Business income for a resident person is considered Ethiopian-source income except to the extent that it is attributable to a business conducted by the resident through a permanent establishment (PE) outside Ethiopia. For a non-resident person, business income is considered Ethiopian-source income to the extent that it is attributable to:
- business conducted by the non-resident through a PE in Ethiopia
- disposals in Ethiopia by the non-resident of goods of same or similar kind as those disposed by the non-resident through a PE in Ethiopia, or
- any other business activity conducted by the non-resident through a PE in Ethiopia.
Corporate income tax (CIT) is applicable at the rate of 30% on adjusted business income (taxable income) of a person. The taxable income of a business for tax purposes is the gross income reduced by allowable expenses.
Foreign investors have the option of setting up a branch or a project office in Ethiopia. Note that project offices are normally set up to perform specific projects that are usually awarded through international bids and are limited to the life or time period of the registered contract. The CIT rate for a branch and project office is also 30%.
Advance payment of CIT on imports
A person importing goods for commercial/business purposes is required to make advance payment of business income tax equal to 3% of the cost, insurance, and freight (CIF) value of the goods.
The income tax advance is paid before the customs clearance, and the person is allowed to offset the amount paid against their CIT liability for the year. A taxpayer in a tax holiday is not required to pay the advance tax.