject to a 25% withholding tax. Employers must withhold the tax from each payment to an employee and pay the tax over to the tax authorities for each month. Ethiopia allows foreigners of ethiopian origin to engage in insurance business.
Withholding tax rates on creditable income taxes expanded bir form 1601 e ewt on. Wtihholding tax on payment declaration form amharic 1. Chapter 14, individual income tax 3 applied wholly against one category of income, such as employment incomein which case the relief may not be fully effectiveor divided among various categories of income, which increases complexity. In most jurisdictions, withholding tax applies to employment income. Jan 21, 2020 the personal income tax rates in ethiopia stands at 35 percent. Dec 26, 2019 some unusual facts about repeal in ethiopia part ii by abrham yohannes on september 19, 2012 7 comments double repeal and repeal after indefinite period of time it is difficult even for law makers to remember each and every law they have amended and repealed. Jan 24, 2020 withholding tax is income tax withheld from employees wages and paid directly to the government by the employer, and the amount withheld is a credit against the income taxes the employee must pay. These regulations may be cited as the tax withholding. Honduras highlights 2019 other taxes on corporations. These are important questions and this page provides explanation of withholding tax in ethiopia. Ethiopia tax rates for 20162017, 20152016, 20142015. Wtihholding tax on payment declaration form amharic 2. Tax reform, tax reform discourse, vat adoption, ethiopia, development introduction tax reform has been a significant part of postworld war ii development projects, where legal and economic notions or models are easily transplanted across borders to reform the tax systems of.
If the distribution is made from earnings that have not been previously subject to argentine corporate income tax, a 35% equalization tax should be applied. Chapter 12, presumptive taxation 2 circumstances of each case. In addition to the printed version of the wwtg, individual country taxation guides are available in pdf format which can be downloaded from the pkf website at. Apr 30, 2008 a withholding agent required to pay withholding tax must file a withholding tax declaration in the approved form with the payment. The tax withholding liability imposed by the income tax proclamation shall be treated as a tax liability for purposes of any article providing taxpayers with the right to contest the amount of tax due or to recover tax paid. Tax is a compulsory payment made by an individual or a corporate establishment legal entity to the government. Tax treaties and related documents between the uk and ethiopia. Withholding tax bodies having legal personality, government agencies, nonprofit organizations, or non. 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. A word or term in these regulations shall have the same meaning that it has in the.
If a person owns a piece of land, or a building, or a residence, or a business premises which he rents out to another, he forfeits withing 10 percent to 35 percent of his earnings from rent to the ethiopian government. Setting up your business in ethiopia issues to consider dividend tax is payable on profit appropriated andor on net profit after tax regardless of time of appropriation if dividend is not declared within 12 months time. The section on withholding tax is adapted from the ethiopian revenues and customs authority. This payment is usually a small percentage of a total earning, made to assist the government in offsetting its. Jitfi federal negaritgazeta ofthefederaldemocratic republicofethiopia liqad. Accordingly, the material deals with the following. At present ethiopia has essentially three different tax structures. A 7% withholding tax rate should apply for distributions on profits accrued from january 1, 2018 through december 31, 2019, and a % withholding tax rate from january 1, 2020 onward. Accordingly, this teaching material tries to address, even though briefly, the basic component of tax law, especially in ethiopia. Fair market value 1 for the purposes of the tax laws and subject to article 76 of the income tax proclamation, the fair. Setting up your business in ethiopia issues to consider. Withholding tax is income tax withheld from employees wages and paid directly to the government by the employer, and the amount withheld is a. The tax liability increases in absolute terms, but the proportion of income tax remained the same.
Employees, payroll, and account reconciliation employees and employers are required to pay local, state, and federal payroll taxes. The new income tax in ethiopia new income tax calculations. Chapter one introduces students to the basic concepts, principles and underlying assumptions of the many tax laws of ethiopia at present. A withholding agent required to pay withholding tax must file a withholding tax declaration in the approved form with the payment.