Indirect tax snapshot
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Value Added Tax (VAT) is the main type of indirect taxation in Ethiopia.
It is a tax on consumption which is applied during the production and distribution process to most goods and services. It is also applied to goods and services, entering 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 business making the supply ie the sale.
A business registered for the tax will charge VAT (output tax) on its sales, and incur VAT (input tax) on its purchases (including any VAT paid at importation). 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:
• it is a supply or import of goods or services
• it takes place in the Ethiopia
• it is made by a taxable person. For these purposes, a taxable person is a person or entity who is registered for VAT in Ethiopia, or has an obligation to be registered
• it is made in the course or furtherance of any business carried on by that person or entity.
There are two rates of VAT that are applied to goods and services in Ethiopia; the standard rate, and the zero rate. In addition, some goods and services are exempted from the tax.
Businesses that make exempt supplies are unable to claim all of 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 tax will have to be paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it is possible to reclaim the tax.
It is also important to note the interaction between VAT and Customs duty. Customs duty is levied in Ethiopia at the place where goods are imported into the community and VAT is charged on the value of the importation, including any custom duty.
A ‘person’ who either makes or intends to make taxable supplies of goods or services in the course or furtherance of a business must register for VAT if the value of its taxable supplies in the Ethiopia exceeds the annual registration limit of ETB 1,000,000.00 or is expected to exceed the limit in the near future. A business can register on a voluntary basis even if the registration limit has not been exceeded.
For these purposes, a ‘person’ includes any legal entity. Therefore, once a person is registered for VAT, all of his business activities will be covered by the registration – even if the nature of some of those activities are very different.
A penalty may be imposed by the tax authority if a business fails to register at the correct time.
No, there is no registration requirement to non-established businesses in Ethiopia.
There is no specific legislation to tax non-resident supplies of electronically supplied/digital services to private consumers resident in Ethiopia and practically there is no tax on supplies of electronically supplied/digital services to private consumers resident.
No. The non-established business are not required to appoint a fiscal representative in order to register for VAT as there is no registration requirement for non-established businesses.
VAT returns should be filled and cover an accounting period.
Accounting period shall mean:
a) In the case of taxpayers whose turnover in any 12 months is ETB 70,000,000 and over, every month;
b) In the case of taxpayers whose turnover in any 12 months is less than ETB 70,000,000 every three months, ending on the last day of a calendar month.
All VAT returns have to be submitted within 30 days of the end of the relevant accounting period, together with any tax due.
A default surcharge penalty may be imposed by the tax authority if VAT returns are not submitted on time, or the related tax is not paid by the due date.
There is no other declaration required in Ethiopia.
Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.
Penalties and interest can be applied for errors and omissions made on tax returns, or where the tax is paid late. Penalties can also be applied where the business has failed to maintain adequate records and provide information. A penalty is also imposed for failure to use cash register machine or VAT sales invoice for sells transactions. Criminal proceedings may be brought in the case of more serious issues.
No, it is not possible to reclaim a VAT incurred by unregistered business.
• A VAT invoice must show:
• an invoice number which is sequential
• the seller's name and address
• the tax identification number of the seller's and customer's
• the seller's VAT registration number and date of registration
• the issue date of the invoice
• the customer's name and address
• a description sufficient to identify the goods or services supplied to the customer
• the amount of taxable transaction
• the total amount of VAT charged expressed in ETB.
For each different type of item listed on the invoice, the following must be shown:
• the unit price or rate, excluding VAT
• the quantity of goods or the extent of the services
• the rate of VAT that applies to what's being sold
• the total amount payable, excluding VAT.
Where a VAT invoice includes zero-rated or exempt goods or services, it must:
• show clearly that there is no VAT payable on those goods or services
• show the total of those values separately.
• VAT invoices should be issued using a cash register machine or manual sells invoice.
No. There is no current or anticipated Standard Audit File for Tax (SAF-T) or similar electronic/digital filing requirements.
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