Corporate - Tax credits and incentivesLast reviewed - 07 December 2022
Tax holiday regime
Ethiopia has a tax holiday regime in relation to CIT that applies to most of the sectors. Under the regime, an investor who establishes a new business is entitled to income tax exemption for a period of one to six years depending on the sector and the location where the investment is situated.
Further, if the investment is made in areas classified as areas with very low infrastructure development through a Directive issued by the Minister of Finance, the investor is entitled to a 30% income tax deduction for three consecutive years after the tax holiday period.
Foreign tax credit
Ethiopia allows a foreign tax credit on income generated from business activities abroad by a resident taxpayer. The income tax payable is offset against the foreign tax paid on that income. However, the foreign tax credit is limited to the amount of tax that would be applicable on that income in Ethiopia.
The credit is allowed where it is supported by appropriate evidence, such as a tax declaration, a WHT certificate, or any other similar acceptable document.