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10. INCENTIVES AND SPECIAL REGIMES

To increase investment opportunities in Ethiopia, the government has incorporated provisions regarding incentives for qualifying investments under ‘Council of Ministers Regulation on Investment Incentives and Investment Areas Reserved for Domestic Investors’.

The government offers various incentives to the investors with preferential investment sectors / areas under the investment code as also other incentives which are as follows:

Fiscal Incentives

Custom Duty – Incentives related to customs duty are available to both, domestic as well as foreign investors, engaged in eligible new enterprises or expansion of projects in the areas of manufacturing, agriculture, agro-industries, generation, transmission and supply of electrical energy, information and communication technology (‘ICT’), tourism etc. The incentives are given below:

  • 100% exemption from customs duties and other taxes levied on imports is granted on all capital goods such as plant, machinery, equipment and construction materials
  • Exemption from customs duty on spare parts upto 15% of the total value of imported capital goods is granted to investors provided that the goods (for which spare parts are imported) are also exempt from payment of customs duties
  • An investor is allowed to import capital goods duty free indefinitely, if the investment is in manufacturing and agriculture sector and duty free for 5 years, if the investment is in other eligible areas
  • An investor is entitled for refund of customs duty paid on raw materials or components used as inputs for the production of goods by the investor, provided capital goods or construction material is purchased from local manufacturing industries

In May 2019, the Ministry of Finance has approved the duty free import of agricultural machines, irrigation and animal feed technology and equipment in Ethiopia. The Ethiopian Agricultural Transformation Agency (ATA) has identified and listed the equipment that can be imported free of tax thereby incentivizing investments in the importation of these technologies.

Income Tax – Exemption from corporate tax (‘CIT’) is granted based on the geographical areas of investment and type of business investment made by the investors (See chart below for details).

  • New Enterprises:
    • 100% CIT exemption is allowed to investors establishing new enterprises in specified areas as given in the chart below.
    • Additional 30% CIT exemption for 3 years after the expiry of the tax holiday period, is granted to investors investing in specified areas such as Gambella; Benshangul/ Gumuz; Afar (except in areas within 15 kilometers right and left of the Awash River); Somali; Guji and Borena Zones (in Oromia); or South Omo Zone, Segen (Derashe, Amaro, Konso and Burji) Area Peoples Zone, Bench-Maji Zone, Sheka Zone, Dawro Zone, Keffa Zone, Konta and Basketo Special Woredas (in Southern Nations, Nationalities and Peoples Region)
  • Existing Enterprises:
    • Investors, who expand or upgrade their existing business and increase their production or service capacity by at least 50%, are eligible for CIT exemption on additional income generated from such expansion and upgradation
    • Investors who introduce a new production or service line similar to the existing service line of the enterprise, is entitled to the CIT exemption for the specified period as given in the chart below
  • Export Enterprises: Enterprises engaged in export of products and services are entitled to an additional CIT exemption for a period of 2 years, subject to certain conditions

Further, CIT exemption is reduced by 1 year for investors engaged in manufacturing and information and technology industry if they do not construct their own manufacturing or service facility.

COVID-19 Emergency Measures

In response to the COVID-19 pandemic, Ethiopia announced that charitable donations made for COVID-19 may be deducted for up to 20% of taxable income for the year.