foreign owned or jointly owned with a domestic investor. The law provides no definition of what constitutes a “real estate development” and in practice this is a grey area. In general, foreign investors are not permitted to build a real estate development and subsequently lease such development. However, foreign investors may develop a real estate development and sell the development to a third party. Real estate investors are required to pay corporate income tax at a rate of 30% and to register for VAT. Tax In 2016 the Income Tax Proclamation and the Federal Tax Administration Proclamation were amended. The changes introduced by the amendments include merging income from rental of buildings and business profits into the same schedule. Furthermore, the possibility of extending the filing period for tax declarations has been repealed. The new income tax law has also made it possible for the Ethiopian Revenues and Customs Authority (ERCA) to issue a departure prohibition order when it has reasonable grounds to believe that a taxpayer may leave Ethiopia without paying tax that is or will become payable by the taxpayer or a company in which the taxpayer is a controlling member. The ERCA has also been given a mandate to temporarily close the business of a taxpayer, for a period not exceeding 14 days, after serving such person with a notice for failure to maintain documents as required by the law or pay tax by due date. Also, the percentage required to be deposited by the tax payer to file an appeal on a question of law to the Federal High Court has been reduced from 100% of the disputed tax to 75%. Previously, disputed tax included net income tax, administrative penalties and late payment interest calculated on net income tax. However, the new amendments have excluded administrative penalties and late payment interest in determining the disputed tax. The percentage to be deposited for filing an appeal would • Direct taxes include tax on income from employment, business profit tax, tax on income from rental of buildings, tax on interest income on deposits, dividend income tax, tax on income from royalties, and other taxes. • Direct taxes include tax on income from employment, business profit tax, tax on income from rental of buildings, tax on interest income on deposits, dividend income tax, tax on income from royalties, and other taxes. • Indirect Taxes include a turnover tax, an excise tax, a value added tax, and a customs duty. therefore only be calculated on net income tax. The major taxes in Ethiopia remain as follows:
Termination Termination of an employment contract is permitted under a variety of circumstances in Ethiopia. It is important to note that notice provisions do apply to employment contracts and must be followed unless there are extenuating circumstances. Article 42 of the Labour Proclamation provides that if an employer fails to comply with the requirements laid down in this Proclamation or other relevant law regarding termination, the termination shall be unlawful. Furthermore, Article 43 of the Labour Proclamation states that the labour dispute tribunal may order the reinstatement of the employee or compensation to be paid to the employee if a claim is raised by the employee and the termination is found to be unlawful. Banking, Finance and Exchange Control The finance sector in Ethiopia is regulated by the National Bank of Ethiopia ( NBE ). Based on the investment laws and the NBE directive, foreign investors are allowed to remit the following in convertible foreign currency at the prevailing rate of exchange on the date of remittance: • Profits and dividends accruing from an investment; • Principal and interest payments on external loans that are approved and registered by the NBE; • Payments related to a technology transfer agreement; • Payments related to a duly registered collaboration agreement with export-oriented non-equity based foreign enterprise; • Proceeds from the transfer of shares or of partial ownership of an enterprise to a domestic investor • Proceeds from the sale or liquidation of an enterprise; or • Compensation paid to an investor whose investment has been nationalized or expropriated. Any capital inflow by foreign investors is recognized and registered by the EIC at the initial stage of investment. The NBE will require a capital registration certificate at the time of repatriation. Expatriates employed in an enterprise will be able to access foreign exchange for salary remittances during the term of their service. Real Estate Real estate development is an area open to foreign investment. A real estate development can either be wholly
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