Individuals taking up employment in Ethiopia will be subject to employment tax in Ethiopia. The tax is imposed on the monthly employment earnings of the employee. The tax rate on employment income ranges from 0% to 35% depending on the taxable income level of the employee. Taxable income includes salary and allowances paid in cash and benefits in kind.
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The Ethiopian tax year runs from July 8th to July 7th for individuals.
A company hiring individuals is required to withhold payroll tax from payment of salary and remit to the tax authorities. As a result, employees are not required to file tax by themselves in their salary.
Employment income tax returns and payments are due on the end of the following month the employment income relates to. The income tax is paid monthly. Extension of due date not allowed, thus, taxpayers may be subject to interest and penalties if tax is not paid within the date.
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| No. | Salary Range(ETB) | Tax Rate - % |
| 1. | 0 - 600 | 0% |
| 2. | 601 - 1,650 | 10% |
| 3. | 1,651 - 3,200 | 15% |
| 4. | 3,201 - 5,450 | 20% |
| 5. | 5,251 - 7,800 | 25% |
| 6. | 7,801 - 10,900 | 30% |
| 7. | Over 10,901 | 35% |
Income tax calculation
Gross salary: ETB 20,000
Tax Payable: 20,000*35%-1500 = ETB 5,500
Net Salary: ETB14,500.00
Resident expats taxed are subject to tax on worldwide income and Non-resident expats are taxed only on Ethiopian source income.
Employment income derived by an employee shall be Ethiopian source income to the extent that it is derived in respect of employment exercised in Ethiopia, wherever paid.
A resident individual is an individual who:
Generally, earnings such as wages, fees, allowances, bonus, commission, gratuity, severance pay as well as fringe benefits i.e. interest free loans, house hold personnel, meal or refreshment, private expenditure allowances, vehicles, debt waiver, employee share scheme, and others received from an employer to an employee is respect to a past, current or future employment are reportable and taxable
as income from employment
The source of employment is generally determined by the place where services are performed.
Generally, any benefits (in kind) are taxable except exempt benefits with certain conditions such as subsidy to a meal or canteen service to staff provided that the sector of the employer is among those eligible by the directive laid out by Ministry of Finance of Ethiopia, provision of accommodation under the condition the remoteness of the employment location, provision of mobile phones to employees, and others that are listed in exempt fringe benefits.
TextEthiopia has concluded Double Taxation Agreements (DTA’s) with several countries, such as China (People's Republic in China), France, India, Israel, Italy, Kuwait, Romania, Russia, Tunisia, Turkey, South Africa, and the United Kingdom to enhance economic cooperation and trade facilitation.
The double tax avoidance treaty provides relief in taxation if the employees satisfies the criteria set
Deduction is not allowed on employment income tax calculation.
Gains arising from the disposal of immovable property and shares are subject to capital gain tax.
The capital gain tax rate is 30% on transfer of shares and bonds and 15% on the transfer of building. It should be noted that building does not include the building used as private residence for two years prior
to its disposal.
The gain/loss on disposal of taxable assets is determined by comparing the total consideration received from the disposal with the cost of that asset.
A cash amount, or the value of asset, acquired by gift or inheritance are exempted from tax.
Dividends sourced from Ethiopia is generally taxed at 10%.
Expatriates are not subject for social security contribution in Ethiopia.
Primary planning opportunities exist before arrival to Ethiopia, whether that be long term (an ‘indefinite’ assignment of more than one year) or short term (one year or less). With proper planning, potential costly and unforeseen tax burdens can be mitigated, particularly with respect to fringe benefits, assignment allowances and pre-assignment income. Planning is also available for individuals concerning incentive compensation or any kind of benefit arrangements.
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For further information on expatriate tax services in Ethiopia please contact: |
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Seid Abdella |
Fitsum Haile |