Indirect tax - Ethiopia

Value Added Tax (VAT) is the main type of indirect tax in Ethiopia.

It is a tax on consumption which is applied during the production and distribution process to most goods and services. VAT is also applied to goods and services imported to the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting, and paying it to the tax authority at each stage of the process rests with the businessperson making the supply of goods and services.

A businesses supplying Vatable goods and services are required to charge VAT (output tax) on the supply/sales and will be allowed to claim credit for VAT paid on purchase of goods and services (input tax) including VAT paid on importation of goods). The difference between the output tax and the deductible input tax in each accounting period will be the amount of VAT payable by the business to the tax authority. Where the input tax exceeds the output tax, a refund can be claimed.

A transaction is within the scope of Ethiopia VAT if the following conditions are met: 

• Taxable Supplies (Goods and service) carried out within the territory of Ethiopia.  
• Taxable Imports, and
• Reverse Charged Supplies made to a person in Ethiopia by a person outside of Ethiopia without a fixed place of business in Ethiopia.

There are two rates of VAT applied to goods and services in Ethiopia; the standard rate (15%), and the zero rate. In addition, some goods and services are exempted from VAT.

Businesses that make exempt supplies are unable to claim all the input tax that they incur, so the VAT paid to suppliers will be a ‘real’ cost.

Most goods imported into Ethiopia are subject to VAT. The VAT will be paid by the importer at the time of importation. If the importer of the goods is registered for VAT, it is possible to claim the tax as an input tax.

A business who expects at the beginning of any period of twelve calendar months to exceed an annual turnover of ETB 2 million or if its annual turnover Exceed ETB 2 million at the end of any period of twelve calendar months must register for VAT. Furthermore, a business with an annual turnover exceeding ETB 1 million is permitted to register for VAT voluntarily.

Yes, non-established businesses that supplies electronically ordered goods and remote services to Ethiopian residents and with annual turnover of more than ETB 2 million at the end of any period of 12 calendar are required to register for VAT in Ethiopia. 

No. There any specific legislation that levy tax on non-resident supplies of electronically supplied/digital services, without a fixed place of business in Ethiopia to private consumers resident in Ethiopia.

No. A foreign supplier/non-established person shall apply for VAT registration through an online lodgment of the registration form approved by the Tax Authority for such suppliers.

All taxpayers are required to file VAT return on or before the last day of the subsequent month. However, non-established business registered for VAT could request the tax authority to file VAT returns quarterly.  

Late filing penalty, late payment penalty and interest on late payment may be imposed by the tax authority if VAT return is not filed on time and the related tax is not paid by the due date. 

In addition to the VAT declaration, the tax office requires taxpayers to file detail purchases and sales in the e-filing portal monthly. 

Yes. Penalties are imposed where businesses do not comply with the VAT rules. These include,

• Failure to notify changes in contact details if it ceases operation.
• Failure to issue tax invoice, credit note, or debit note.
• Failure to register for VAT when the VAT registration threshold limit is reached. 

No. overseas businesses cannot claim VAT incurred.

A tax invoice and simplified tax invoice shall contain the following.

• the words “TAX INVOICE” in a prominent place.
• the name, address, TIN, and VAT registration number of the supplier.
• the name, address, TIN, and, if registered, the VAT registration number of the recipient of the supply.
• thee individualised serial number and the date on which the tax invoice is issued.
• the description of the goods (including quantity or volume) or services supplied; and
• the consideration for the supply and the amount of VAT charged.

A reverse charged supply made to the person shall, at the time of the supply, prepare a recipient-created tax invoice for the supply. A recipient-created tax invoice shall contain the following particulars:

• the words “Recipient-Created Tax Invoice” in a prominent place.
• the name, address, TIN, and VAT registration number of the recipient of the reversed charged supply.
• the name and address of the supplier.
• the individualised serial number and the date on which the recipient-created tax invoice is created.
• the description of the services supplied; and
• the consideration for the supply and the amount of VAT charged.

• There is no Standard Audit File for VAT available
• Real-time VAT reporting is not yet active.