In Ethiopia, the income tax system is progressive. The current income tax rates are as follows:

• Up to 1,500 ETB per month: 0%
• 1,501 ETB - 6,500 ETB per month: 10%
• 6,501 ETB - 15,000 ETB per month: 15%
• 15,001 ETB - 30,000 ETB per month: 20%
• 30,001 - 50,000 ETB per month: 25%
• 50,001 - 70,000 ETB per month: 30%
• Over 70,000 ETB per month: 35%

Social Security Contributions

Employers are also responsible for deducting social security contributions from their employees' salaries. The standard rate for these contributions is 7% of the gross salary.

Withholding Responsibilities

Employers have the responsibility of withholding income tax and social security contributions from their employees' salaries. This means that the employer must deduct these amounts from the employee's salary before they receive it and then pay these amounts to the relevant authorities.

Provident Fund Contributions

In cases where an employer has a provident fund arrangement, the employer is responsible for deducting a set percentage from the employee's salary. This amount is usually matched by the employer and then paid into the provident fund.

In Ethiopia, a progressive income tax system is in place. The current income tax rates are as follows:

• Up to 1,500 ETB per month: 0%
• 1,501 ETB - 6,500 ETB per month: 10%
• 6,501 ETB - 15,000 ETB per month: 15%
• 15,001 ETB - 30,000 ETB per month: 20%
• 30,001 - 50,000 ETB per month: 25%
• 50,001 - 70,000 ETB per month: 30%
• Over 70,000 ETB per month: 35%

Social Security Contributions

Employees in Ethiopia are required to contribute to social security:

• Pension Contributions: 7% of gross salary.

Other Potential Deductions

If an employer has a provident fund arrangement, the employee contributes a set percentage, usually matched by the employer.

In Ethiopia, the standard VAT rate is 15%. However, some goods and services are zero-rated (0% VAT), including essential items, exports, and certain financial services.

VAT Liability for Services

When determining your VAT liability, consider the following factors:

• Place of Supply: The place of supply rules establish where a service is considered to be supplied for VAT purposes. General rules apply depending on the type of service, whether the customer is a business (B2B) or an individual (B2C), and the location of both parties.
• Reverse Charge Mechanism: The reverse charge mechanism might apply in certain B2B transactions. This means that the Ethiopian business receiving the service from a non-resident supplier might become responsible for accounting for the VAT.

Important Categories of Services

• Electronically Supplied Services: If you provide digital services (e.g., software, streaming content, website subscriptions) to consumers in Ethiopia, you may be liable for VAT, even if your business is located outside Ethiopia.
• Services Related to Immovable Property: Services with a significant connection to a property located in Ethiopia (e.g., construction, real estate services) usually fall under Ethiopian VAT rules.
• Professional Services: Consulting, legal, and accounting services, when performed in Ethiopia or deemed supplied in Ethiopia, typically are subject to VAT.

VAT Registration and Reporting

• Registration Threshold: Businesses exceeding a specific revenue threshold within Ethiopia might be required to register for VAT.
• Filing and Payment: Registered businesses must file periodic VAT returns and make corresponding payments to the tax authorities in Ethiopia.

Important Considerations

It's crucial to consult with a tax specialist in Ethiopia to ensure proper compliance based on the specific nature of your services, place of supply, and the rules around B2B and B2C services.

Ethiopia's corporate income tax rate is 30%, but deductions and exemptions may be available for qualifying businesses. Companies engaging in certain prioritized sectors might be eligible for income tax holidays for a specified period. Additionally, businesses can carry forward losses for several years to offset future taxable income, reducing their tax burden.

Investment Incentives

Significant incentives are available for businesses investing in manufacturing and export-focused industries. These include income tax exemptions, customs duty exemptions, and other benefits. Businesses operating within designated industrial parks may receive tax holidays, duty-free imports of machinery and equipment, and favorable land lease terms.

Specific Sector Incentives

Tax incentives might be available to encourage investment in the agricultural sector, including exemptions and preferential treatment. Businesses investing in the tourism sector could also be eligible for certain tax incentives.

Important Considerations

Specific eligibility requirements and conditions apply to different incentives. It's important to ensure your business and proposed activities fall within the qualifying criteria. Tax incentives usually involve formal applications and approval processes through relevant government agencies.