The pending income tax treaty between Ethiopia and Switzerland was signed on 29 July 2021. The treaty is the first of its kind between the two countries.
The treaty covers Ethiopian tax on income and profit, and the tax on income from mining, petroleum, and agricultural activities. It covers Swiss federal, cantonal, and communal taxes on income, including total income, earned income, income from capital, industrial, and commercial profits, capital gains, and other items of income.
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Ethiopia applies the credit method for the elimination of double taxation, while Switzerland generally applies the exemption method. However, in respect of income covered by Articles 10 (Dividend), 11 (Interest), and 12 (Royalties), Switzerland may allow a deduction of the Ethiopian tax paid (not exceeding Swiss tax), a lump sum reduction of the Swiss tax, or a partial exemption.
Article 27 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.
The treaty will enter into force once the ratification instruments are exchanged and will apply in Ethiopia from 8 July next following the date of its entry into force and in Switzerland from 1 January of the year following its entry into force.