Expatriate tax - Ethiopia

• Signing an Employment contract
• Obtaining a Work Visa
• After obtaining a work visa and upon entering to Ethiopia an expat will be required to obtain a work permit and residence ID

The Ethiopian tax year runs from July 8th to July 7th for individuals. 

A company hiring individuals is required to withhold payroll tax from payment of salary and remit to the tax authorities. As a result, employees are not required to file tax by themselves in their salary. 

Employment income tax returns and payments are due on the end of the following month the employment income relates to. The income tax is paid monthly. Extension of due date not allowed, thus, taxpayers may be subject to interest and penalties if tax is not paid within the date.

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Income tax calculation 

Gross salary: ETB 20,000

Tax Payable: 20,000*35%-1500 = ETB 5,500

Net Salary: ETB14,500.00

Resident expats taxed are subject to tax on worldwide income and Non-resident expats are taxed only on Ethiopian source income.

Employment income derived by an employee shall be Ethiopian source income to the extent that it is derived in respect of employment exercised in Ethiopia, wherever paid.

A resident individual is an individual who:

• has a domicile in Ethiopia;
• is present in Ethiopia continuously or intermittently for more than 183 days in a one-year period.

Generally, earnings such as wages, fees, allowances, bonus, commission, gratuity, severance pay as well as fringe benefits i.e. interest free loans, house hold personnel, meal or refreshment, private expenditure allowances, vehicles, debt waiver, employee share scheme, and others received from an employer to an employee is respect to a past, current or future employment are reportable and taxable 
as income from employment

The source of employment is generally determined by the place where services are performed.

Generally, any benefits (in kind) are taxable except exempt benefits with certain conditions such as subsidy to a meal or canteen service to staff provided that the sector of the employer is among those eligible by the directive laid out by Ministry of Finance of Ethiopia, provision of accommodation under the condition the remoteness of the employment location, provision of mobile phones to employees, and others that are listed in exempt fringe benefits.

TextEthiopia has concluded Double Taxation Agreements (DTA’s) with several countries, such as China (People's Republic in China), France, India, Israel, Italy, Kuwait, Romania, Russia, Tunisia, Turkey, South Africa, and the United Kingdom to enhance economic cooperation and trade facilitation.

The double tax avoidance treaty provides relief in taxation if the employees satisfies the criteria set

Deduction is not allowed on employment income tax calculation. 

Gains arising from the disposal of immovable property and shares are subject to capital gain tax. 

The capital gain tax rate is 30% on transfer of shares and bonds and 15% on the transfer of building. It should be noted that building does not include the building used as private residence for two years prior 
to its disposal.

The gain/loss on disposal of taxable assets is determined by comparing the total consideration received from the disposal with the cost of that asset.

A cash amount, or the value of asset, acquired by gift or inheritance are exempted from tax.

 
Dividends sourced from Ethiopia is generally taxed at 10%.

Expatriates are not subject for social security contribution in Ethiopia.