2merkato

According to Proclamation No 1180/2020, investment in Ethiopia may take place in one of the following forms:

• Sole proprietorship
  
• Business organization
  
  • Partnership
    • General Partnership
    • Limited Partnership
    • Limited Liability Partnership
  • Joint Venture
  • Companies
    • Private Limited Company
    • Share Company
    • One-person Company
• Public Enterprises
• Cooperative Societies

I. Sole Proprietorship

Sole proprietorship is business in which only one individual owns all the assets, and operates in his/her personal capacity. In this form of enterprise, the owner is also personally liable for all debts of the business operation, i.e. that creditors can recover their debts from the personal property of the owner other than the property of his/her business.

The primarily advantage of this form of enterprise is that it is owned and managed by one person. The sole proprietor can freely make decisions regarding his/her business as he/she deems fit contrary to the other forms of enterprises such as business organizations. In business organizations (except for one-person company), a person cannot make such decision as he/she deems fit as he/she is required to consider the interest of his/her co-partner(s). However, in sole proprietorship, the sole proprietor can make decisions by looking after his/her own interest without any pre-requisite that may arise from the existence of co-partner(s).

However, it has to be noted that the above feature also gives rise to the primary disadvantage of sole proprietorship which is the personal liability of the sole proprietor. In sole proprietorship, the owner is personally liable for any debts or other claims that arise from the operation of the business. This means that creditors (or others) may claim against the personal property of the sole proprietor for any debts or claims which might not be recovered from the property of business. Indeed, this is also the feature of some of the forms of enterprises, as it will be discussed below.

TOP

II. Business Organization

Business organizations are associations established through a memorandum of association by persons who intend to cooperate to bring together contributions for the purpose of undertaking an economic activity and of participating in the profits arising out thereof. All forms of business organizations have certain common features, which include:

• All business organizations should be registered in accordance with the applicable laws.
• All are deemed to be a legal person except joint venture.
• The establishment should be made in writing except joint venture.
• All should be made public except joint venture.
• All acquire rights and incur liabilities, as well as act in legal proceedings through its agents in accordance with the provisions relating to agency.

The following types or forms of business organizations are recognized under the new Commercial Code of Ethiopia:

• General partnership;
• Limited partnership;
• Limited liability partnership;
• Joint venture;
• Share company;
• Private limited company; and
• One-person company.

A. Partnership

General Partnership

A general partnership is a business organization whereby each partner is jointly and severally liable with the partnership for the obligations of the partnership. In this form of business organization, the partners have unlimited liability to creditors of the partnership. In other words, creditors of the partnership may recover their debts from the personal property of the partners.

This form of business organizations has among others the following basic features:

• Contributions may be made in the form of cash, movable or immovable property, skill, trademark, goodwill, patent, lease right, usufruct or any other form.
• Profit and loss are distributed equally amongst the partners unless they have explicitly agreed otherwise.
• A partner who seeks to transfer shares is required to secure the consent of all partners unless there is a contrary provision in the memorandum of association
• The partnership is managed by one or more managers who may or may not be partners.

Limited Partnership

Limited partnership comprises partners with different types of liability: general partners and limited partners. General partners are those who are fully jointly and severally liable with the partnership for the obligations of the latter. Conversely, limited partners are liable to the obligations of the partnership only to the extent of their pledged contributions. However, a limited partner may be considered as a general partner on certain circumstances. For instance, if he/she insists his/her name to be included in the firm name, he/she is jointly and severally liable with the partnership as though he/she were a general manager.

Limited Liability Partnership

Limited liability partnership is a new form of business organization recognized under the new Commercial Code.

A limited liability partnership is a business organization formed by two or more persons to render professional services and services complementary thereto. In this context, “professional service” means a service provided in line with a professional license granted by an appropriate organ and “complementary service” means a service that falls under one or more professions and is related and necessary to provide the professional service. This means that the person seeking to establish or join this form of partnership should obtain a professional license from the appropriate government organ.

In this form of business organizations, the partners are only limited to the extent of their contributions. However, some circumstances may entail the joint and several liability of a partner. For instance, if a partner intentionally or fraudulently or negligently commits fault or causes damage, he/she will be jointly and severally liable with the partnership.

Further, the partnership has a legal personality distinct from its partners. Unlike the above forms of partnerships, this partnership cannot be dissolved by the death, bankruptcy, departure of a partner from the partnership, or any other change in the status of the partners.

TOP

B. Joint Venture

Joint venture is a business organization without legal personality established by two or more persons through a memorandum of association. This form of partnership is usually concluded to undertake a specific project or to foster a good relationship among the partners for future business relations.

Joint venture has among others the following basic feature:

• The registration formalities required of other business organizations is not applicable;
• It shouldn’t be made public meaning that where a joint venture is made known to third parties, it is regarded, insofar as such parties are concerned, as a general partnership;
• Every partner owns his/her contribution as long as there is no contrary agreement;
• Transfer of shares is effected with the consent of all the partners unless it’s otherwise agreed;
• If no manager is appointed, all the partners have the status of manager; and
• Partners share the profits and losses that arise from the undertaking.

C. Companies 

Private Limited Company (PLC)

A private limited company is a business organization whose capital is fully paid-up in advance. Divided up into shares and members are not liable for the debts and liabilities of the company as long as they have paid up their contributions.

The following are some of the basic features of a private limited company:

• The minimum capital requirement to establish a private limited company is 15,000 Birr.
• The amount of a share shall not be less than 100 Ethiopian dollars.
• Cannot issue transferable securities, such as shares, unlike share companies;
• Shares can be freely transferred among shareholders but outside share transfer is slightly restricted; and
• Is managed by one or more managers.

Share Company 

A share company is a company whose capital is fixed in advance and divided up into shares and whose liabilities are met only by the assets of the company.

Some Requirements to form a share company include:

• The capital shall not be less than 50,000 Ethiopian dollars. The amount of the par value of each share shall not be less than 100 (hundred) Ethiopian dollars.
• A company may not be established by less than five members.
• The capital must be fully subscribed;
• At least one quarter of the par value of the shares should be paid up and deposited in a bank, in the name and to the account of the company.
• Contributions in kind allowed but upon satisfaction of a valuation procedure.
• Meeting of subscribers to verify that the requirements relating to the formation of the company have been complied with, to draw up the final text of the memorandum and articles of association and to approve contributions in kind, if any, and the share in the profits allocated to the founders; and
• Registration and authentication of the memorandum of association and article of associations, as well as the prospectus.
• Some basic features of a share company include:
• It is managed by various layers within the company: shareholder’s meetings, board of directors, chairperson, general manager, and auditors.
• Shares can be transferred freely without the need to obtain the consent of other shareholders.
• New shares and debentures can be issued from time to time.

TOP

One-person Company

A one-person company is a new form of business organization that is recognized under the new Commercial Code. As it is name denotes, this form of Business Company is owned by a single person. The company has a legal personality separate and distinct from that of the member. As such, the owner is not personally liable to debts incurred by the company.

Please see our article on how to start a one-person company that can be accessed on our website under the “Starting A Business” section.

III. Public Enterprises

• Article 2/1 of Proclamation 25/1992: public enterprise is a wholly state owned public enterprise carries on for gain manufacturing, distribution, service rendering or other economic and related activities.
• Article 6 of Proclamation Number 25/1992-A public enterprise is established by regulations. The regulations should indicate, among others, the purpose of the enterprise, its authorized capital and the initial capital paid up. 

IV. Cooperative Societies

• Article 2 (1) of Cooperative Societies Proclamation No. 985/2016: Cooperative society" means an autonomous association having legal personality and democratically controlled by persons united voluntarily to meet their common economic, social and cultural needs and other aspirations, which could not addressed individually, through an enterprise jointly owned and operated on the basis cooperative principles.
• Article 5 of Proclamation No. 985/2016: Cooperative societies are voluntary organizations open to all persons willing to use their services and able to accept the responsibilities of membership without discrimination on the basis of gender, social status, race, political ideology, disability or religion. Cooperative societies are also democratic organizations controlled by their members who actively participate in setting their policies and making decisions; each member having equal voting right as well as one member having only one vote. Members shall also receive dividends from surplus according to their shares and participation after deducting and setting aside an amount necessary for reserve and other services.

• Article 7 (1 and 2) of Proclamation No. 985/2018: Cooperative societies may, according to their nature, be established at different levels from primary up to federation level.

TOP

Ethiopian investment incentive schemes are generally outlined in the following major laws:

According to these laws, there are three types of incentives under the Ethiopian Investment Incentive Scheme:

• Fiscal Incentives
• Non-fiscal Incentives
• Financial Incentives

The reader is advised to consult the above stated laws to have a comprehensive understanding of Ethiopian investment incentives scheme.

1. Fiscal Incentives

Fiscal incentives are tax measures geared to encourage industrial development designed to assist manufacturing entrepreneurship. The fiscal incentives under the current legal system are incentives relating to customs duty, income tax duty, and export incentives.

Customs Duty Exemptions

Customs duty exemptions are applicable to both domestic and foreign investors engaged in eligible new enterprises. Customs duty exemptions are only to be set by the Ministry of Finance.

Income Tax Exemptions

The new investment proclamation indicates that the council of ministers will issue a regulation providing income tax exemptions. Further, there are some government organs empowered to provide incentives for specific sectors. For instance, the Ministry of Innovation and Technology is vested with the power to establish and implement system for incentives to investors contributing to the advancement of innovation and technologies development works. The Environment, Forest and Climate Change Commission is empowered to establish incentives to encourage prevention of environmental degradation or pollution.

TOP

Export Incentives

Fiscal incentives available to all exporters include:

• With the exception of a few products (e.g. semi-processed hides and skins-150%), no export tax is levied on Ethiopian export products
• Duty Drawback Scheme: this scheme offers investors an exemption from the payment of customs duties and other taxes levied on imported and locally purchased raw materials used in the production of export goods. Duties and other taxes paid are drawn back 100 percent at the time of the export of the finished goods. The beneficiaries of this scheme are producer exporters, indirect producers, raw material suppliers and exporters.
• Voucher Scheme: A voucher book means a document printed by the Ministry of Revenue, to be used for recording the balance of duty payable on raw materials imported or bought from bonded input supplies warehouse, for use in the production of goods for external market by persons availing themselves of the voucher scheme. In plain words, a voucher is a printed document having monetary value, which is used in lieu of duties and taxes payable on imported raw materials. Exporters cannot be the beneficiaries of the voucher scheme rather producer exporters, indirect producers and raw material suppliers.
• Bonded Factory and Manufacturing Warehouse Schemes: producers not eligible for voucher scheme but having licensed for bonded are entitled to operate such factory or warehouse in importing of raw materials duty free. Beneficiaries of this scheme are persons who are engaged in the production of export commodities. Additionally them must have a manufacturing plant which meets the national standards and obtain a certificate of eligibility.

Other rights/Privileges

Another common form of fiscal incentive to encourage foreign and domestic investment is to allow certain rights against an applicable business tax. In this regard, the Ethiopian Income Tax Proclamation No.979/2016 accords two basic rights for investors; loss carry forward and foreign tax credit. Loss carry forward allows an investor to carry a loss (where a total amount of allowed deductions exceed the total amount of the business tax in a given tax year). An investor cannot carry forward a loss of a given fiscal year for more than two years.

Investors are also entitled to a foreign tax credit for a foreign business income. This means that an investor (who is a resident) is allowed a tax credit where he has paid a foreign income tax in respect of a business income tax. However, a resident is only allowed if he/she/it has paid the foreign income tax within 2 years after the end of the fiscal year and produces a receipt for the tax from the foreign tax authority.

Further, investors are also allowed to deduct certain expenditures from a taxable business income; particularly, a cost of trading stock disposed by the tax payer during the fiscal year.

2. Non-fiscal Incentives

Non- fiscal incentives are given to all investors who produce export products. Such investors will be allowed to import machinery and equipment necessary for their investment projects through suppliers’ credit and franco-valuta basis. Franco-vaulta means using one’s own hard currency to import an item instead of applying for it and getting permission from the government.

A foreign investor has the also a right to make the following remittances out of Ethiopia in convertible foreign currency; profits and dividends; principals and interest payments on external loans; payments related to technology transfer agreements; proceeds from the sale or liquidation of an enterprise; compensation paid to an investor; and proceeds from the sale or transfer of shares or partial ownership of an enterprise to a domestic investor.

Another form of non-fiscal incentives is external loan. The Investment Proclamation entitles investors the right to acquire external loan as long as it is in accordance with the external loan directive of the National Bank of Ethiopia (NBE). According to this directive, an investor is required to obtain a guarantee or approval from the Government or the NBE before concluding a loan agreement.

The investment proclamation further entitles an investor to open a foreign currency account in banks in Ethiopia for the purpose of its investment as per the applicable directive of the National Bank of Ethiopia.

TOP

3. Financial Incentives

Financial incentives are grants that may be provided by the government to foster the success of firms in selected sectors. These grants may be provided by the government as investment grants or ―direct subsidies‖ which may cover the entire or substantial part of capital, production or marketing costs in relation to an investment project.

These are some of the financial incentives under the current scheme:

• Guarantee by Development Bank of Ethiopia (DBE) that covers 80% of loan and interest provided by commercial banks to exporters with bankable export project except for coffee export.
• DBE grants a soft loan for strategic investment projects, mainly by domestic investors, in priority sectors (agriculture, agro processing, manufacturing and extractive industries). Repayment term goes up to 20 years and interest rate ranges between 9-9.5% depending on export capability. Also longer grace period (up to five years) is provided, and the project itself is taken as collateral.
• Domestic investors engaged in the manufacturing sector and undertaking their investment in industrial parks (with export orientation) can access 85% start-up loan from the DBE. (See Development Bank of Ethiopia's Credit Policy, which is available here, for further information on the above three incentives)
• The DBE grants a Soft loan for capital goods/machinery purchase by SMEs (domestic businesses with paid up capital ranging between ETB 500,000 - ETB 7.5 million). DBE finances full cost of machinery including installation cost (ETB 1 million - 30 million) using the capital good/machinery as a collateral; interest rate of about 9%; repayment schedule goes up to five years with grace period of about six months after commissioning/commencement of production or service provision. However, the investor has to contribute at least 20% of the machinery value for running cost. Ownership is transferred up on full repayment.

TOP

A foreign investor, domestic investor or a partnership of foreign and domestic investors who plans to engage in investment activities in Ethiopia are expected to follow the investment procedures in Ethiopia. This page presents investment procedures in Ethiopia as laid out in the proclamations and regulations that can be summarized as follows: commercial registration, acquisition of investment permit, and business licensing. Note that investment permit and commercial registration certificate are usually obtained simultaneously if the foreign investor invests the minimum capital requirement. (You may go straight to the last section of this page if you wish to see see the summary of the procedures to obtain an investment permit and a commercial registration certificate).

1. Commercial Registration and Business Licensing

Any person who seeks to engage in any business activity is first required to register in the commercial register. Such registration of foreign investors or domestic investor who seek to acquire incentives is undertaken by the Ethiopian Investment Commission.

The requirements to obtain a commercial registration certificate for a new enterprise as enshrined in the laws stated above are outlined below based on the form of enterprise that you seek to establish.

Sole Proprietors:

An application for commercial registration for a sole proprietorship must be submitted by filling a prescribed application form prepared for this purpose and attaching documents specified and below:

1. Trade name registration;
2. Certificate of Taxpayer’s Identification Number of the sole proprietor (this is obtained from the tax authority);
3. Original and necessary copies of valid identity card or passport;
4. If the sole proprietor is a foreigner, a valid business visa;
5. Two passport size photographs taken within six months, which shows the clear identity of the sole proprietor; and
6. Lease agreement or a title deed which verifies the prospect business address.

For Partnership and Private Limited Company:

An application for commercial registration is made by filling a prescribed form and attaching documents specified below:

1. Original and necessary copies of valid identity card or passport of the manager;
2. If the manager is a foreigner and at the same time a shareholder or partner, a valid business visa; if the manager is a foreigner and not a shareholder or partner, a valid work visa and a work permit;
3. Two passport size photographs taken within six months, which shows the clear identity of the manager;
4. Where the application is made by an attorney, an original or attested copy of the power of attorney document signed by all founders that is duly authenticated, photocopies of valid identity card or passport of the attorney and the manager;
5. Authenticated original and copies of the memorandum and articles of association establishing the partnership or private limited company by the appropriate organ;
6. Minutes of shareholder’s resolution establishing the company;
7. Where a foreign corporate body is a member of the prospect partnership or private limited company;
   1. Certificate of incorporation issued at the country of formation;
   2. Notarized minutes of resolution, letter or other similar decision passed pursuant to the laws of the country of formation to join the partnership or private limited company;
   3. Where the application is made to open branch offices, the branch office address where the partnership or private limited company is to be incorporated;
8. Lease agreement or a title deed which verifies the prospect business address of applicant and branch offices;
9. Where there is contribution in kind, a signed statement by the applicant showing that the contribution to be made is to be transferred to the partnership or private limited company within a year after registration is made;
10. Where there is contribution of intellectual property, minute or similar document authenticated by a notary;
11. Certificate of Trade Name Registration; and
12. Certificate of Tax Identification Number (TIN) of the private limited company.

Note that all documents that originate from abroad must be authenticated and notarized by the relevant authority in the originating country and the Ethiopian Embassy that deals with that country. They will further be authenticated by the Ministry of Foreign Affairs and Document Authentication and Registration Office (in Ethiopia).

For Share Company:

An application for commercial registration is made by filling a prescribed form and attaching the documents specified below:

1. original and necessary copies of valid identity card or passport of the manager, and Tax Identification Card of the manager;
2. If the manager is a foreigner and at the same time a shareholder or partner, a valid business visa; if the manager is a foreigner and not a shareholder or partner, a valid work visa and a work permit;
3. two passport size photographs taken within six months, which shows the clear identity of the manager;
4. where the share company is under the process of formation, an original and attested copy of the power of attorney document signed by all founders;
5. duly authenticated original and copies of memorandum and articles of associations of the share company;
6. where a foreign individual is member of the share company, an original and necessary copies of his/her valid passport and business visa;
7. where a foreign corporate body is a member of the prospect share company;
   1. Certificate of incorporation issued at the country of formation;
   2. Notarized minutes of resolution, letter or other similar decision passed pursuant to the laws of the country of formation to join the business organization;
   3. Where the application is made to open branch offices, the branch office address where the share company is to be incorporated;
8. lease agreement or a title deed which verifies the prospect business address of applicant and branch offices;
9. a bank statement showing that at least one fourth of the par value of the subscribed shares of the company is deposited in a blocked account;
10. where there is contribution of intellectual property, a minute or other similar document authenticated by a notary;
11. certificate of trade name; and
12. certificate of Tax Identification Number of the share company. 

TOP

2. Investment Permit

The Ethiopian investment commission is obliged to receive an application for an investment permit and issue the permit upon examination of the intended investment activity in light of the proclamation, regulation and directives, and receipt of the appropriate fee. The commission is required to duly notify the applicant where the application is found unacceptable.

The following investors are required to obtain investment permits:

1. foreign investors;
2. domestic and foreign investors investing jointly;
3. a foreign national or foreign enterprise treated as domestic investor as per the relevant law or international treaty ratified by Ethiopia;
4. an enterprise incorporated in Ethiopia jointly between two or more of the following investors, an Ethiopian national, enterprise incorporated in Ethiopia and wholly owned by Ethiopian nationals, the government, a public enterprise in which a foreign national has no ownership stake, a cooperative society established as per the relevant law and/or a foreign national or foreign enterprise treated as domestic investor as per the relevant law or international treaty ratified by Ethiopia and a foreign national or foreign enterprise accorded a domestic investor investment permit prior to the enactment of the new Investment Proclamation and descendants of such foreign national;
5. domestic investors who seek to invest in areas eligible for incentives and seek to be beneficiaries of such incentives; and
6. an investor seeking to expand or upgrade an existing investment, provided that the investment is eligible for incentives and the investor seeks to be beneficiary of such incentives.

Application for Investment Permit

By a domestic investor:

The application shall be made in a form designed for such purpose (can be obtained from the Ethiopian Investment Agency) and submitted together with the following documents (the application form the documents have to be submitted in two copies, where they are submitted to the Agency, or in one copy, where they are submitted to Regional Investment Organs).

• Where the application is signed by an agent, a photocopy of his/her power of attorney;
• Where the investment is to be made by an individual person, a photocopy of his/her identity card, or a photocopy of the certificate evidencing his/her domestic investor status and his/her recent two passport size photographs;
• Where the investment is to be made by a business organization, photocopies of its memorandum of association and articles of association; or where the business organization is newly established, in addition, it should submit photocopies of the shareholders’ identity cards, or photocopies of the certificates evidencing their domestic investor status;
• Where the investment is to be made by a public enterprise, a photocopy of the Regulation under which it is established or a photocopy of its memorandum of association and articles of association;
• Where the investment is to be made by a cooperative society, a photocopy of its Articles of Association; and
• A bank statement showing the capital allotted for the business.

By a foreign investor:

The application shall be made in a form designed for such purpose (can be obtained from the Ethiopian Investment Agency) and submitted together with the following documents: (the application form the documents have to be submitted in two copies to the Agency).

• where the application is filed by an agent, photocopy of a valid authorization document;
• where the investment is to be made by a sole proprietor, photocopy of the bio-pages of a valid passport showing his/her identity and two recent passport-size photographs;
• where the investment is to be made by an Ethiopian national permanently residing abroad who prefers treatment as a foreign investor, photocopy of document evidencing his permanent residence abroad;
• where the investment is to be made by a business organization incorporated in Ethiopia:
  1. memorandum of association and articles of association for the business organization, photocopy of the bio-pages of a valid passport of each shareholder showing his/her identity, and two recent passport size photographs of the general manager;
  2. where the business organization has a foreign national considered as domestic investor as its member, photocopy of the identity card evidencing the domestic investor status of the member;
  3. where there is a business organization or a branch of a foreign-incorporated business organization in the business organization, photocopy of its memorandum of association and articles of association or similar constitutive document, commercial registration certificate and photocopy of minutes of resolution passed by the authorized organ of the parent business organization resolving to invest in Ethiopia.
• where the investment is to be made by an Ethiopian branch of a business organization incorporated abroad:
  1. photocopy of memorandum of association and articles of associations or similar constitutive document as well as commercial registration certificate of the parent business organization;
  2. photocopy of document attesting the appointment of the branch manager and his two recent passport size photographs, and photocopy of the bio-pages of a valid passport or identity card of the manager, and
  3. photocopy of the minutes of resolution of authorized organ of the parent business organization resolving to establish a branch business organization in Ethiopia, and
• document evidencing the financial position or profile of the investor, when deemed appropriate by the Commission; and
• a bank statement showing that the minimum capital requirement specified below is deposited in a blocked bank account.

N.B. All documents specified above originating from outside of Ethiopia must be authenticated by foreign and domestic bodies authorized to authenticate documents (the domestic authorities are the Ministry of Foreign Affairs and Document Authentication and Registration Agency).

For expansion or upgrading of an existing enterprise:

The application shall be made in a form designed for such purpose (can be obtained from the Ethiopian Investment Commission) and submitted together with the following documents (the application form the documents have to be submitted in two copies, where they are submitted to the Investment Commission), or in one copy, where they are submitted to Regional Investment Organs).

• where the application is filed by agent, photocopy of valid authorization document;
• where the investment is made by a sole proprietor, a photocopy of the bio-pages of his valid passport or identity card evidencing his domestic investor status or photocopy of his identity card, as the case may be, and his two recent passport size photographs;
• where the investment is made by a business organization, photocopy of its memorandum of association and articles of association and two recent passport size photographs of the general manager;
• photocopy of a valid business license of the existing enterprise; and
• expansion or upgrading project feasibility study.

Renewal of Investment Permit

An investment permit is renewed every year until the investor commences marketing of his product or service. However, if the investor has sufficient cause for the delay in the commencement or completion of his project implementation, the commission shall renew the permit.

Investment permits to carry out activities in industrial parks

Investment permit in an industrial park is a permit issued by the Commission for industrial park developer, industrial park operator, industrial park enterprise to carry out industrial park related activities as an investor.

An investor is required to submit, an application form duly signed by the investor or his agent, notarized memorandum and articles of association and if it is a branch, documents ascertaining the registration and legal personality of the parent company in the country of origin. The investor is also required to comply with specific requirements (other than those stipulated above) based on the activity he wishes to engage in.

Investors who desire to engage as an industrial park developer are required to present, their undertakings to develop a park for industrial park enterprises that engage in prioritized manufacturing sectors, and declaration demonstrating the availability of sufficient capital for implementing the project. Where the commission finds the application legitimate it concludes a memorandum of understanding with the applicant and issue an investment permit within seven days.

An investor who wishes to become an industrial park operator must submit a detailed declaration demonstrating availability of professional and possession of experience as well as administrative and financial plan. In a different manner an application to establish industrial park enterprise should include; a detailed project proposal, export/import substitution plan contingent upon the type of proposal, declaration of financial standing and a ten year forecast, and environmental impact assessment report.

TOP

3. Business Licensing

After obtaining the commercial registration certificate and investment permit, the investor is required to obtain a business license.
Usually, a foreign investor is required to fulfill the following conditions to obtain a business license;

• Commercial registration;
• Investment permit;
• he business activity shouldn’t be prohibited by any law;
• Certificate of competence issued by the appropriate organ;
• Payment of appropriate service fee; and
• Submit an application to the relevant authority in accordance with the applicable law.

TOP

4. Summary of the Procedures to Obtain an Investment Permit and a Commercial Registration Certificate

The investment procedure for foreign investors usually involves the following steps:

1. Prepare a business proposal;
2. Prepare a draft memorandum of association and articles of association;
3. Verify the business proposal and draft memorandum of association and articles of association from the Business Registration and Licensing Office at the Ethiopian Investment Commission;
4. Fill out the investment application form that can be obtained from the same office;
5. Obtain a trade name certificate from the same office;
6. Sign and authenticate the memorandum of association and articles of association (four copies each);
7. Lease an office for the business and authenticate the lease contract at the Document Authentication and Registration Office (if the business office is in a building that is under your name, you can skip this step and just present the title deed of the building);
8. Obtain a tax identification number from the Ministry of Revenue office that is located in the Ethiopian Investment Commission or other branch offices;
9. Furnish the above documents and obtain two support letters from the Business Registration and Licensing Office at the Ethiopian Investment Commission so that you can open a bank account (one of the support letter is to be submitted to the National Bank of Ethiopia and the other to any commercial bank of your choice);
10. Submit the relevant support letter to the National Bank of Ethiopia and get a letter approving the opening of the bank account;
11. Submit the relevant documents and get a bank account from the commercial bank;
12. Deposit the minimum capital requirement at the opened bank account;
13. Get a letter from the bank confirming that the capital has been deposited;
14. Submit the confirmation letter to the Ethiopian Investment Commission;
15. Finalize the registration and application by paying the appropriate service fee to the Ethiopian Investment Commission; and
16. Obtain the commercial registration certificate and investment permit.

TOP

Investment regulation in Ethiopia is subjected to several laws that are mainly enacted to facilitate, promote and enhance foreign direct investment (FDI) in Ethiopia. This article contains a brief description of the existing laws pertaining to investment.

1. The Investment Proclamation and Regulation

The investment proclamation no. 1180/2020 and investment regulation no. 474/2020 (as amended) are the primary laws that dictate the general outline of investment in Ethiopia. They prescribe the requirements to be a qualified investor and to establish tenable investment in Ethiopia. These requirements include areas reserved for specific investors, forms of investment, and capital requirement. 

TOP 

Who are considered as domestic and foreign investors?

The new investment law considers among others the following investors as domestic investors:

1. An Ethiopian National;
2. An enterprise incorporated in Ethiopia and wholly owned by Ethiopian national;
3. The government;
4. A public enterprise;
5. A cooperative society established as per the relevant law;
6. A foreign national or foreign enterprise treated as domestic investor as per the relevant law or international treaty ratified by Ethiopia (e.g. foreign nationals with Ethiopian origin); and
7. An enterprise incorporated in Ethiopia jointly between any of the investors specified above.

The investment law regards the following as a foreign investor:

1. A foreign national;
2. An enterprise in which a foreign national has an ownership stake;
3. An enterprise incorporated outside the Ethiopia by an investor;
4. An enterprise established jointly by any of the above investors; and
5. An Ethiopian permanently residing abroad and preferring treatment as a foreign investor.

Requirements pertaining to the area of investment 

As opposed to the repealed investment laws, the new investment laws open all areas of investment areas to foreign investors with an exception to those that are exclusively reserved for joint investment with the government, domestic investors, and joint investment with domestic investors. In other words, the new Investment laws enlist the areas reserved for certain entities and type of investments and allow foreign investors to engage in any activity which is not subjected to such reservations. These reservations are contingent upon the type of investor and form of investment.

The following investment areas are exclusively reserved for the government of Ethiopia:

1. Import and export of electricity; 
2. Bus-rapid transit;
3. Postal services except for courier services;
4. International air transport services; and
5. Manufacturing of weapons and ammunition.

TOP 

The following areas of investment are exclusively reserved doemstic investors:

1. 1. subject to relevant laws, banking, insurance, and micro finance (note that foreign investors are eligible to engage in capital goods finance business);
   2. transmission and distribution of electrical energy through national grid system;
   3. primary and middle level health services; 
   4. wholesale trade of petroleum and petroleum products and wholesale of one’s products produced in Ethiopia excluding wholesale of electronic commerce; 
   5. tetail trade, excluding retail of and electronic commerce produced in Ethiopia as provided under the appropriate law; 
   6. import trade, excluding liquefied petroleum gas and bitumen; 
   7. export trade of raw coffee, Khat, oilseeds, pulses, minerals, hides and skins, products of natural forest, chicken and livestock including pack animals bought on the market;
   8. construction and drilling services below Grade 1; 
   9. hotel, lodge, resort, motel, guesthouse and pension services excluding those that are star-designated; 
   10. restaurant, tearoom, coffee shops, bars, nightclubs, and catering services, excluding star-designated national cuisine restaurant service;
   11. travel agency, travel ticket sales and trade auxiliary services; 
   12. tour operation; 
   13. Operating lease of equipments, machineries and vehicles, excluding industry-specific heavy equipments, machineries and specialized vehicles; 
   14. transport services, excluding railway transport, cable-car transport, cold-chain transport, freight transport having a capacity of more than 25 tones, and transport services and those reserved for joint investment with the government and domestic investors; 
   15. Making indigenous traditional medicines;
   16. bakery products and pastries for domestic market;
   17. grinding mills; 
   18. barbershop and beauty salon services, smithery and tailoring except by garment factories; 
   19. maintenance and repair services, including aircraft maintenance repair and overhaul, but excluding repair and maintenance of heavy industry machineries and medical equipment;
   20. Aircraft ground handling and other related services;
   21. sawmilling, timber-making and assembling of semi-finished wood products;
   22. media services
   23. customs clearance services; 
   24. brick and block manufacturing; 
   25. quarrying; 
   26. lottery and sports betting; 
   27. laundry services, excluding those provided on an industrial scale;
   28. translation and secretarial services;
   29. security services; 
   30. brokerage services; 
   31. attorney and legal consultancy services, and 
   32. Private employment agency services. 

Areas of investment allowed for joint investment with domestic investors:

Foreign investors can invest in certain areas jointly with a domestic. Notably, a foreign investor jointly investing with a domestic investor in the following areas cannot hold more than 75% of the share capital of the enterprise:

1. Freight forwarding and shipping agency services; 
2. domestic air transport services;
3. cross-country public transport service using buses having a seating capacity of more than 45;
4. urban mass transport service with large carrying capacity;
5. advertisement and promotion works; 
6. audiovisual services, motion picture, and video-recording, and production and distribution services; and
7. accounting and auditing services. 

TOP 

Capital requirement for foreign investors

Any foreign investor is required to allocate a minimum capital of 200,000 US dollars for a single investment project.

However, the minimum capital requirement for a foreign investor investing jointly with domestic investors shall be 150,000 US dollars.

Further, the minimum capital required of a foreign investor investing in architectural or engineering works or related technical consultancy services, technical testing and analysis or in publishing shall be:

• 100,000 US dollars if the investment is made wholly on his own;
• 50,000 US dollars if the investment is made jointly with domestic investors.

Forms of Investment in Ethiopia

Foreign investors in Ethiopia are allowed to carry out their business in any of the following forms;

• Sole proprietorship;
• Enterprise established in Ethiopia or abroad;
• Public enterprise established in accordance with the relevant law; and 
• Cooperative society formed in accordance with the relevant law. 

In addition to the requirements, the laws also deal with investment administration, investment guarantees and protections, and investment incentives. The proclamation also sets the procedures on investment permit which is dealt on the article dealing with investment procedures.

TOP 

2. The Ethiopian Commercial Codes

he new commercial code provides the legal bases for doing business in Ethiopia. The new commercial code is composed of three books; (1) Traders and Businesses, (2) Business organizations, and (3) Bankruptcy and scheme of arrangements. On the other hand, the Ethiopian Commercial Code of 1960’s contained two additional books: (1) Carriage and Insurance, and (2) Negotiable Instruments and Banking Transactions

TOP 

3.Ethiopian Investment Commission and Ethiopian Investment Board

The new investment proclamation re-establishes the bodies empowered to regulate and administer the investment laws, the Ethiopian Investment Commission and Ethiopian Investment Board. It is important to note that these regulatory bodies have the mandate to promote, facilitate, regulate, and administer foreign direct investments.

TOP

4. Regarding Industrial Parks

These laws emphasize the establishment and administration of industrial parks. The laws have the aim to enhance domestic and foreign direct investments FDI's) through the establishment of industrial parks so that the country can realize an effective economic transformation and development.

TOP

Ethiopia: Investment Related Facts

• Very good climate
• A wide range of cereals, pulses, oil seeds, cash crops, fruits and vegetables can grow
• Very good climate for flower farms
• High Livestock potential: the first ranking country (head count of livestock) in Africa and is among the top ten countries in the world
• Favorable Investment Policies
• Major manufacturing opportunities, as the country’s manufacturing potential remains untapped
• With population estimated to be 110 million plus, it's a big market
• Nig workforce with the poulation of 30 and below nearly 70% of the total polulation

Investment Opportunities in Ethiopia

ICT, Startups and Technology

The startup ecosystem is growing. Fintech, foodtech (and delivery), ride hailing, agritech are prominent in te startup scence. There is ample opportunity for angel investors, tech innovators, and data centre poviders. With the opening up of the telecom sector and wide ranging reforms, ecommerce will be the next big thing.

Energy 

Ethiopia peresents ample opportunities for renewable energy startups: solar, wind, and geothermal.

Agriculture and Agro-industrial Processing

It is clear that agriculture is the backbone of the Ethiopian economy. Ethiopia grows all types of cereals, fibber crops, oil seeds, coffee, tea, flowers, fruits, and vegetables since it is endowed a with wide ranging agro-ecological zones and diversified resources. Therefore, Ethiopia offers opportunities to invest on food crops, beverage crops and cotton. Among the various agricultural and agro-industrial sectors, the following are the main ones:

• Coffee and Tea
• Fruits and vegetables
• Flowers
• Livestock and poultry
• Pulses
• Oil Seeds

TOP

Manufacturing

• Leather and leather products
• Textiles and textile products and garments
• Building materials (steel, cement, etc)
• Food and beverage industries, including breweries, starch and glucose compel, baby food unit, etc
• Automotive industry, including production of components and spare parts (Lifan Motors, Peugeot, and Hyundai can be good examples.)

Mining

Ethiopia also offers an excellent opportunity to invest in mining. According to the Ministry of Mines, www.mom.gov.et, Ethiopia has a great potential in mining in general, and gold in particular. Ethiopia has also a good potential in deposits of tantalum, platinum, nickel, potash and soda ash. In addition, marble, granite, limestone, clay, gypsum, gemstone, iron ore, coal, copper etc are found in Ethiopia. The Ogaden, the Gambella, the Blue Nile and the Southern Rift Valley sedimentary basins also offer significant opportunities for oil and natural.

Tourism

As per the information provided by the Ministry of Culture and Tourism, www.moct.gov.et, Ethiopia is endowed with various tourist attractions having natural, historical and cultural attractions. For instance, the Country has a land of natural contrasts, from the tops of the rugged Semein Mountains to the depths of the Danakil Depression, at 120 meters below sea level of the lowest dry land points on earth. It is a country of great antiquities, cultures and traditions. Ethiopia became the fastest growing travel destination in the world in 2019. In 2023, the industry is showing signs of revival after Covid-19 and a devstating war in the northern part of the Country.

Services

• Large scale construction
• Construction and management of international hotels and resort facilities (many such international hotels and resorts are being constructed in almost every parts of the country and there is still a huge need.)

TOP