Individual - Income determinationLast reviewed - 19 December 2022
Employment income derived by an employee shall be deemed to be Ethiopian-source income:
- to the extent that it is derived in respect of employment exercised in Ethiopia wherever paid, or
- it is paid to the employee by or on behalf of the Government of the Federal Republic of Ethiopia, wherever employment is exercised.
According to the Ethiopian Income Tax Proclamation, employment income includes:
- Salary, wages, an allowance, bonus, commission, gratuity, or other remuneration received by an employee in respect of a past, current, or future employment.
- The value of fringe benefit received by an employee in respect of a past, current, or future employment. Please note that the aggregate tax liability on fringe benefits shall not exceed 10% of the salary income of the employee.
- An amount received by an employee on termination of employment, whether paid voluntarily, under an agreement, or as a result of legal proceedings, including any compensation for redundancy or loss of employment or a golden handshake payment.
In addition, where the employer is responsible for remitting the tax on behalf of their employees, the amount of tax paid by the employer shall be included as a taxable benefit.
The Federal Income Tax Proclamation (FITP) provides that allotment of shares to an employee under an employee share scheme, including shares allotted as a result of the exercise of an option or right to acquire the shares, is an employee share scheme fringe benefit.
The value of an employee share scheme fringe benefit shall be the fair market value of the shares at the date of allotment, reduced by the employee’s contribution for the shares.
Where shares allotted to an employee under an employee share scheme are subject to a restriction on the transfer of the shares, the employee is treated as having derived the employee share scheme benefit at the earlier of:
- the time the employee can freely transfer the shares, or
- the time the employee disposes of the shares.
See the Other taxes section in the Corporate tax summary for CGT rates and additional information.
Dividends declared by Ethiopian resident companies are subject to a 10% dividend withholding tax (WHT) for individual shareholders, which is the final tax.
Interest income is subject to WHT at a rate of 15%, which is the final tax.
Rental income is taxed under FITP No. 979/2016. Taxable value is calculated by taking the gross residential rental income less allowable deductions.
The following items are exempt from income tax:
- Amounts paid by employers to cover the actual cost of medical treatment of their employees.
- Allowance in lieu of means of transportation granted to employees under an employment contract.
- Hardship allowance.
- Amounts paid to employees in reimbursement of bona fide travel expenses incurred on business duty.
- Travelling expenses paid to an employee recruited from a place other than the place of employment on joining or completion of employment, including, in the case of a foreign employee, travel expenses from and to their country of origin, but only if the travel expenses have been paid pursuant to specific provisions of the employee’s contract of employment.
- Food and beverages provided to employees by an employer conducting a mining, manufacturing, or agricultural business.
- An amount exempted from tax to the extent it is provided for under an international agreement.
- An amount as compensation for personal injury or the death of another person.
- Scholarship or bursary for attendance at an educational institution.
- Maintenance or child support payments.
- Cash indemnity allowance paid by an employer to an employee, but only to the extent that the allowance compensates the employee for shortfalls.