One of the steps taken by the government to enhance investment in Ethiopia is the incorporation of provisions regarding Investment Incentives. This page contains details of the incentives as laid out by the following laws:
- Council of Ministers Regulations No. 270/2012 on Investment Incentives and Investment Areas Reserved for Domestic Investors (Download); and
Export Trade Duty Incentive Scheme Establishing Proclamation No. 249/2001
Readers are advised to get these documents for a comprehensive understanding of the existing proclamations and regulations.
The Ethiopian Government provides these investment incentives:
- Exemption from Income Tax
- Exemption from The payment of customs duty
Under Exemption from income tax there are
- Investment activities eligible for Income Tax Exemption
- Income Tax Exemption for expansion or upgrading of an existing enterprise
- commencement of period of expansion from income tax
- Carry forward of losses
And under the Exemption from the payment of customs duty there are
- Conditions for importing vehicles duty free
- Areas of investment not eligible for Customs Duty Exemption
- Transfer of capital goods imported free of customs duty
Exemption from Income Tax
Investor who invests on a new enterprise is entitled to income tax exemption as provided in the schedule. Readers are advised to refer the Council of Ministers Regulations No. 270/2012 on Investment Incentives and Investment Areas Reserved for Domestic Investors for detailed understanding of the incentives scheme under the regulation.
Investors establishing new enterprises in the following locations are entitled to an income tax deduction of 30% for three consecutive years after the expiry of the income tax exemption period specified in the Schedule attached hereto.
- the State of Gambela Peoples;
- the State of Benshangu/Gumuz;
- the State of Afar (except in areas within 15 kilo meters right and left of the Awash River);
- the State of Somali;
- Guji and Borena Zones of the State of Oromia; or
- South Omo Zone, Segen (Derashe, Amaro, Konso and Burji) Area Peoples Zone, Bench-Maji Zone, Sheka Zone, Dawro Zone, Kaffa Zone or Konta and Basketo Special Woredas of the State of Southern Nations, Nationalities and Peoples.
Income Tax Exemption for Expansion or Upgrading of an Existing Enterprise:
Investors expanding or upgrading his existing enterprise according to Article 2(8) of the Investment Proclamation is eligible for income tax exemption with respect to the additional income generated by the expansion or upgrading.
Additional Income Tax Exemption for Investors Exporting Products or Services
An investor who exports or supplies to an exporter as production or service input, at least 60% of his products or services is entitled to income tax exemption for two years in addition to the exemption provided for in the Schedule.
Loss Carry Forward
An investor who has incurred loss within the period of income tax exemption is allowed to carry forward his loss for half of the income tax exemption period, after the expiry of such period.
Exemption from the Payment of Customs Duty
Any investor engaged in one of the areas of investment specified in the Schedule attached hereto, except those specified under numbers 7, I I, 14 and 15 of the Schedule, may import duty-free capital goods and construction materials necessary for the establishment of a new enterprise or the expansion or upgrading of an existing enterprise.
If an investor entitled to a duty-free incentive buys capital goods or construction materials from local manufacturing industries, he will be refunded with the customs duty paid for the raw materials or components used as inputs for the production of such goods.
An investor eligible to a duty-free incentive is also allowed to import spare parts the value of which is not greater than 15% of the total value of the capital goods within five years from the date of commissioning of his project.
Conditions for Importing Vehicles Duty Free:
- Any investor may import duty free:
- Ambulances used for emergency case of employees
- Buses used for tour operation services.
- Without prejudice to list 1 above, the board may issue directives on conditions of importing duty free:
- up to three 4-wheel drive vehicles for tour operation services
- vehicles for any other investments depending on the type and nature of the project.
Areas of Investment Not Eligible for Customs duty exemption:
- Notwithstanding the provisions of the Exemption from the Payment of Customs Duty, the following areas of investment are not eligible for exemption from the payment of customs duty.
- Real estate development;
- Exporting of raw coffee, chat, oilseeds, pulses, precious minerals, hides and skins bought from the market, natural forester products, live ships, goat, camel, cattle and equines not raised by the investor; and
- Wholesale trade in supply of petroleum and its by products as well as wholesale of own products.
- However, the Investment Board may, where it finds appropriate, issue directives providing for additional areas of investment which may not be eligible for exemption from the payment of customs duty.
Transfer of Capital Goods Imported Free of Customs Duty
- Capital goods or construction materials or motor vehicles imported free of customs duty may be transferred to persons with similar duty-free privileges.
- The investor may re-export the duty-free imported capital goods or construction materials or motor vehicles.
Export Trade Duty Incentive
There is no duty levied on exports from Ethiopia, with the exception of semi processed skins and hides – which is 150 % according to Directive No. 25/2001 (E.C.).
In addition to this, according to Article 4 of the Trade Duty Incentive Scheme Establishing Proclamation No. 249/200I (Export Trade Incentive Proclamation), the following duty incentive schemes are given for exporters: duty draw-back scheme; voucher scheme; and bonded manufacturing warehouse scheme.
Duty Draw-Back Scheme
Beneficiaries of the Scheme
Persons or Organizations:
wholly, partially or occasionally engaged in exporting their products;
engaged in export trade;
re-exporting commodities, or raw materials, they have imported upon payment of duties, for being not in conformity with purchase specifications, damaged, short delivered or not in market demand;
Notwithstanding the provision laid-down above, persons or organizations partially or occasionally engaged in exporting their products shall not be beneficiaries of the schemes established by this Proclamation, where raw-materials equivalent in price and quality to those they imported are locally available. Directives to be issued by the Minister of Finance shall regulate the implementation of this Sub-Article.
- Duties paid at the port of entry and locally, on goods imported by the beneficiaries indicated under Article 5 above shall be refunded to the beneficiaries of the scheme upon fulfillment of conditions laid-down in this Proclamation with respect to duty draw-back.
- Notwithstanding the provisions laid-down under Sub-Article (1) of this Article, duties paid on commodities or raw-materials shall not be refunded where the amount of duty paid is less than birr 1000 (one thousand Birr).
- The duty to be drawn-back in accordance with this Proclamation shall be paid to the beneficiary by the Ministry of Finance.
- Where, part of the payment effected in accordance with Sub-Article (3) of this Article had been collected by the revenue authorities of the Regional Governments, such payment shall be reimbursed to the Ministry of Finance by the relevant body.
Duty Draw Back Rate
- When the export of raw material or commodity on which duty to be drawn-back is ascertained:
- if re-exported in the same condition 95% (ninety five percent);
- if exported after being processed or used for packing containing 100% (one hundred percent) of the duty paid shall be refunded.
2. The Customs Authority shall transfer to the Ministry of Finance the amount of the tax and duty to be drawn back on each commodity exported after having been domestically produced, together with the Bank Account Number of the beneficiary.
Conditions to be fulfilled in Order to Become Beneficiary of the Duty Draw-Back Scheme
The commodity produced with the raw material should be exported within one year from the date on which such raw material has been imported or purchased locally;
The beneficiary of the Draw-Back Scheme shall, before exporting the commodity or raw material, declare to the Authority upon presentation of supporting documents that he is prepared to export and that he intends to claim draw-back. The declaration presented shall include the following:
(a) the name and address of the claimant;
(b) if the raw material or commodity is imported, the date of importation and the import transaction documents;
(c) the document proving the amount of duty paid;
(d) the type and quantity of the commodity or raw material on which draw-back is claimed;
(e) input output coefficient;
(f) the type and the detailed description of the manner of exportation of the commodity to be exported:
(g) if the commodity or raw material is re-exported in the same condition, the damage that could be caused by not being re-exported.
The burden of proof that the duty claimed and the raw material and commodity presented that for draw back are in accordance with this Proclamation shall rest with the claimant of the drawback, failing which the Customs Authority shall have the discretion to make its own decisions.
- The claimant shall give all assistance to the Customs Authority while it conducts inspection to prove the accuracy of duty drawback claim.
Beneficiaries of the Scheme
Beneficiaries of the Voucher Sheme are persons and organizations who have obtained eligibility certificate issued by the Ministry of Trade and Industry.
Conditions to be Fulfilled to become Beneficiary of the Voucher Scheme
To become beneficiaries of the scheme persons and organizations must:
1. have manufacturing license;
2) submit at the beginning of the budget year their annual business and export plan;
3) submit input-output coefficient;
4) supply information concerning raw materials wasted in the process of production;
5) submit evidence of export performance in the last two years, if they are not new to the sector;
6) sign an agreement with the Customs Authority undertaking to fulfill obligations enabling them to become beneficiaries of the Scheme;
7) If the raw materials are imported on supliers credit or Franco-valuta basis:
(a) submit evidence confirming that the commodity has demand and that the demand is confirmed by a purchase order issued by the prospective buyer or submit a purchase agreement concluded with the prospective buyer;
(b) if the raw material is sent by a foreign company to its local affiliate with the objective of producing export commodities submit memorandum describing the mode of affiliation between the two companies.
8) If the exporters are new entries into the sector:
(a) submit their annual export plan; and
(b) submit an investment certificate and/or trade license from the appropriate government organ.
Procedures for the Application of Voucher Scheme
- The Customs Authority shall issue vouchers, in the amount of taxes and duties to be paid on raw materials they may import, to producers who are eligible to become beneficiaries upon satisfying the conditions laid down under Article 10.
On arrival of the imported raw materials at the Customs post, the raw materials shall directly be transferred to the private warehouse in the premises of the production site after the exporter has deposited with the Customs Authority the vouchers in the amount of taxes and duties to be paid.
Customs formalities shall be carried out in the producers private warehouse.
Raw material imported under the Voucher Scheme may not be sold in the local market. Any producer who, in violation of the prohibitions provided herein, sells the raw materials imported under the Voucher Scheme, shall forfeit his right to use the Scheme.
Notwithstanding the provisions of Sub-Article (4) above, if the producer, because of events beyond his control, has terminated his export activity, shall, after securing the consent of the Customs Authority, sell the raw materials upon payment of duties and taxes together with interest thereon.
Export Commodities produced from raw materials imported under the Voucher Scheme shall be declared and exported in accordance with Customs Procedure Code issued for this purpose by the Customs Authority.
Raw materials imported ,under the Voucher Scheme must be fully utilized within one year from the date of their importation. However, taking into consideration the nature of the raw material, the Customs Authority may extend this period for an additional one year.
If the Ministry of Trade and Industry accepts the input output coefficient submitted by the producer in accordance with Article 10(3), the Customs Authority shall assess the taxes and duties payable on the raw materials imported under the Voucher Scheme on the basis of this input output coefficient and settle the voucher on the basis of such assessment.
The Customs Authority shall commence the assessment referred under Sub-Article (8) above on the first day of the eleventh month from the date on which the raw material is imported or purchased locally, and the assessment must be completed within thirty days.
If raw material remains unutilized from what has been assessed, unless the period in which the raw material must be utilized is extended in accordance with Sub- Article (7), the producer shall be made to pay the taxes and duties on such raw materials together with the interest thereon.
The Customs Authority shall carry out an assessment of taxes ,and .duties, paid by beneficiaries of the Voucher Scheme on raw-materials purchased locally to be used for producing export commodities, on the basis of which refund shall be made. The Ministry of Finance shall on the basis of the assessment refund the taxes and duties so paid.
- Beneficiaries of the Voucher Scheme, in addition to input output coefficient submitted in accordance with Article 10(3), shall submit a memorandum showing the amount of raw material wasted in the course of production process, the amount and type of byproduct to be supplied to a foreign or local market, the input used out of the raw material imported in the production of the by-product, in percentage, during the execution of the annual production plan.
1. The Customs Authority shall, on the basis of the export plan sent to it from the Ministry of Trade and Industry, determine the amount of voucher to he issued and notify same to the Ministry of Finance.
2. The Ministry of Finance shall, upon the request submitted by the Customs Authority, issue vouchers that will be used by the beneficiaries of the Voucher Scheme as deposit for taxes and duties payable on raw materials they import.
3. Vouchers issued in accordance with Sub-Article (I) above shall:
a. have monetary value;
b. be not-transferable to third parties;
c. be denominated in Birr 100, Birr 50, Birr 10, Birr 5 and Birr 1 notes to facilitate their use as deposit.
Bonded Manufacturing Warehouse
Beneficiaries of the Scheme
Beneficiaries of the Bonded Manufacturing Warehouse Scheme are producers wholly engaged in exporting their products who are not eligible to use the Voucher Scheme and who have license that enables them to operate such Warehouse.
Conditions to be Fulfilled In order to become Beneficiary of the Bonded Manufacturing Scheme
Persons that can be beneficiaries ofthe Bonded Manufacturing Warehouse Scheme are persons who have fulfilled the following conditions:
I) have manufacturing license;
2) having warehouse that has fully complied with all requirements provided for by Customs laws and regulations;
3) that have paid allowances to the Customs officials assigned in the warehouse and license fees as determined by law;
4) present evidence showing that they have insured the warehouse;
5) that can provide to the Customs Authority their annual export plan showing the type, quantity and value of the products they intend to export during the year, and the raw materials they import to use in such products;
6) submit input-output coefficient;
7) In addition to input and output coefficient submit a memorandum showing the amount of raw material wasted in the course of production process, the amount and type of by-product to be supplied to a foreign or local market, the input used out of the raw material imported in the production of the byproduct in percentage, during the execution of the annual production plan.
Procedures for the Application of Bonded Manufacturing Warehouse Scheme
1) The customs official and the exporter shall jointly lock the licensed warehouse.
2) The Exporter who imports raw materials shall complete transit formalities at the port of arrival and the raw materials shall directly be transferred to the warehouse. All necessary Customs formalities shall be completed at the Warehouse.
3) The raw material to be used for production must he removed in the presence of the Customs official.
4) The product shall be registered and transferred to the warehouse and shall be exported after all Customs export formalities have been completed.
5) Unless the raw materials tranferred into the warehouse are fully utilized and unless the products are exported within one year from the date of transfer to the warehouse, the exporter shall be made to pay the taxe" and duties together with the interest thereon.
6) If products manufactured by the use of the rawmaterials imported free of duty through the Bonded Manufacturing warehouse Scheme are sold locally the Customs Authority shall transfer all required documents and information to the Inland Revenue Authority so that the Sales and ExcIse tax due thereon may be collected.
7) If, because of events beyond his control the produce has terminated his export activity, he shall, after securing the consent of the Customs Authority, Sell the raw materials and the products locally upon payment of duties and taxes together with the interest thereon.