Tax on Royalty Payments in Ethiopia

According to Article 2 (20) of the Federal Income Tax Proclamation No. 979/2016, royalty is defined to mean, “...a periodic or lump sum amount as consideration for any of the following:

  1. the use of, or the right to use any copyright of literary, artistic, or scientific work, including cinematography films, and films and tapes for radio, television, or internet broadcasting;
  2. the receipt of, or right to receive, visual images or sounds, or both, transmitted by satellite, cable, optic fibre, or similar technology in connection with television, radio, or internet broadcasting;
  3. the use of, or the right to use any patent, invention, trademark, design or model, plan, secret formula or process, or other like property or right;
  4. the use of, or the right to use any industrial, commercial, or scientific equipment;
  5. the use of, or the right to use any information concerning industrial, commercial, or scientific experience;
  6. the supply of assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of property or a right referred to in paragraphs (a) - (e) of this sub-article;

Federal Income Tax Proclamation No. 979/2016 is the basis of tax on royalties.

Tax on royalties is a flat rate of five percent (5%) - both for a resident of Ethiopia and a non-resident who derives an Ethiopian source royalty. The person who effects payment is required to withhold the foregoing tax and account to the Tax Authority within thirty (30) days of the end of each calendar month. The obligation of the payer to withhold tax has priority over all other obligations to withhold amounts from payments to a payee (the taxpayer).

Where the payer resides abroad and the recipient is a resident, the recipient will pay tax on the royalty income within the time limit set out in the Proclamation.

Tax on royalty payments is a final tax instead of a net income tax.

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