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Direct Taxes

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Incomes taxable under Income Tax Proclamation No. 286/2002  (Article 6) include: incomes from employment, business activities,personal activities, entrepreneurial activities by  non-residents, movable property, immovable property, alienation property, dividends distributed by  resident company, profit shares  paid by registered partnerships, interest paid  by  the national, regional or  local governments, and license fees. Table 1

Taxable business income of companies is taxed at the rate of 30%. Other business taxpayers  with business income ranging from ETB 1,801 to ETB 60,000 pay between 10 and 30%. Business income beyond ETB 60,000 is charged 35 %.( Table.2)

Capital gains  tax  under  Income Tax Proclamation No. 286/2002  (Article  37) is payable on  gains  obtained from  the  transfer  of  buildings  used  for  business. factory, or office purposes at 15 percent and shares of companies at 30 percent.

An individual foreigner. who lives in Ethiopia for more than 183 days in a period of twelve  calendar months, whether  continuously or intermittently, is regarded  as being resident  for the  entire  tax  period and  is taxed  in accordance with  the provisions of Income Tax Proclamation No. 286/2002 (Article 5.2).

However, the following are excluded from the computation of taxable income in accordance with  Article  13 of  the Income Tax Proclamation No. 286/2002 and Article 13 of the Regulations No. 78/2002:

  • medical treatment;
  • transportation allowance;
  • hardship allowance;
  • reimbursement of travelling  expenses incurred on duty;
  • per diem  and  travelling  expenses on   joining   and completion  of employment, provided that  such payments are made pursuant to specific provisions of the contract;
  • board  members'   and  board  secretaries '  allowances; the income ofpersons  employed for domestic duties;
  • the contribution of the employer and the  employee to the  retirement or provident fund  and all forms of benefits contributed by employers that  do not  exceed 15% of monthly salary; and
  • payments made to a person as compensation in relation to injuries suffered by  that  person or the  death of another person.

Other  direct  taxes   applicable  are   royalties  (5%),  income paid for  services rendered  outside of   Ethiopia  ( 1 0%),  income from   games  of  chance  ( 15%), dividends ( 10%), income from rental of property ( 15%), and interest  income (5%) and are payable at flat rates  in accordance with  Article 31 -36 of the Income Tax Proclamation.

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