Mining Regulations and Mining Income Tax in Ethiopia

Mining in Ethiopia is governed by an independent legal regime. Investment and income tax proclamation does not apply to mining activities. Since 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:

Mining Operations Proclamation No. 678/2010, as amended in 816/2013 DOWNLOAD
Federal Income Tax Proclamation No. 979/2016 DOWNLOAD
Council of Ministers Federal Income Tax Regulation No. 410/2017 DOWNLOAD

Some Highlights of the Mining Law Regime

  • 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 Chapter Four (Article 36-44) of the income tax proclamation. Here are some of the main features of the Chapter;

  • The business income tax rate applicable to a licensee or contractor is 25%.The rate of non-resident tax applicable to an amount paid by a licensee or contractor to a non-resident subcontractor is 20%.
  • A deduction for expenditure to the extent incurred by a licensee in undertaking mining operations in a license area during a tax year is allowed only against the business income derived by the licensee from the mining operations in the license area during the year. The deductibles include exploration expenditure (Article 39), development expenditures (Article 40), rehabilitation expenditure (Article 41), reinvestment (Article 42), and farm-outs (Article 43).
  • If a licensee has a loss in respect of mining operations in a license area for a tax year, the amount of the loss is carried forward and allowed as a deduction against the business income of the licensee derived from mining operations in the license area in the next following tax year of the licensee. Moreover, an amount of a loss of a licensee for a tax year that is not deducted, is carried forward by the licensee to the next following tax year and deductible in that year, and so on until the loss is fully deducted, provided however that the licensee can’t carry forward a loss sustained in a tax year beyond ten years from the end of the tax year in which the loss was sustained.
  • Exemptions on mining income tax is stipulated under Schedule “E” of the income tax proclamation (See Article 65 of the Proclamation).

Other Features of the Ethiopian Mining Law Regime

The main features of the latest Mining Operation Law (as amended in 2013), which comes to effect in August 2010 is:

  • 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. 

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