Business Income Tax in Ethiopia: Rates, deductions and exemptions

Business Income/Profit Tax  in Ethiopia: Tax Rates and deductions 

 

According to Federal Income Tax Proclamation No. 979/2016, tax is imposed on business income. The Proclamation under Article 21 defines business income as:

  1. Subject to this Proclamation, the business income of a taxpayer for a tax year shall include the following:

 

  1. the gross amounts derived by the taxpayer during the year from the conduct of a business, including the gross proceeds from the disposal of trading stock and the gross fees for the provision of services (other than employment income);
  2. the gross amounts derived by the taxpayer during the year from the investment of the capital of a business, including dividends, interest, and royalties;
  3. a gain on disposal of a business asset (other than trading stock) made by the taxpayer during the tax year;
  4. any other amount included in business income of the taxpayer for the tax year under this Proclamation.

2. Business income shall not include an amount that is exempt income.

3. Subject to sub-article (4) of this Article, the gain on disposal of a business asset included in business income under sub-article (1)(c) of this Article is the amount by which the consideration for the disposal of the asset exceeds the net book value of the asset at the time of disposal.

4. If a business asset is a taxable asset under Article 59 of this Proclamation:

  1. the gain on disposal of the asset included in business income under sub-article (1)(c) of this Article is the amount (if any) by which the cost of the asset exceeds the net book value of the asset at the time of disposal; and
  2. any gain above cost is taxable under Article 59.

As per the Federal Income Tax Proclamatin No. 979/2016, the tax rates are as follows:

  1. Taxable business income of bodies (eg., PLC, Share Company) is taxable at the rate 30%;
  2. Taxable business income of other taxpayers is taxed in accordance with the following Table;

No

Taxable Business Income /Per Year/

Tax Rate (%)

Deduction in Birr

01

0

7200

Exempted (Non-taxable)

None

02

7,201

19,800

10

720

03

19,801

38,400

15

1,710

04

38,401

63,000

20

3,630

05

63,001

93,600

25

6,780

06

93,601

130800

30

11,460

07

Over 130,800

 

35

18,000

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