Ethiopia

Basic corporate income tax rate

Standard corporate income tax in Ethiopia is a flat 30% on taxable income for companies, including branches of foreign companies, as well as those that have a permanent establishment in Ethiopia.

Other specific corporate tax-related rates

While the headline corporate tax rate is 30%, there are several other relevant tax rates and levies that businesses should note:

• Minimum Alternative Tax (MAT). An MAT of 2.5% of turnover applies when the regular corporate tax computed is lower than 2.5% of total annual turnover. Certain exemptions may apply (e.g. entities under liquidation).
• Advance income tax on imports. Businesses importing goods for commercial purposes must pay an advanced payment of income tax at 3% of the CIF value, which can be credited against the annual corporate income tax liability.
• Regional or state/provincial rates. Ethiopia has a federal tax system for corporate income tax. There are no separate state, regional, or provincial corporate tax rates within Ethiopia beyond the federal statutory regime. All corporate income tax rates are applied uniformly across the Federal Democratic Republic of Ethiopia.

As of the most recent tax framework in Ethiopia (including the Income Tax (Amendment) Proclamation No. 1395/2025), Ethiopia does not have a domestic “global minimum tax” regime similar to the OECD/G20 Pillar Two global minimum tax rules applying a minimum effective tax rate to large multinationals.

There is no specific legislation in Ethiopia that implements the Global Anti-Base Erosion (GloBE) Model Rules or a Qualified Domestic Minimum Top-Up Tax (QDMTT) that would impose a minimum effective tax rate (e.g. 15%) on profits of multinational enterprises at a jurisdiction level. Ethiopia’s corporate taxation remains based on its domestic corporate income tax rate of 30% plus the alternative minimum tax at 2.5% of turnover, but these are not part of the OECD global minimum tax regime.

The global minimum tax concept being discussed internationally arises from the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), specifically Pillar Two, which aims to ensure that large multinational enterprises pay at least a minimum effective tax rate (commonly 15%) on profits in every jurisdiction where they operate.

Under Pillar Two rules (the GloBE Model Rules), if the effective tax rate in a jurisdiction is below the agreed minimum, a top-up tax may be applied to bring the effective rate up to the threshold. These rules are designed to reduce profit-shifting and harmful tax competition among jurisdictions. However, Pillar Two implementation requires domestic legislation; simply being a member of the Inclusive Framework does not automatically create a global minimum tax in a country’s own law.

As of now, Ethiopia has not enacted such domestic Pillar Two/GloBE legislation nor instituted a domestic minimum top-up tax aligned with the global minimum tax framework. Ethiopia participates in international tax cooperation through multilateral forums and has expressed interest in strengthening its tax policy and administration in line with international best practice, but this does not yet extend to implementing the Pillar Two global minimum tax.

Ethiopia could contemplate introducing domestic rules to align with the global minimum tax framework in the future, particularly if it seeks to enhance international tax cooperation, protect its tax base, and respond to multinational tax planning, but no concrete plans or legislation have been publicly adopted to this end as of early 2026.

Under Ethiopian law, resident individuals are taxed on their worldwide income (income from Ethiopia and from abroad), while non-resident individuals are taxed only on their Ethiopian source of income.

Tax rates and scope

Personal income (employment, business, rental, other income) is taxed under progressive tax brackets (typically from 0% up to 35% on net taxable income after deductions). In practice, residents file annual returns and include all income worldwide, while non-residents include only Ethiopian-sourced earnings.

Corporate income tax (CIT)

Resident corporations/companies are taxed on worldwide business income (income from Ethiopia and foreign sources).

Non-resident companies are taxed only on Ethiopian-source income, defined as income attributable to a permanent establishment (PE) or similar nexus in Ethiopia. The standard corporate tax rate is 30% on taxable income after allowable deductions.

Capital gains tax (CGT)

Capital gains in Ethiopia are taxed differently by type of asset:

• Gains from disposal (sale) of buildings and other immovable property are generally taxed at a 15% rate on the gain.
• Gains from sale or transfer of shares and bonds often attract tax at different rates (historically up to 30%), but recent legal updates indicate a move toward a flat 15% regime for most capital gains.
• Both residents and non-residents are subject to capital gains tax on gains from Ethiopian-sourced disposals (e.g. property or financial instruments tied to Ethiopia).
• A resident taxpayer may be allowed a credit for foreign income taxes paid on foreign-source business income against Ethiopian tax, subject to conditions (e.g. being income taxable under Ethiopian tax schedules).
• Non-residents are typically not taxed on income earned outside Ethiopia unless there is a nexus, such as a permanent establishment.

Yes. Ethiopia operates a structured indirect tax system. The principal indirect taxes are Value Added Tax (VAT), excise tax, customs duties, and stamp duty. VAT functions as the primary consumption tax.  

Value added tax (VAT)

According to Value Added Tax Proclamation No. 1341/2024, the standard rate of VAT is 15%, and applies to taxable supplies of goods and services in Ethiopia, import of goods and certain imported services. On the other hand, zero-rated VAT applies to export of goods and services, international transport of passengers and goods, supply of gold to the National Bank of Ethiopia, temporarily imported goods, and transfer of business as a going concern on conditions set in the VAT Proclamation. Services exempt from VAT include sale of used residential houses, rental of residential houses, supply of financial services, education services, medical services, sale of prescribed drugs and medical equipment, mass transport services, religious and charitable services, supply of agricultural inputs and chemicals and the like. VAT registration is mandatory for those taxpayers whose annual turnover is more than ETB 2 million. VAT is the principal consumption tax and a significant source of federal revenue.

Excise tax

According to Excise Tax Proclamation No. 1186/2020, excise tax is imposed on alcohol, tobacco, motor vehicles, fuel products, sweetened beverages and other goods regarded as luxury. Excise tax is at production or import stage. Excise tax applies to selected goods and services, including alcohol and tobacco, sugar and sugar confectionery, textile and leather articles, cosmetics and perfumes, motor vehicles, electronics, petroleum and fuel products, and excisable services (including telecom and financial transaction services). Rates are specific or ad valorem depending on the type of goods, and range from 5% to 100% for alcohol and new vehicles, and from 5% to 30% in the case of other products. The Ministry of Finance is mandated by law to increase excise tax on specific products.

Customs duties and surtax

According to Customs Proclamation No. 859/2014, customs duties apply to imported goods and are collected at the time of importation. The rates vary by tariff classification.

In addition, 10% surtax generally applies on the CIT value of imports.

Stamp duty

Stamp duty is imposed under Ethiopian law on specific legal instruments, such as memorandums of association, share transfers, lease contracts and other agreements, judicial and notarial instruments as well as transfer of title of land and vehicles. Failure to pay stamp duty may affect enforceability or registration of the instrument.

Ethiopia operates an extensive withholding tax (WHT) regime under the Income Tax Proclamation No. 979/2016, as amended by Proclamation No. 1395/2025. Withholding tax serves either as a final tax (especially for passive income and non-residents) or an advance payment/creditable tax against annual income tax liability.

Withholding on passive income

These taxes are generally final taxes, particularly for non-residents:

• Dividends, 15%. Withheld at source when dividends are distributed. Applies to residents and non-residents and is a final tax.
• Interest, 10%. Withheld on interest payments (bank deposits, loans, etc.) and is a final tax.
• Royalties, 10%. Withheld on gross royalty payments.
• Technical/management fees (non-residents), 15%. Applies to Ethiopian-source payments to non-residents. Final tax unless treaty relief applies.
• Repatriated profits (PE), 15%. On profits remitted abroad by a branch of a non-resident company.

The payer is required to deduct WHT at the time of payment or credit. The withheld tax must be remitted to the Ethiopian Ministry of Revenues within the statutory deadline. For non-residents, WHT typically discharges the Ethiopian tax liability on that income.

Withholding on business transactions (advance tax)

These are generally advance payments creditable against annual income tax:

• Supply of goods and services (where supplier has Tax Identification Number (TIN) and business licence), 3%.
• 30% withholding tax on supply by unregistered/unlicensed person.

Withholding tax on commercial imports in Ethiopia

Import of goods for commercial use 3% of CIF value. The withholding agent (purchaser/importer) deducts WHT at source. The supplier claims the withheld amount as a credit in its annual income tax return. Failure to withhold may result in penalties on the withholding agent.

Employment income withholding (PAYE)

Employers must withhold Pay-As-You-Earn (PAYE) from employees’ salaries under progressive rates ranging from 0% to 35%. This is a withholding obligation of the employer. The employer remits tax monthly. For most employees, PAYE is a final tax unless other income exists.

Withholding on rent

Rental payments may be subject to withholding where the payer is a business entity. The rate generally aligns with business income withholding (advance tax).

Application to residents versus non-residents

• Residents. Passive income WHT (e.g. dividends, interest) is usually final. Business transaction WHT is creditable against annual income tax.
• Non-residents. WHT on Ethiopian-source income (dividends, interest, royalties, technical fees, repatriated profits) is typically final.

Non-residents without a PE generally do not file annual returns beyond WHT obligations.

Double tax treaties (DTTs)

Where Ethiopia has a tax treaty in force, WHT rates may be reduced. Treaty relief applies subject to documentation and residence certification.

Yes. Ethiopia has a statutory General Anti-Avoidance Rule (GAAR) under the Federal Income Tax Proclamation No. 979/2016 (as amended by No. 1395/2025). The provision operates as a broad anti-avoidance mechanism and complements specific anti-avoidance rules (e.g. transfer pricing and income-splitting rules). The tax authority may disregard or re-characterise an arrangement where:

• a tax benefit is obtained (reduction, deferral or avoidance of tax);
• the benefit arises from an arrangement, agreement, plan or scheme (whether legally enforceable or not); and
• the sole or dominant purpose of the arrangement is to obtain that tax benefit.

The rule focuses on substance over form.

Where the general anti-avoidance rule is triggered, the tax authority may:

• disregard the arrangement in whole or in part;
• re-characterise the transaction based on its economic substance;
• re-determine taxable income and tax liability;
• deny deductions, exemptions or other tax advantages;
• issue additional assessments, with penalties and interest.

The burden effectively shifts to the taxpayer to demonstrate that the arrangement has commercial justification beyond tax savings.

The general anti-avoidance rule (GAAR):

• applies broadly across income tax matters;
• covers both corporate and individual taxpayers; and
• operates in addition to specific anti-avoidance rules (e.g. transfer pricing).

There is limited published jurisprudence interpreting the general anti-avoidance rules, but the rule grants wide discretion to the tax authority.

Interaction with tax treaties

Ethiopia has entered into double taxation agreements with several jurisdictions. Treaty provisions generally prevail where applicable. However, domestic anti-avoidance rules may still apply unless expressly restricted by treaty language. Ethiopia’s treaties increasingly incorporate anti-abuse standards consistent with international practice.

Practical risk areas

GAAR exposure typically arises in:

• artificial loss-generation arrangements;
• income diversion between related parties;
• reclassification of employment income as business income;
• transactions lacking commercial substance; and
• structuring aimed purely at accessing exemptions or incentives.

Practical guidance

Taxpayers should ensure:

• a clear commercial rationale is documented contemporaneously;
• arm’s-length pricing for related-party transactions;
• proper board minutes and contractual substance; and
• alignment between legal form and economic reality.

In practice, tax disputes in Ethiopia most commonly arise from the following areas.

Transfer pricing adjustments:

• Related-party transactions challenged under the arm’s-length principle.
• Adjustments to management fees, technical service fees, and intercompany financing.
• Documentation deficiencies and benchmarking disputes.

VAT disputes:

• Denial or delay of VAT refunds, particularly for
• Input VAT credit disallowances.
• Classification of supplies as exempt versus taxable.
• Reverse charge VAT on imported services.
• Classification of supplies as zero rated and 15%

Withholding tax (WHT) assessments:

• Characterisation of payments to non-residents (e.g. service fees treated as royalties).
• Failure to withhold or remit WHT.
• Disputes over whether WHT is final or creditable.

Permanent establishment (PE) issues:

• Determination of whether a foreign enterprise has a taxable presence in Ethiopia.
• Taxation of repatriated profits.

Income tax adjustments:

• Disallowance of expenses due to lack of supporting documentation.
• Timing of income recognition.
• Capital versus revenue classification of expenditures.
• Depreciation and loss carryforward limitations.

Customs and excise valuation:

• Customs valuation disputes on imported goods.
• Excise tax classification and rate determination.
• Tax incentives and exemptions.
• Withdrawal or denial of investment tax holidays.
• Disputes concerning eligibility for customs exemptions.

In recent years, increased digitalisation and enforcement have also led to more frequent reassessments and audit-driven disputes.

Tax disputes procedures in Ethiopia are primarily governed by Tax Administration Proclamation No. 983/2016, Income Tax Proclamation No. 979/2016 (as amended by No. 1395/2025), Value Added Tax Proclamation No. 1341/2024 and Customs Proclamation No. 859/2014.

Dispute resolution process

The system follows a structured administrative and judicial pathway:

• Tax audit and assessment. The Ministry of Revenues conducts tax audits, and a tax assessment notice is issued if additional tax is determined.
• Objection (administrative review). Taxpayers may file a formal objection within 21 days to the Tax Review Office (TRO) within the tax authority. The TROs will normally give decisions within a few weeks from hearing the tax objection. Taxpayers dissatisfied with the decision of the TRO can appeal to the Tax Appeal Commission (TAC) within 30 days from receipt of the decision of the TRO and upon depositing 50% of the principal tax. In customs cases, taxpayers may file their complaint to the Customs Office Branch Review Committee within 15 working days from receipt of the customs assessment notice, and further appeal to the Customs Commission Review Directorate on the decision of the Branch Customs Review Committee. Decisions of the Customs Review Directorate are appealable within 30 days to the TAC upon payment in full of the customs duties assessed.
• Judicial review. Decisions of the TAC may be appealed to the Federal High Court on issues of law within 30 days from the date of the decision and upon further depositing 25% of the principal tax. And further appeal may lie to the Federal Supreme Court, including cassation review on a fundamental error in the interpretation of the tax and customs law.

Key features

• Strict procedural deadlines.
• Burden of proof generally rests on the taxpayer to disprove assessments.
• Interest and penalties accrue during dispute on the amount not deposited during appeal.

Ethiopia’s tax dispute system is primarily administrative and judicial. However, limited alternative mechanisms exist:

• Administrative settlement. During objection review, the tax authority may adjust or partially cancel assessments based on additional evidence. Informal negotiations may occur at audit stage.
• Instalment arrangements. Taxpayers may request instalment payment plans for undisputed liabilities within 30 days from receipt of the decision from the judicial or administrative body, in which cases 50% to 80% of the penalty on the tax may be waived in line with the Tax Penalty Waiver Directive.
• Mutual Agreement Procedure (MAP). Where Ethiopia has a Double Tax Treaty, taxpayers may request relief through the treaty’s Mutual Agreement Procedure, particularly in transfer pricing or double taxation cases.
• No formal tax arbitration or mediation framework. Ethiopian tax law does not provide a formal mediation or arbitration mechanism for domestic tax disputes. Resolution remains within statutory administrative and court processes.