Ethiopia

Income Tax (Amendment) Proclamation

The House of People’s Representatives approved the Income Tax (Amendment) Proclamation (‘the Proclamation‘) on 17 July 2025, but the official publication of the gazetted law is yet to be published. Below are some of the key changes proposed in the Income Tax (Amendment) Proclamation.

Taxpayer classification

Taxpayers will be classified into two categories: Category A (turnover above 2 million Ethiopian birr [ETB]) and Category B (below ETB 2 million). Category C has been removed.

Employment income tax rates

The revised monthly tax brackets exempt employment income of up to ETB 2,000 from tax. The new tax brackets will be as follows:

Rental income tax

Individuals will be subject to new progressive rental tax rates, while bodies continue to be taxed at a flat 30%. The new tax brackets are as follows:

Business income tax

A flat 30% rate remains for bodies, while individuals will be taxed progressively based on annual income. The new tax brackets for individuals are as follows:

Minimum alternative tax (MAT)

A MAT of 2.5% of turnover or equivalent benchmarks applies if declared tax falls below the 2.5% of turnover threshold. This tax will apply regardless of tax incentives.

Digital content creation

Digital creators will be taxed as businesses if professional or under Schedule D if informal. Platforms will be required to report income of resident creators exceeding a set threshold.

Category B gross sales taxation

Category B taxpayers will be required to pay tax based on gross sales, with rates ranging from 2% to 9%. Professionals and VAT-registered businesses will be excluded.

Undistributed or repatriated profits

Undistributed or repatriated profits that are not reinvested or remitted within 12 months will be taxed at 15%. This will be an increase in the tax rate from the current tax rate of 10%.

Offshore indirect transfers

Gains from offshore share transfers tied to Ethiopian assets will be taxable. The full gain will be taxed if value from Ethiopian property exceeds 50%; otherwise, a formula-based apportionment will apply.

Cash transaction limits

Payments above ETB 50,000 will be required to be made electronically or via cheque. Non-compliance will attract a penalty equal to twice the amount paid.

Digital service tax

Income from digital services provided in Ethiopia will be taxable for both residents and non-residents. The rate will be set by regulations to be issued but capped at 5%.

Dividend, interest, and royalty income

The proclamation has also revised the withholding tax (WHT) rates for dividends (15%), interest (10%), and royalties (5% to 10%) from the previous 10%, 5% to 10%, and 5%, respectively, depending on residency and context.

Capital gains tax (CGT)

All gains on shares, bonds, and buildings will be taxed at a unified tax rate of 15%. Private homes held for at least two years will be exempt from tax.

Advance tax payments

Quarterly advance tax will be introduced for Categories A and B taxpayers. Newly registered taxpayers will be required to pay full tax at year-end.

Withholding obligations

The WHT rate has been increased to 3% on goods (above ETB 20,000) and services (above ETB 10,000). This will replace the current 2%.

Other provisions

• Work permit issuers will be required to disclose the individuals who have been granted the work permits to the tax authority.
• The permanent establishment (PE) threshold has been reduced to 91 days.
• Only incentives under the Investment Incentives Regulation remain valid.
• Winnings from games of chance will be taxed at 20%.
• Cash violations will attract administrative penalties.