ATLA

This Proclamation may be cited as the “Federal Income Tax Proclamation No. 979 of 2016”.

A term used in this Proclamation that is defined in the Tax Administration Proclamation shall have the meaning in the Tax Administration Proclamation unless defined otherwise in this Proclamation. In addition, for the purpose of this Proclamation—

(1) “Amount” includes an amount-in-kind.

(2) “Business” means

(a) any industrial, commercial, professional, or vocational activity conducted for profit and whether conducted continuously or short-term, but does not include the rendering of services as an employee or the rental of buildings;

(b) any other activity recognised as a trade under the Commercial Code; or

(c) any activity, other than the rental of buildings, of a share company or private limited company whatever the objects of the company.

(3) “Business asset” means an asset held or used in the conduct of a business wholly or partly to derive business income.

(4) “Business income” has the meaning in Article 21 of this Proclamation.

(5) “Derive” means—

(a) for the business and rental income tax—

(1) for a taxpayer accounting for tax on an accruals basis, the arising of the right to receive; or

(2) for a taxpayer accounting for tax on a cash basis, received; or

(b) for any other tax imposed under this Proclamation, received;

(6) “Dividend” means a distribution of profits by a body to a member and includes the following—

(a) an amount returned by a body to a member in respect of a membership interest on a partial reduction in the capital of the body to the extent that the amount returned exceeds the amount by which the nominal value of the membership interest was reduced;

(b) an amount returned by a body to a member on redemption or cancellation of a membership interest, including on liquidation of a company or termination of a partnership, to the extent that the amount returned exceeds the nominal value of the membership interest;

(c) the amount of any loan, payment for an asset or services, value of any asset or services provided, or any debt obligation released, by a body to, or in favour of, a member or a related person of a member to the extent that the transaction is, in substance, a distribution of profits.

(7) “Employee” means an individual engaged, whether on a permanent or temporary basis, to perform services under the direction and control of another person, other than as an independent contractor, and includes a director or other holder of an office in the management of a body, and government appointees and elected persons holding public offices.

(8) “Employer” means a person who engages or remunerates an employee.

(9) “Employment income” has the meaning in Article 12 of this Proclamation.

(10) “Exempt income” means income exempt from tax under Schedule ‘E’ of this Proclamation.

(11) “Financial reporting standards” means the financial reporting standards stipulated under the Financial Reporting Proclamation.

(12) “Gross income”, in relation to a person, means the total income taxable under Schedules ‘B’ or ‘C’ derived by the person without deduction of expenditures.

(13) “Immovable asset” includes a mining or petroleum right, or mining or petroleum information, as defined in Article 36 of this Proclamation.

(14) “Income” means every form of economic benefit, including non-recurring gains, in cash or kind from whatever source derived and in whatever form paid, credited, or received.

(15) “Independent contractor” means an individual engaged to perform services under an agreement by which the individual retains substantial authority to direct and control the manner in which the services are to be performed.

(16) “Interest” means a periodic or lump sum amount, however described as consideration for the use of money or being given time to pay, and includes a discount, premium, or other functionally equivalent amount.

(17) “Management fee” means an amount as consideration for the rendering of any managerial or administrative service, but does not include employment income.

(18) “Ministry” or “Minister” means the Ministry of Finance and Economic Cooperation or The Minister of Finance and Economic Cooperation respectively.

(19) “Received”, includes—

(a) applied on behalf of the Taxpayer either at the request of the Taxpayer or under any law;

(b) reinvested, accumulated, or capitalised for the benefit of the Tax payer;

(c) credited to an account or carried to a reserve for the benefit of the Taxpayer; or

(d) otherwise made available to the Taxpayer.

(20) “Royalty” means a periodic or lump sum amount as consideration for any of the following—

(a) the use of, or the right to use any copyright of literary, artistic, or scientific work, including cinematography films, and films and tapes for radio, television, or internet broadcasting;

(b) the receipt of, or right to receive, visual images or sounds, or both, transmitted by satellite, cable, optic fibre, or similar technology in connection with television, radio, or internet broadcasting;

(c) the use of, or the right to use any patent, invention, trademark, design or model, plan, secret formula or process, or other like asset or right;

(d) the use of, or the right to use any industrial, commercial, or scientific equipment;

(e) the use of, or the right to use any information concerning industrial, commercial, or scientific experience;

(f) the supply of assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of asset or a right referred to in paragraphs (a) - (e) of this subarticle.

(21) “Tax year” means—

(a) for an individual, the one-year period from 1st Hamle to 30th Sene, unless the Authority has granted permission, by notice in writing and subject to such conditions as may be specified by the Authority in the notice, for the individual to use its accounting year as the individual’s tax year;

[EDITORIAL NOTE: Wording as per Original Fedaril Negarit Gazette.]

(b) for a body, the accounting year of the body; or

(c) a transitional accounting year as determined under Article 28 of this Proclamation.

(22) “Taxpayer” means a person liable for tax under this Proclamation.

(23) “Technical fee” means a fee for technical, professional, or consultancy services, including a fee for the provision of services of technical or other personnel.

(24) “Trading stock” includes—

(a) anything produced, manufactured, purchased, or otherwise acquired for manufacture, sale, or exchange;

(b) any raw materials or consumables used in a production or manufacturing process; or

(c) livestock, but not including animals used as beasts of burden or working beasts;

(25) “Underlying ownership”, in relation to a body, means a membership interest in the body held directly, or indirectly through an interposed body or bodies, by an individual or by an entity not ultimately owned by individuals.

(26) “Withholding agent” means a person liable to withhold tax under Part Ten of this Proclamation from a payment made by the person and includes a person required to self-withhold tax under Article 93 of this Proclamation from an amount received by the person; and

(27) “Withholding income” means income from which tax is required to be withheld under Part Ten of this Proclamation.

(1) For the purposes of this Proclamation there shall be the following categories of taxpayers—

(a) category “A” taxpayer being—

(1) a body; or

(2) any other person having an annual gross income of Birr 1,000,000 or more;

(b) category ‘B’ taxpayer being a person, other than a body, having an annual gross income of Birr 500,000 or more but less than 1,000,000;

(c) category ‘C’ taxpayer being a person other than a body, having an annual gross income of less than Birr 500,000

(2) The Authority may, on the basis of tax declarations filed by a taxpayer or any other information available to the Authority, determine whether the taxpayer’s category has changed for a tax year.

(3) The Minister shall, after ascertaining by economic analysis, change at least within five years the annual gross income thresholds in subarticle (1) of this Article for the classification of a taxpayer as a category ‘A’ taxpayer category “B” taxpayer or category “C” taxpayer.

(1) Subject to the provisions of subarticles (2),(3),(4) and (5) of this Article, a permanent establishment is a fixed place of business through which the business of a person is wholly or partly conducted.

(2) The following are specifically treated as a permanent establishment—

(a) a place of management, branch, office, factory, warehouse, or workshop, but does not include an office that has representation of the person’s business as its sole activity;

(b) a mine site, oil or gas well, quarry, or other place of exploration for, or extraction of, natural resources;

(c) the furnishing of services, including consultancy services, by a person, including through employees or other personnel engaged by the person for such purpose, but only when activities of that nature continue for the same or a connected project for a period or periods aggregating more than one hundred eighty three days in any one-year period.

(3) A building site, or a construction, assembly, or installation project, or supervisory activities connected with such site or project shall be a permanent establishment only when the site, project, or activities continue for more than one hundred eighty three days.

(4) Despite subarticles (1) and (2) of this Article, when a person, other than an agent of independent status acting in the ordinary course of business, acts on behalf of another person (referred to as the “principal”), the first-mentioned person shall be a permanent establishment of the principal if the person—

(a) regularly negotiates contracts on behalf of the principal; or

(b) maintains a stock of goods from which the person regularly delivers goods on behalf of the principal.

(5) In this Article, “agent of independent status” means a broker, general commission agent, or other agent acting independently of the person that they represent, but does not include a person who acts solely or principally for another

person if their commercial and financial relations differ from those that would have been made between independent person.

(1) The following are residents of Ethiopia—

(a) a resident individual;

(b) a resident body;

(c) the Government of the Federal Democratic Republic of Ethiopia, and any Regional State or City Government in Ethiopia.

(2) Subject to subarticles (3) and (4) of this Article, a resident individual is an individual who—

(a) has a domicile in Ethiopia;

(b) is a citizen of Ethiopia who is a consular, diplomatic, or similar official posted abroad;

(c) is present in Ethiopia, continuously or intermittently, for more than 183 days in a one-year period.

(3) An individual who is a resident individual under subarticle (2) of this Article for a tax year (referred to as the “current tax year”), but who was not a resident individual for the preceding tax year shall be treated as a resident individual in the current tax year only for the period commencing on the day on which the individual was first present in Ethiopia.

(4) An individual who is a resident individual under subarticle (2) of this Article for the current tax year but who is not a resident individual for the following tax year shall be treated as a resident individual in the current tax year only for the period ending on the last day on which the individual was present in Ethiopia.

(5) A resident body is a body that—

(a) is incorporated or formed in Ethiopia; or

(b) has its place of effective management in Ethiopia.

(6) A resident company is a company that is a resident body.

(7) A non-resident is any person who is not a resident of Ethiopia.

(1) Employment income derived by an employee shall be Ethiopian source income—

(a) to the extent that it is derived in respect of employment exercised in Ethiopia, wherever paid; or

(b) if it is paid to the employee by, or on behalf of, the Government of the Federal Democratic Republic of Ethiopia, wherever the employment is exercised.

(2) Business income derived by a resident of Ethiopia shall be Ethiopian source income except to the extent that it is attributable to a business conducted by the resident through a permanent establishment outside Ethiopia.

(3) Business income derived by a non-resident shall be Ethiopian source income to the extent that it is attributable to—

(a) a business conducted by the non-resident through a permanent establishment in Ethiopia;

(b) disposals in Ethiopia by the non-resident of goods or merchandise of the same or similar kind as those disposed by the non-resident through a permanent establishment in Ethiopia; or

(c) any other business activity conducted by the non-resident in Ethiopia of the same or similar kind as that conducted by the non-resident through a permanent establishment in Ethiopia.

(4) Despite subarticles (1), (2), and (3) of this Article, income derived by a person shall be Ethiopian source income if it is—

(a) a dividend paid to the person by a resident body;

(b) rental income from the lease of—

(1) immovable asset located in Ethiopia; or

(2) movable asset located in Ethiopia subject to tax under Article 58 of this Proclamation;

(c) a gain arising from the disposal of the following—

(1) immovable asset located in Ethiopia;

(2) a membership interest in a body, if more than 50% of the value of the interest is derived, directly or indirectly through one or more interposed bodies, from immovable asset located in Ethiopia;

(3) shares in, or bonds issued by, a resident company;

(d) an insurance premium relating to the insurance of a risk in Ethiopia;

(e) income from a performance or sporting event taking place in Ethiopia;

(f) winnings from a game of chance held in Ethiopia;

(g) interest, a royalty, management fee, technical fee, or other income subject to tax under this Proclamation—

(1) paid to the person by a resident of Ethiopia, other than as an expenditure of a business conducted by the resident through a permanent establishment outside Ethiopia; or

(2) paid to the person by a non-resident as an expenditure of a business conducted by the non-resident through a permanent establishment in Ethiopia.

(5) Foreign income is any income that is not Ethiopian source income.

(1) This Proclamation shall apply to residents of Ethiopia with respect to their worldwide income.

(2) This Proclamation shall apply to non-residents with respect to their Ethiopian source income.

(1) The Proclamation provides for the taxation of income in accordance with the following schedules—

(a) Schedule ‘A’, income from employment;

(b) Schedule ‘B’, income from rental of buildings;

(c) Schedule ‘C’, income from business;

(d) Schedule ‘D’, other income;

(e) Schedule ‘E’, exempt income.

(2) Subject to Article 64(2) of this Proclamation, a taxpayer that derives income from different sources subject to tax under the same Schedule for a tax year shall be taxable under the Schedule on the total income for the year.

Every person deriving income shall pay income tax in accordance with this Proclamation and the Tax Administration Proclamation.

(1) Without prejudice to Article 84 of this Proclamation, Employment income tax shall be imposed for each calendar month or part thereof at the rate or rates specified in Article 11 of this Proclamation on an employee who receives employment income during the month or part thereof.

(2) The employment income tax imposed on an employee under subarticle (1) of this Article for a month shall be calculated by applying the rate or rates of tax applicable to the employee under Article 11 of this Proclamation to the total employment income received by the employee for the month.

(3) An employee shall not be allowed a deduction for any expenditure incurred in deriving employment income.

(4) For the purposes of this Schedule and Article 88 of this Proclamation, the employment income attributable to the months of Nehassie and Pagumen shall be aggregated and treated as the employment income of a single calendar month.

[EDITORIAL NOTE: Wording as per original Fedaril Negarit Gazette.]

(5) If Article 83(1) applies to an employee, the employment income tax payable by the employee shall be a final tax on the employment income of the employee and the tax shall be discharged if the employer has withheld tax from the income in accordance with Article 88 of this Proclamation.

The rates of employment income tax are—

(1) Subject to subarticles (2) and (3) of this Article, employment income means the following—

(a) salary, wages, an allowance, bonus, commission, gratuity, or other remuneration received by an employee in respect of a past, current, or future employment;

(b) the value of fringe benefits received by an employee in respect of a past, current, or future employment;

(c) 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.

(2) Employment income shall not include exempt income.

(3) If an employer pays the employment income tax payable by an employee, in whole or part, without withholding tax from the employment income of the employee, the amount of tax paid by the employer shall be included in the employment income of the employee.

(4) The Council of Ministers shall make Regulations for determining the value and taxation of fringe benefits.

(1) Rental income tax shall be imposed for each tax year at the rate or rates specified in Article 14 of this Proclamation on a person renting out a building or buildings who has taxable rental income for the year.

(2) Subject to subarticle (3) of this Article, the rental income tax payable by a taxpayer for a tax year shall be calculated by applying the rate or rates of tax applicable to the taxpayer under Article 14 of this Proclamation to the taxable rental income of the taxpayer for the year.

(3) This Schedule shall not apply to rental income subject to tax under Article 58.

(1) The rate of rental income tax applicable to a body is 30%.

(2) The rates of rental income tax applicable to an individual are—

(1) The taxable rental income of a taxpayer for a tax year is the gross amount of income derived by the taxpayer from the rental of a building for the year reduced by the total amount of deductions allowed to the taxpayer for the year.

(2) Subject to subarticles (3) and (4) of this Article, the gross amount of income derived by a taxpayer from the rental of a building for a tax year shall include the following—

(a) all amounts derived by the taxpayer during the year under the lease agreement, including any lease premium or similar amount;

(b) all payments made by the lessee during the year on behalf of the less or according to the lease agreement;

(c) the amount of any bond, security, or similar amount that, during the year, the taxpayer is entitled to retain as a result of damage to the building and that has not been used by the taxpayer in repairing the damage to the building;

(d) the value of any renovation or improvement made under the lease agreement to the building when the cost was borne by the lessee in addition to the rent payable to the taxpayer.

(3) If a taxpayer leases a furnished building, the gross amount of income derived by the taxpayer from the lease of the building shall include any amount attributable to the lease of the furniture or equipment.

(4) The gross amount of income derived by a taxpayer from the lease of a building shall not include exempt income.

(5) In computing the taxable rental income for a tax year of a taxpayer who does not maintain books of account, a deduction shall be allowed for the following amounts—

(a) any fees and charges, but not tax, levied by a State or City Administration in respect of the land or building leased and paid by the taxpayer during the year;

(b) an amount equal to fifty percent (50%) of the gross rental income derived by the taxpayer for the year as an allowance for the repair, maintenance, and depreciation of the building, furniture, and equipment.

(6) The provisions of subarticle 5 of this Article shall not be applicable for taxpayers who are required to maintain books of account under this Proclamation, for any reason what so ever.

(7) In computing the taxable rental income for a tax year of a taxpayer who maintains books of account, a deduction shall be allowed for any expenditures to the extent necessarily incurred by the taxpayer in deriving rental income and paid during the year including—

(a) the cost of the lease of land on which the building is situated;

(b) repairs and maintenance;

(c) depreciation of the building, furniture and equipment;

(d) interest and insurance premiums; and

(e) fees and charges, but not tax, levied by a State or City Administration in respect of the land or building leased.

(1) The taxable rental income of a sub-lesser of a building for a tax year shall be the difference between the total rental income received by the sub-lesser during the year and the total rental income paid to the lesser of the building plus other expenses to the extent necessarily incurred by the sub-lesser to generate the income.

(2) The owner of a building who allows a lessee to sub-lease the building shall be liable for the rental income tax payable by the lessee if the lessee fails to pay the tax

(1) At the earlier of the time construction of a rental building is completed or when the building is rented, the owner of the building and the builder shall notify the kebele administration or local administration in which the building is located about the

completion and the name, address, and TIN of the person liable for rental income tax with respect to the building.

(2) The Kebele Administration or Local Administration shall communicate the information contained in the notification to the Authority.

(1) A non-resident who has derived an Ethiopian source dividend, interest, royalty, management fee, technical fee, or insurance premium shall be liable for non-resident tax at the rate specified in subarticle (2) of this Article.

(2) The rate of non-resident tax is—

(a) for an insurance premium or royalty , 5% of the gross amount of the premium or royalty;

(b) for a dividend or interest, 10% of the gross amount of the dividend or interest;

(c) for a management or technical fee, 15 % of the gross amount of the fee.

(3) Subarticle (1) of this Article shall not apply to a dividend, interest, royalty, management fee, technical fee, or insurance premium that is attributable to a business carried on by the non-resident through a permanent establishment in Ethiopia and, in that case, the amount shall be taxable under Schedule ‘C” or ‘D”, as the case may be.

(1) This Article shall apply when the following conditions are satisfied—

(a) a non-resident supplies technical services or the lease of equipment other than through a permanent establishment in Ethiopia;

(b) the technical services are supplied, or equipment leased, to a person (referred to as the “recipient”) who is:

        (1) a resident of Ethiopia, other than in relation to a business conducted by the resident through a permanent establishment outside Ethiopia; or

        (2) a non-resident conducting business in Ethiopia through a permanent establishment;

(c) the technical fee or royalty in respect of the supply or lease is paid to the non-resident by another non-resident that is a related person of the recipient;

(d) the technical fee or royalty is recharged by the related person to the recipient.

(2) If this Article applies, the Proclamation shall apply as if the related person is supplying the technical services or leased equipment to the recipient and the recharged amount is the technical fee for the services or royalty for the leased equipment.

(1) A non-resident entertainer or group of non-resident entertainers who has derived income from the participation by the entertainer or group in a performance taking place in Ethiopia shall be liable for income tax at the rate of 10% on the gross income derived from the performance without deduction of expenditures.

(2) When the income for a performance by an entertainer, including as member of a group, is derived not by the entertainer but by another person, subarticle (1) of this Article shall apply to the gross income derived by that other person.

(3) In this Article—

(a) “entertainer” includes musician and sports person;

(b) “group” includes a sporting team; and

(c) “performance” includes a sporting event.

(1) A resident of Ethiopia who derives a royalty shall be liable for income tax at the rate of 5% on the gross amount of the royalty.

(2) A non-resident who derives an Ethiopian source royalty that is attributable to a permanent establishment of the non-resident in Ethiopia shall be liable for income tax at the rate of 5% on the gross amount of the royalty.

(1) A resident of Ethiopia who derives a dividend shall be liable for income tax at the rate of 10% of the gross amount of the dividend.

(2) A non-resident who derives an Ethiopian source dividend that is attributable to a permanent establishment of the non-resident in Ethiopia shall be liable for income tax at the rate of 10% on the gross amount of the dividend.

(1) A resident of Ethiopia who derives interest shall be liable for income tax at the rate of—

(a) in the case a savings deposit with a financial institution that is a resident of Ethiopia, 5% of the gross amount of the interest; or

(b) in any other case, 10% of the gross amount of the interest.

(2) A non-resident who derives Ethiopian source interest that is attributable to a permanent establishment of the non-resident in Ethiopia shall be liable for income tax at the rate of—

(a) in the case a savings deposit with a financial institution that is a resident of Ethiopia, 5% of the gross amount of the interest; or

(b) in any other case, 10% of the gross amount of the interest.

(1) A person who derives income from winning at games of chance held in Ethiopia shall be liable for income tax at the rate of 15% on the gross amount of the winnings.

(2) In computing the gross amount of winnings under subarticle (1) of this Article, no deduction shall be allowed for any loss incurred by the person from games of chance.

(3) Subarticle (1) of this Article shall not apply when the winnings are less than 1000 Birr.

(4) In this Article, “games of chance” means a game whose outcome depends primarily on chance rather than the skill of the participant, including a lottery or tombola.

(1) A person who derives income from the casual rental of asset in Ethiopia (including any land, building, or movable asset) shall be liable for income tax on the annual gross rental income at the rate of 15% of the gross amount of the rental income.

(2) This Article shall not apply to income that is a royalty taxable under Article 51 or 54 of this Proclamation.

(1) A person who derives a gain on the disposal of immovable asset, a share, or bond (referred to as a “taxable asset’) shall be liable to pay income tax at the rate specified in subarticle (2) of this Article on the amount of the gain.

(2) The rate of income tax under subarticle (1) of this Article shall be—

(a) for a class ‘A’ taxable asset, 15%;

(b) for a class ‘B’ taxable asset, 30%.

(3) The amount of a gain on disposal of a taxable asset by a person shall be the amount by which the consideration for the disposal of the asset exceeds the cost of the asset at the time of disposal.

(4) If a person makes a loss on disposal of a taxable asset during a tax year, the loss shall be recognised and be available to offset a gain on disposal of a taxable asset of the same class during the year subject to the following—

(a) the loss may be used only to offset gains under this Article;

(b) the unused amount of a loss can be carried forward indefinitely for offset against gains on disposal of taxable assets of the same class until fully offset;

(c) no loss is recognised on the disposal of a taxable asset by a person to a related person;

(d) the person has substantiated the amount of the loss to the satisfaction of the Authority.

(5) The amount of a loss on disposal of a taxable asset is the amount by which the cost of the asset at the time of disposal exceeds the consideration for the disposal.

(6) Article 35 of this Proclamation shall apply when the taxable asset transferred is also a business asset.

(7) In this Article—

(a) “immovable asset” shall not include a building held and wholly used as a private residence for 2 years prior to the disposal of the asset;

(b) “Class ‘A’ taxable asset” means immovable asset; and

(c) “Class ‘B’ taxable asset” means shares and bonds.

(1) Windfall profit obtained from businesses prescribed in a directive to be issued by the Minister shall be liable to tax at a rate to be determined in such Directive.

(2) The Minister is empowered to prescribe by a directive—

(a) the amount of income to be considered as windfall profit;

(b) businesses that are subject to tax levied on windfall profit;

(c) the date on which such tax shall become effective;

(d) the manner in which the tax is assessed and factors that need to be taken into consideration;

(3) The Minister may, taking into consideration the nature of the business, prescribe different amounts to be considered as windfall profit and rates for different types of businesses.

(4) In this Article, “windfall profit” means any unearned, unexpected, or other non-recurring gain.

Tax shall be paid at the rate of 10% on the net undistributed profit of a body in a tax year to the extent that it is not reinvested, in accordance with the directive to be issued by the Minister.

(1) A non-resident body conducting business in Ethiopia through a permanent establishment shall be liable for tax at the rate of 10% on the repatriated profit of the permanent establishment.

(2) The mode of application of sub article (1) of this Article shall be determined by the regulations to be issued by the council of ministers.

A person who derives any income that is not taxable under Schedule A, B, C, or the other Articles of this Schedule shall be liable for income tax at the rate of 15% on the gross amount of the income.

(1) Tax under Schedule D shall not apply to—

(a) an amount that is liable to tax under another Schedule; or

(b) an amount that is exempt income.

(2) Tax imposed on income under this Schedule shall be a final tax on the income.

(3) If a royalty, dividend, interest, gain on disposal of a taxable asset, or income referred to in Article 63 of this Proclamation derived by a resident of Ethiopia is foreign income, the resident is allowed to reduce, but not below zero, the tax payable under this Schedule in respect of the income by the amount of any foreign tax paid in respect of the income.

(4) There shall be no carry forward of any unused foreign tax under subarticle (3) of this Article.

(5) The liability of a person for income tax under Article 51, 52, 53, 54, 55, 56 or 57 of this Proclamation shall be discharged if a withholding agent has withheld tax from the income in accordance with Part Ten of this Proclamation.

(1) The following amounts are exempt income for the purposes of this Proclamation—

(a) Subject to the limits set forth in the directive to be issued by the Minister in regard to items specified under number (2), (3), (4) and (6) of this paragraph following benefits provided to an employee—

(1) an amount paid by an employer to cover the actual cost of medical treatment of an employee;

(2) an allowance in lieu of means of transportation granted under a contract of employment;

(3) a hardship allowance;

(4) transport expenses and per diem payments to an employee travelling on a tour of duty;

(5) travelling expenses paid to an employee recruited from 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;

(6) food and beverages provided for free to an employee by an employer conducting a mining, manufacturing, or agricultural business;

(7) allowances paid by the Government of the Federal Democratic Republic of Ethiopia to employees engaged in public service in a foreign country;

(b) allowances paid to members and secretaries of boards of public enterprises, public bodies, or study groups established by the Federal or a State Government or City administration;

(c) contributions by an employer to a pension, provident, or other retirement fund for the benefit of an employee provided the monthly total of contributions does not exceed 15% of the monthly employment income of the employee;

(d) a pension to the extent exempt from tax under the Public Servants Pension Proclamation or the Private Organisation Employees' Pension Proclamation;

(e) an amount derived by the Federal, or a State or Local Government of Ethiopia, or the National Bank of Ethiopia, from activities that are incidental to official operations;

(f) an amount exempt from tax to the extent provided for under an international agreement;

(g) an amount exempt from tax to the extent provided for under a provision (referred to as an “exemption provision”) in an Agreement entered into by the Government of the Federal Democratic Republic of Ethiopia when the following conditions are satisfied—

(1) the agreement is for the provision of financial, technical, humanitarian, or administrative assistance to the Government; and

(2) the Minister has concurred, in writing, with the exemption provision;

(h) a public award for outstanding performance in any field or an award granted under Article 135 of the Tax Administration Proclamation;

(i) an amount as compensation for personal injury or the death of another person;

(j) subject to Article 59 of this proclamation, a cash amount, or the value of asset, acquired by gift or inheritance, other than a gift that is employment, rental or business income;

(k) a scholarship or bursary for attendance at an educational institution;

(l) maintenance or child support payments;

(m) the income of a non-profit organisation other than business income that is not directly related to the core function of the organisation;

(n) a cash indemnity allowance paid by an employer to an employee, but only to the extent that the allowance compensates the employee for shortfalls on money counts;

(o) an amount that is specifically exempted from income tax under a law in force in Ethiopia;

(p) salaries paid to domestic servants;

(q) payments made by Contractors engaged in petroleum operations to their sub-contractors.

(2) The Council of Ministers may, by regulations, exempt any income for economic, administrative, or social reasons.

(1) If a taxpayer attempts to split income with a related person, the Authority shall adjust the income and tax credits of both persons to prevent any reduction in tax payable as a result of the splitting of income.

(2) A taxpayer shall be treated as having attempted to split income when—

(a) the taxpayer transfers income or the right to income, directly or indirectly, to a related person; or

(b) the taxpayer transfers asset, including money, directly or indirectly, to a related person with the result that the related person receives or enjoys the benefit of the income from that asset;

and the reason or one of the reasons for the transfer is to lower the total tax payable upon the income of the transferor and the transferee.

(3) In determining whether a person has attempted to split income, the Authority shall consider the value, if any, given for the transfer.

(1) The Authority may, in respect of any transaction that is not an arm’s length transaction, distribute, apportion, or allocate income, gains, deductions, losses, or tax credits between the parties to the transaction as is necessary to reflect the income, gains, deductions, losses, or credits that would have been realised in an arm’s length transaction.

(2) If a party to a transaction to which subarticle (1) of this Article applies is located in, and subject to tax in, Ethiopia and another party to the transaction is located outside Ethiopia, any distribution, apportionment, or allocation of income, gains, deductions, losses, or tax credits shall be made in accordance with a Directive issued by the Minister.

(3) The allocation of income or deductions to a permanent establishment in Ethiopia of a non-resident or to a permanent establishment of a resident of Ethiopia outside the Ethiopia shall be made in accordance with a Directive issued by the Minister.

(4) The Directive referred to in subarticle (2) of this Article may apply also to transactions that take place wholly in Ethiopia.

(5) A taxpayer shall include details of transactions with related persons during a tax year with the taxpayer’s tax declaration for the year.

(6) In this Article, “arm’s length transaction” means a transaction between independent persons who are dealing at arm’s length with each other.

(1) This Article shall apply when the Authority is satisfied that—

(a) a scheme has been entered into or carried out;

(b) a person has obtained a tax benefit in connection with the scheme; and

(c) having regard to the substance of the scheme, it would be concluded that a person, or one of the persons, who entered into or carried out the scheme did so for the sole or dominant purpose of enabling the person to obtain the tax benefit referred to in paragraph (b) of this subarticle.

(2) Despite anything in this Proclamation, when this Article applies, the Authority may determine the tax liability of the person who obtained the tax benefit and of any other person related to the scheme as if the scheme had not been entered into or carried out or in such manner as in the circumstances the Authority considers appropriate for the prevention or reduction of the tax benefit.

(3) If a determination is made under this Article, the Authority shall serve a notice or notices of assessment to give effect to the determination.

(4) In this Article—

(a) “scheme” includes—

(1) an agreement, arrangement, promise, or undertaking, whether express or implied and whether or not enforceable by legal proceedings; or

(2) any plan, proposal, course of action, or course of conduct; and

(b) “tax benefit” means—

(1) a reduction in a liability of a person to pay tax;

(2) a postponement of a liability of a person to pay tax; or

(3) any other avoidance of a liability of a person to pay tax.

The Tax Administration Proclamation shall apply for the purposes of the administration of this Proclamation but subject to this Part.

(1) Category ‘A’ taxpayers liable for business income tax shall keep books of account prepared in accordance with the financial accounting reporting standards and, in particular shall keep the following—

(a) a record of the business assets and liabilities of the taxpayer, including a register of fixed assets showing the acquisition date, the cost of acquisition, any costs of improvement in relation to the asset, and the current net book value of the asset;

(b) a record of all daily income and expenditures related to the taxpayer’s business;

(c) a record of all purchases and sales of trading stock, and services provided and received by the taxpayer showing the following—

(1) the particular trading stock sold or received and services supplied or received;

(2) the name and TIN (if any) of the purchasers from, and suppliers to, the taxpayer of trading stock or services;

(3) pre-numbered invoices containing the supplier’s TIN;

(d) a record of trading stock on hand at the end of the taxpayer’s tax year, including the type, quantity, and cost of the stock, and the method of valuation used;

(e) any other document relevant in determining the tax liability of the taxpayer.

(2) Category ‘B’ taxpayers liable for business income tax shall keep the following—

(a) a r

(b) a record of all purchases and sales of trading stock;

(c) a salary and wages register

(d) any other document relevant in determining the tax liability of the taxpayer.

(3) Category ‘C’ taxpayers may keep a record of gross income and shall keep such other records as may be specified in the Regulations.

(4) A category ‘A’ or ‘B’ taxpayer liable for tax under Schedule B of this Proclamation shall keep the following—

(a) a record of rental income received;

(b) a record of fees and charges paid to a State or City Administration in relation to the building;

(c) unless Article 15(5)(b) of this Proclamation applies, a record of any expenditures incurred in relation to the building;

(d) a register of rental buildings showing the acquisition date, the cost of acquisition, any costs of improvement in relation to the building, and the current net book value of the building;

(e) a record of any sub-lease arrangement in respect of the building.

(5) A taxpayer taxable under Article 59 of this Proclamation shall keep a record of the acquisition date of the taxable asset, the cost of acquisition, any costs of improvement in relation to the asset, and the consideration received on disposal of the asset.

(6) The Authority may disallow a claim by a taxpayer for the following—

(a) a deduction for an expenditure;

(b) the inclusion of an amount of expenditure in the cost of an asset;

if the taxpayer is unable to produce documentary evidence relating to the circumstances giving rise to the claim for the deduction or the inclusion of the amount in the cost of an asset.

(7) The Authority shall issue directives necessary for the implementation of this Article.

(1) An employee shall not be required to file a tax declaration unless the employee has more than one employer for a calendar month or he has self-withholding obligation.

(2) If an employee has more than one employer for a calendar month or a self withholding obligation , the employee shall file a tax declaration within 30 days from the end of every three months .

(3) For an employee who is not required to file a tax declaration, the withholding tax receipt provided by the employer to the employee under Article 96 of this Proclamation for a month shall be treated for the purposes of this Proclamation and the Tax Administration Proclamation as an assessment of the amount of tax payable by the employee for the month being that amount as set out on the statement.

(4) A Category ‘A’ or Category ‘B’ taxpayer shall file a tax declaration for a tax year within—

(a) for Category A taxpayers, 4 months from the end of the tax year; or

(b) for Category ‘B’ taxpayers, 2 months from the end of the tax year.

(5) A tax declaration filed under subarticle (4) of this Article for a tax year shall be accompanied by—

(a) for a Category ‘A’ taxpayer, the taxpayer’s profit and loss statement and balance sheet for the year; or

(b) for a Category ‘B’ taxpayer, the taxpayer’s profit and loss statement for the year.

(6) A Category ‘C’ taxpayer shall file a tax declaration within the period specified in Article 84(4) of this Proclamation.

(7) A taxpayer who has Schedule ‘D’ income for a tax year that is not discharged by the withholding of tax from the income shall file a tax declaration within two months after the date of the transaction giving rise to the income.

(1) The employment income tax payable by an employee for a calendar month shall be due on the date that the taxpayer’s tax declaration for every three months in which the month occurs is due.

(2) The tax payable for a tax year by a Category ‘A’ or Category ‘B’ taxpayer shall be due on the date that the taxpayer’s tax declaration for the year is due.

(3) The tax payable by a taxpayer to whom Article 83(7) applies in respect of a transaction shall be due on the date that the tax declaration in relation to the transaction is due.

(4) A Category ‘C’ taxpayer shall pay tax on the 7th day of July to the 6th day of August each fiscal year in accordance with the Regulations issued hereunder.

(1) A taxpayer under Schedule ‘C’ importing goods for commercial use shall make an advance payment of business income tax to the Authority equal to 3% of the CIF value of the goods.

(2) The tax payable under subarticle (1) of this Article shall be paid before the goods are released from Customs control and shall be credited against the taxpayer’s business income tax liability for the tax year in which the import occurred.

(3) If the total amount of advance payments of tax credited under subarticle (2) of this Article for a tax year exceeds the business income tax liability of the taxpayer for the year, the excess is applied in accordance with Article 49 of the Tax Administration Proclamation.

(4) The Minister may issue a Directive defining “commercial use” for the purposes of this Article.

(1) Subject to subarticle (2) of this Article, a Schedule ‘C’ taxpayer may pay an instalment of business income tax for a tax year on the last day of the month following the end of the sixth month of the year.

(2) Subject to subarticle (4) and (5) of this Article, the amount of the instalment of tax for a tax year payable by a taxpayer may be one-half of the amount of the business income tax payable by the taxpayer for the previous tax year.

(3) If a taxpayer did not have a business income tax liability for the previous year, the amount of the instalment may be one-half of the amount of the business income tax payable in the most recent tax year in which the taxpayer had a business income tax liability.

(4) The amount of an instalment payable by a taxpayer for an instalment period as determined under subarticle (2) of this Article shall be reduced, but not below zero, by any advance tax paid under Article 85 of this Proclamation or any

withholding tax paid under Article 92 of this Proclamation in respect of the business income derived by the taxpayer during the instalment period.

(5) An instalment of tax paid by a tax payer under this Article for a tax year shall be credited against the business income tax liability of the taxpayer for the year.

(6) If the amount of the instalment of tax credited under subarticle (5) of this Article for a tax year exceeds the business income tax liability of the taxpayer for the year, the excess shall be applied in accordance with Article 49 of the Tax Administration Proclamation.

(7) This Article may apply to a Schedule ‘B’ taxpayer on the basis that a reference in this Article to “business income tax” shall be treated as a reference to “rental income tax”.

(8) In this Article, “instalment period”, in relation to the tax year of a taxpayer, means the period of six months ending on the sixth month of the year.

(1) A non-resident liable for tax under Article 50 of this Proclamation shall file a tax declaration with the Authority for each quarter by the last day of the month following the end of the quarter.

(2) The tax under Article 50 of this Proclamation payable by a non-resident for a quarter shall be due on the due date for filing the tax declaration for the quarter.

(3) If the tax payable by a non-resident for a quarter is not paid within three months of the due date, the Authority may issue to the Ethiopian Civil Aviation Authority a certificate specifying the name of the non-resident and the amount of tax due, and the Ethiopian Civil Aviation Authority shall refuse clearance from any airport in Ethiopia to any aircraft owned or chartered by the non-resident until the tax due has been paid.

(4) In this Article, “quarter” means the period of three months ending on 31st March, 30th June, 30th September, and 31st December of each year.

(1) Subject to subarticle (2) of this Article, an employer paying employment income to an employee who is subject to employment income tax under Article 10 of this Proclamation shall withhold tax from the gross amount of each payment of employment income made to the employee at the rate or rates applicable to the employee as specified in Article 11 of this Proclamation.

(2) If an employer is aware that an employee has more than one employment and that the other employer, or none of the other employers, are withholding tax based on the aggregated employment income, the employer shall withhold tax based on the aggregated employment income.

(3) The obligation of an employer to withhold tax from a payment of employment income to an employee shall have priority over any obligations of the employer to withhold any other amount from a payment of employment income to an employee.

(1) A resident of Ethiopia or a permanent establishment in Ethiopia of a non-resident making a payment of a dividend, repatriated profit, payment to sub-contractor, interest, royalty, management fee, technical fee, insurance premium or other income that is subject to tax, as the case may be shall withhold tax from the gross amount paid at the tax rate applicable to the income as specified in Article 37(4), 51(2), 54, 55, 56, 62 or 63 of this Proclamation.

(2) A resident of Ethiopia or a permanent establishment in Ethiopia of a non-resident making a payment to a non-resident entertainer that is income of the non-resident entertainer subject to tax under Article 53 shall withhold tax from the gross amount paid at the tax rate specified in Article 53(1) of this Proclamation.

(3) A Company which is a resident of Ethiopia shall withhold tax specified under Article 61 of this Proclamation on its undistributed profit.

(1) A resident of Ethiopia or a permanent establishment in Ethiopia of a non-resident paying a royalty that is subject to tax under Article 54 of this Proclamation shall withhold tax from the gross amount of the royalty at the rate specified in that Article.

(2) A resident body paying a dividend that is subject to tax under Article 55 or that has undistributed profit subject to tax under Article 61 of this Proclamation, as the case may be, shall withhold tax from the gross amount of the dividend or undistributed profit at the rate specified in that Article.

(3) A resident of Ethiopia or a permanent establishment in Ethiopia of a non-resident paying interest or repatriated profits that is subject to tax under Article 56 or 62 of this Proclamation or undistributed profit shall withhold tax from the gross amount of the interest or the repatriated profit at the rate specified in those Articles.

A person paying winnings from a game of chance subject to tax under Article 57 of this Proclamation shall withhold tax from the gross amount of the winnings at the rate specified in that Article.

(1) Except micro enterprises, bodies having legal personality, government agencies, non-profit organisations, or non-governmental organisations and other tax payers required to withhold tax by a directive of the authority, shall withhold tax at the rate of 2% of the gross amount of a payment made for the following—

(a) the supply of goods in Ethiopia involving more than 10,000 Birr in one transaction or supply contract;

(b) the supply of services involving more than 3,000 Birr in one supply contract.

(2) Subarticle (1) of this Article shall apply to separate supplies of goods or services for an amount that is less than the amount specified in subarticle (1) of this Article when it would reasonably be expected that the goods or services would ordinarily be supplied in a single supply for an amount exceeding the amount specified in subarticle (1) of this Article.

(3) When subarticle (2) applies, the Authority may determine the amount of any unpaid withholding tax and, by notice in writing, recover the unpaid withholding tax from either the supplier or purchaser.

(4) If the supplier in a transaction to which subarticle (1) applies has failed to provide their TIN to the withholding agent, the withholding agent shall withhold tax at the rate of 30% of the gross amount of the payment made.

(5) The withholding tax payable under subarticle (4)—

(a) shall be a final tax on the income derived by the supplier from the supply; and

(b) shall not be waivered by either a Directive or administrative decision.

(6) The Minister may, by Directive, change the amounts specified in subarticle (1) of this Article.

(1) An employee employed by an international organisation or working in an embassy, diplomatic mission, or other consular establishment in Ethiopia of a foreign government or employed by an entity exempt by law from tax withholding obligations shall withhold tax from the employment income received from such entities as required under Article 88 of this Article.

(2) Subarticle (1) of this Article shall apply only when the international organisation or foreign government does not withhold tax as required under Article 88 of this Proclamation.

(3) When the payer of income—

(a) subject to tax under Articles 54,56 or 57 of this Proclamation is a non-resident without a permanent establishment in Ethiopia; or

(b) subject to tax under Article 55 of this Proclamation is a non-resident body;

the resident of Ethiopia deriving the income shall withhold tax from the income as required under Article 90 or 91 of this Proclamation.

A withholding agent shall not withhold tax under this Chapter from an amount that is exempt income of the recipient.

For the purposes of this Part, withholding income shall be treated as having been paid by a withholding agent to a person if any of the following applies—

(1) the withholding income is actually paid to the person;

(2) the withholding income is applied on behalf of the person either at the instruction of the person or under any law;

(3) the withholding income is reinvested, accumulated, or capitalised for the benefit of the person;

(4) the withholding income is credited to an account for the benefit of the person.

At the time of withholding tax from withholding income, a withholding agent shall provide the recipient of the withholding income with a withholding tax receipt in the approved form in accordance with the directive of the authority

(1) Tax that a withholding agent is required to withhold from withholding income shall be paid to the Authority within 30 days after the end of the month in which the withholding income was paid.

(2) A withholding agent required to pay withholding tax under subarticle (1) of this Article shall file a withholding tax declaration in the approved form with the payment.

(3) If a withholding agent—

(a) fails to withhold tax as required under this Part; or

(b) having withheld tax fails to pay the tax to the Authority as required under subarticle (1) of this Article;

the withholding agent shall be personally liable to pay the amount of tax to the Authority.

(4) A withholding agent personally liable for an amount of tax under subarticle (3) of this Article as a result of failing to withhold the tax is entitled to recover the tax paid from the recipient of the payment.

(1) If the withholding income of a taxpayer for a tax year is not subject to final taxation under Article 10(5) or 64(2) of this Proclamation, the taxpayer shall be allowed a tax credit for the withholding tax.

(2) If the amount of the tax credit allowed under subarticle (1) of this Article is less than the total tax liability of the taxpayer for the year, the taxpayer shall pay the difference by the due date for filing the taxpayer’s tax declaration for the year.

(3) If the amount of the tax credit allowed under subarticle (1) of this Article exceeds the total tax liability of the taxpayer for the year, the excess shall be applied in accordance with Article 49 of the Tax Administration Proclamation.

(1) The Council of Ministers may issue Regulations necessary for the proper implementation of this Proclamation, including in relation to transitional matters.

(2) The Minister may issue Directives necessary for the proper implementation of this Proclamation and Regulations issued under subarticle (1) of this Article.

(1) Without prejudice to Article 101 of this Proclamation, the following laws (hereinafter referred to as ‘Repealed law’) are hereby repealed—

(a) The Income Tax Proclamation No. 286 of 2002 and all amendments thereto;

                                                    [Proc 286 of 2002.]

(b) The Mining Income Tax Proclamation No 53 of 1993 and all amendments thereto; and

                                                     [Proc 53 of 1993.]

(c) The Petroleum Operations Income Tax No 296 of 1986 and all amendments thereto.

                                                      [Proc. 296 of 1986.]

(2) No other law may, in so far as it is inconsistent with this Proclamation, be applicable with respect to matters provided for by this Proclamation.

(1) Subject to the Tax Administration Proclamation, the laws here by repealed shall continue to apply for the tax year preceding the tax year in which this proclamation enters into force.

(2) A reference in this Proclamation to a previous tax year includes, when the context requires, a reference to a tax year under the repealed laws.

(3) A reference in Article 73 of this Proclamation to a previously deducted expenditure, loss, or bad debt includes a reference to expenditure, loss, or bad debt deducted under the repealed law.

(4) Profit and loss or income statement to be prepared under this proclamation shall be in accordance with the schedule to be set by the Ethiopian Accounting and Audit Board. The laws here by repealed shall continue to apply until the schedule becomes operative.

(5) The Authority shall determine within one year from the effective date of this Proclamation, the date from when the Category of taxpayers provided herein shall begin to apply. The repealed law relating to the Category of taxpayers shall continue to apply until that time.

(6) Regulations and Directives issued under the Repealed laws shall continue to apply to the extent that they are not inconsistent with this Proclamation and until such time as they are replaced by new Regulations and Directives.

This Proclamation shall apply on income derived as of 8th day of July, 2016.

Done at Addis Ababa 18th day of August, 2016.

MULATU TESHOME (Dr.)

PRESIDENT OF THE FEDERAL

DEMOCRATIC REPUBLIC OF ETHIOPIA