Rental Income Tax in Ethiopia

Income Tax Proclamation No. 979/2016 DOWNLOAD

The Federal Income Tax Proclamation No. 979/2016 (hereinafter the Proclamation) envisages that rental tax falls under Schedule “B” (article 13-17 of the Proclamation).

Imposition of Rental Income tax

(Article 13 of the Proclamation)

Rental income tax is imposed for each tax year at the rate or rates (specified below) on building or buildings that has taxable rental income for the year. The rental income tax payable by a taxpayer for a tax year is calculated by applying the rate or rates of tax applicable to the taxpayer under Article 14 of the proclamation.

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Rental Income Tax Rates

(Article 14 of the Proclamation)

The rate of rental income tax applicable to a body is 30% while the rates of rental income tax applicable to an individual are:

No

Taxable Income from Rental (per year)

Tax Rate (%)

Deduction in Birr

 

From Birr

to 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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Taxable Rental Income

(Article 15 of the Proclamation)

The taxable rental income of a taxpayer for a tax year is the gross amount of income derived by the taxpayer from the rental of a building or buildings for the year reduced by the total amount of deductions allowed to the taxpayer for the year.

Gross Amount

The gross amount of income derived by a taxpayer from the rental of a building for a tax year includes the following:

  1. all amounts derived by the taxpayer during the year under the lease agreement, including any lease premium or similar amount;
  2. all payments made by the lessee during the year on behalf of the lessor according to the lease agreement;
  3. the amount of any bond, security, or similar amount that, during the year, the taxpayer is entitled to retain as a result of damage to the building and that has not been used by the taxpayer in repairing the damage to the building and;
  4. the value of any renovation or improvement made under the lease agreement to the land or building when the cost was borne by the lessee in addition to the rent payable to the taxpayer.

In a different manner, if a taxpayer leases a furnished building, the gross amount of income derived by the taxpayer from the lease of the building shall include any amount attributable to the lease of the furniture or equipment.

Please note that the gross amount of income derived by a taxpayer from the lease of a building shall not include exempt income.

Deductions

In computing the taxable rental income for a tax year of a taxpayer who maintains books of account, a deduction shall be allowed for any expenditures incurred by the taxpayer in deriving rental income and paid during the year including:

  1. the cost of the lease of land on which the building is situated;
  2. repairs and maintenance;
  3. depreciation of the building, furniture and equipment;
  4. interest and insurance premiums; and
  5. fees and charges, but not tax, levied by a State or city administration in respect of the land or building leased.

In computing the taxable rental income for a tax year of a taxpayer who does not maintain books of account, a deduction shall be allowed for the following amounts (The following deductions are not applicable for taxpayers who are required to maintain books of account under the Proclamation, for any reason what so ever):

  1. any fees and charges, but not tax, levied by a State or city administration in respect of the land or building leased and paid by the taxpayer during the year;
  2. an amount equal to fifty present (50%) of the gross rental income derived by the taxpayer for the year as an allowance for the repair, maintenance, and depreciation of the building, furniture, and equipment.

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Sub-Leases

(Article 16 of the Proclamation)

The taxable rental income of a sub-lessor of a building for a tax year is the difference between the total rental income received by the sub-lessor during the year and the total rental income paid to the lessor of the building. The owner of the building who allows a lessee to sub-lease the building is liable for the rental income tax payable by the lessee if the lessee fails to pay the tax.

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New Rental Building Notification

(Article 17 of the Proclamation)

At the earlier of the time construction of a rental building is completed or when the building is rented, the owner of the building and the builder should notify the Kebele administration and local administration in which the building is located about the completion and the name, address, and TIN of the person or persons liable for rental income tax with respect to the building. The Kebele administration and local administration shall communicate the information contained in the notification to the Authority.

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Exchange Rates

Selling
Buying
USD 29.7072  29.1247 
GBP 34.4529  33.7774 
EUR 32.8889  32.2440 
CHF 28.8581  28.2923 
CAD 20.2204  19.8239 
AED 7.3186  7.1751