Ethiopia has introduced changes to its income tax framework, offering new tax incentives for capital market investments while revising taxation rules for digital businesses, financial institutions and other taxpayers.
The changes are contained in Council of Ministers Regulation No. 597/2026, published in the Federal Negarit Gazette on October 28, 2026, amending the existing Federal Income Tax Regulation No. 410/2017.
Among the major developments is the exemption of interest or profits earned from government bonds and treasury bills from income tax. The regulation also grants a three-year income tax exemption on interest earned from bonds listed on a securities exchange licensed by the Ethiopian Capital Market Authority (ECMA). The exemption period begins when the bond issuer starts making interest payments.
The regulation further provides tax relief for collective investment funds by exempting dividend income received from companies in which the funds hold shares. However, the funds remain responsible for withholding applicable taxes on dividends distributed to their members.
Another significant amendment concerns digital content creators. Income generated through digital platforms is now expressly addressed under the business income tax framework or the 15 percent tax applicable to other income. Digital creators falling under the latter category are subject to tax when their annual gross earnings exceed 50,000 birr, with quarterly declaration and payment requirements.
The amendment also clarifies the application of the 2.5 percent minimum alternative tax on business turnover. Qualifying excess payments may be credited against future tax liabilities for up to five years. Investors benefiting from profit tax holidays are exempt from the minimum alternative tax during their applicable incentive periods.
For the banking sector, the regulation allows an 80 percent deduction of qualifying loss reserves calculated in accordance with National Bank of Ethiopia prudential requirements, subject to prescribed limitations.
Additional amendments address the taxation of limited liability partnerships, revised taxpayer categorization and quarterly advance tax payments. The regulation also permits certain accumulated foreign exchange losses to be deducted over ten years.
The amendments took effect on October 28, 2026, except for a specified tax exemption provision whose implementation depends on a decision by the Ministry of Finance.
