Mining Regulations and Mining Income Tax in Ethiopia

Mining in Ethiopia is governed by independent legal regime. Investment and income tax proclamation does not apply to mining activities. From the last decade, several amendments and re-enactments were made to the mining law, driven by the growing demand for metallic and industrial minerals and the need to create highly competitive legal frameworks for mining investment in Ethiopia.

Stake holders in Ethiopian mining regulation include Ministry of Mines, Geological Survey of Ethiopia, Environmental Protection Authority and regional mining agencies.

The country’s mining laws constitute the following particular proclamations:

  1. Mining Operations Proclamation No. 678/2010 (Download)
  2. Mining Income Tax Proclamation No. 53/1993, as amended in Proclamation No. 23/1996 (Download)

The Mining Operations Proclamation governs all mining and related activities in the country. Mineral resources of the country are the property of the State and the People. The government, custodian of mineral resources, act through the licensing authority to control and administer mineral resources.

Mining activities are open for private investment and the mining law provides for legal safeguards for tenure security.

Licensees are required to give preference to the employment of Ethiopian nationals having the required qualifications and give preference to domestic goods and services, where they are readily available at a competitive price and comparable quality.

Environmental matters

Except for reconnaissance, retention and artisanal mining licenses, applicants for a license are required to submit an environmental impact assessment and obtain approval from the competent authority. They are also required to allocate funds for rehabilitation of environmental impact and participate in community development plan within the license area.

Taxation

Taxation of mining activities is governed by Mining Income Tax Proclamation No. 53/1993, as amended (Proclamation No. 23/1996).

Holder of mining license is required to pay royalty based on the scale price of the commercial transactions of the minerals produced. The rate of payment ranges from 8% (for precious minerals) and 2% (geothermal).

Holder of large scale or small scale mining license pays tax at 35%. Artisanal mining is exempted from income tax. Taxable income is computed by subtracting from gross income for the accounting year in question all allowable revenue expenditure, depreciation, reinvestment deduction and permitted losses. Income taxes are calculated for each accounting year and paid within 90 days after the end of such year.

Tax is payable on dividends declared and distributed from taxable income after deduction of income tax. The tax on dividends is imposed at a rate of 10%. The licensee is the withholding agent and is required to pay the tax within 60 days after the distribution of dividends.

The main features of the latest Mining Operation Law, which comes to effect in August 2010 are:

  • Invites private investment in all kinds of mineral operations,
  • Provides not more than 18 months non exclusive reconnaissance license,
  • Provides not more than three years exclusive exploration license with two renewals of  one year each,
  • Provide not more than three years exclusive retention license with one renewal of not more than three years if the applicant demonstrates the discovery of commercial significance deposit and cannot be developed immediately.
  • Provides exclusive small scale and large mining license for not more than ten & twenty years respectively with unlimited renewals,
  • Requires adequate health, safety and environmental protection, environmental impact assessment study,
  • Provides inclusion of minerals which were not originally specified in the license as they are discovered,
  • Guarantees the licensees right to sell the minerals locally or abroad,
  • Provides exemption from custom duties and taxes on equipment, machinery, vehicles and spare parts necessary for the mineral operations,
  • Provides the opening and operation of a foreign currency account in banks in Ethiopia; retention of portion of foreign currency earning and remittances of profits, dividends, principal and interest on a foreign loan etc out of Ethiopia,
  • Government can acquire up to 5% equity on small & large-scale mining operations for free,
  • Provides for dispute settlement through negotiation and arbitration.

Exchange Rates

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EUR EU 24.3045  23.8279 
GBP UK 28.6381  28.0766 
CAD CA 17.5549  17.2107 
CHF CHE 22.8398  22.392 
AED UAE 6.2787  6.1556