To encourage private investment and promote the inflow of foreign capital and technology into Ethiopia, the following incentives are granted to both domestic and foreign investors engaged in areas eligible for investment incentives:
Customs Import Duty
One hundred per cent exemption from the payment of import customs duties and other taxes levied on imports is granted to an investor to import all investment capital goods, such as plant machinery and equipment, construction materials., as well as spare parts worth up to 15% of the value of the imported investment capital goods, provided that the goods are not produced locally in comparable quantity, quality and price.
Investment capital goods imported without the payment of import customs duties and other taxes levied on imports may be transferred to another investor enjoying similar privileges.
Some investment areas such as hotels (other than star designated), whole sale, retail and import trade, maintenance service, etc. are not eligible for exemption from customs duty. (Please see schedule two).
Exemptions from customs duties or other taxes levied on imports are granted for raw materials necessary for the production of export goods. In accordance with the Proclamation No. 249/2001, three duty incentive schemes are available for exporters.
They are Duty Draw-Back Scheme, Voucher Scheme and Bonded Manufacturing Warehouse Scheme. Taxes and duties paid on raw materials are drawn back at the time of export of finished products. The duty draw back scheme applies to all taxes at the time of importation, and those paid on local purchases.
Exemption from Payment of Export Customs Duties
Ethiopian products and services destined for export are exempted from the payment of any export tax and other taxes levied on exports.
Income Tax Holiday
Any income derived from an approved new manufacturing and agro-industry investment or investment made in agriculture shall be exempted from the payment of income tax for the periods depicted in the following table, depending upon the area of investment, the volume of export, and the location in which the investment is undertaken.
Profit tax holiday is granted subject to Council of Ministers Regulation No.84/2003 issued on the basis of the Investment Proclamation No. 280/2002 as follows:
|Areas and Periods of Tax Exemption|
for Profit Tax Eligibility
|Profit tax exemption||Profit Tax exemption for investments made in underdeveloped regions|
|An investor engaged
in a new manufacturing or agro-industry activity:
|If he exports at least 50% of its products||5 years||6 years|
|If he supplies at least 75% of its products, to an investor, as an input for the production of export items||5||6|
|If it exports less than 50% of its products||2||3|
|If the project is evaluated under a special circumstance by the BOI||up to 7||up to 8|
|If the production is for the local market||2||3|
|If the production mentioned above in (c) is considered by the BOI to be a special one||5||6|
|Expansion or upgrading of the above projects:|
|If the expansion or upgrading increases the existing production by 25% , in value and 50% of the production is to be exported||2||3|
Board of Investment
Moreover, the Council of Ministers may also award profit tax holiday for greater than seven years. However, the Board may issue a directive to deny income tax exemption right granted to investors producing only for local market, as may be necessary. The period of exemption from profit tax begins from the date of the commencement of production or provision of services, as the case may be.
Loss Carried Forward
Business enterprises that suffer losses during the tax holiday period can carry forward such losses for half of the income tax exemption period following the expiry of the exemption period.
Investors are eligible for investment incentives. Special incentive sectors and sub-sectors include agricultural development and agro-processing, agricultural production, manufacturing of equipment and machinery, spare parts, components and supplies, vehicle bodies, other products and assembly plants, and publishing of printed goods; large-scale road and building construction and other related works. Rural transportation facilities; and the purchase of spraying machinery, trucks fitted with refrigeration facilities, or other equipment for support services are also eligible for special incentive facilities.
An investor in one of these specified areas who meets the conditions for a qualifying investment certificate, and who produces evidence showing the exact amount of the capital invested within 30 days of commencement of operation, may qualify for incentives.
- Exemption from payment of income tax for the period between 2 to 7 years depending on the area of investment, volume of exporting and the location of investment; 100% exemption from payment of import custom duties on all investment goods;
- Duty-free imports of spare parts up to 15% of the value of capital goods imported;
- Capital goods imported without the payment of import duties and other import taxes may be transferred to another investor enjoying similar privileges;
- Exemption from custom duties or other import taxes are granted on raw materials that are required in the production of export goods. Taxes and duties paid on raw materials are drawn back at the time of export of finished products. The duty drawback scheme applies to all taxed at the time of import, as well as those paid on local purchases.
- Exemption from any export taxes and other taxes levied on exports for Ethiopian products and services destined for export;
- Carrying forward of losses during a tax exemption period for half of the tax holiday period after the expiry of the tax holiday;
- Export products from Ethiopia to the European Union are entitled to duty reductions or exemptions and are free from all quota restrictions under the Lome Convention. Trade preferences include duty-free entry of all industrial products and a wide range of agricultural products including fruits, vegetables, pulses and oil seeds. Under the Generalized system of Preference (GSP), a wide range of Ethiopia’s manufactured products are entitled to preferential duty treatment in the USA, Canada, Switzerland, Norway, Sweden, Finland, Austria and Japan, as well as most European Union countries. Furthermore, no quantitative restrictions are applicable to Ethiopian exports on any of the 3,000-plus items currently eligible for Act (AGOA) & Everything But Arms (EBA) are the respective US and Europe export market opportunities open for exports from Ethiopia. The country has also access to 23 African countries through COMESA.
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