03 Nov 2017 Investment in Ethiopia 投资埃塞俄比亚
Dubbed one of the fastest growing economies of the world (The World Bank, CIA World Fact Book), Ethiopia has become a major economic player in Sub-Saharan Africa (SSA) recently. Attracting huge amount of investments, particularly from China (Ethiopia has almost leveled Southern Africa as the second largest destination of Chinese ODI following Nigeria) ; the country is aiming for an economic transformation as a manufacturing hub of Africa. Several Industrial Development Zones (‘ IDZ ’s) construction projects are underway to attract manufacturing. Congruent with its economic ambitions and making the country even more attractive to investments, the country has some amendments to its investment regime.
It is provided by the Proclamation No. 769/2012, which is a Proclamation on Investment (as amended by Proclamation 849/2014) (The Proclamation), as well as Council of Ministers Regulation 270/2012, Council of Ministers Regulation on Investment Areas Reserved for Domestic Investors (The regulation) primarily regulate investments in Ethiopia.
埃国的投资法令是由「公告」字第 769/2012 (而再经公告字第849/2014修正)，作为「投资公告」(以下称公告)；与内阁法规字第 270/2012 即「国内投资人保留的投资领域内阁办法」(以下称办法)，该二法规作为埃国投资事务的主管法令。
According to The Proclamation, investments may be carried out by wholly foreign owned Investments, Joint investments between foreign and domestic investors and foreign investors
Some investment areas are exclusively reserved for the government. However, investors could engage in manufacturing of weapons and ammunition and telecom services jointly with the government. The regulation lists investments which are open to foreign investors. Investments in financial services (banking and Insurances), services industries (commission agents, media, legal services and air transport…etc.) are reserved for domestic investors. However, the Ministers council could, by regulation open these areas to foreign investors.
Investors could engage in their projects as sole proprietorships, business organizations (Incorporated abroad or registered in Ethiopia), public enterprises and cooperative societies. Each project must meet a minimum capital requirement of US 200,000. However, joint investments between domestic and foreign investors may set up investments at US 150,000. The amount is reduced to US 50,000 if the joint investment is in engineering and architecture consulting and technical testing. Investors who re-invest profits are subject to no such requirements.
Investors need to secure permit from the Investment Commission (the organ responsible for overseeing investment projects) or other appropriate investment organs (special agencies empowered to issue permits). The commission also requires technology transfers and non-equity export oriented collaboration agreements to be registered in order to be valid.
There are cross-cutting incentives across all investments while some are sectors specific. For example, investors may own the house (building) and other immovables and vehicles as part of their projects.
Foreign exchange and remittances
Foreign investors may open foreign exchange accounts in Ethiopian banks in accordance with the National Bank of Ethiopia regulations. They may remit in foreign currency earned from profits and dividends, pay external loans (principal and interest) and related to technology transfer, transfer of shares, sale and liquidation of the enterprise and compensation paid to expropriated investments. Expatriates may also remit salaries and other payments.
An annex at the end of the regulation identifies 15 investment sectors. The list divides investments into Addis Ababa and Special Zone of Oromia surrounding Addis Ababa and Other areas. Investments outside the designated areas receive higher income tax exemptions in number of years. Investors expanding or upgrading their investments are also subject to similar tax exemptions. Investments that export or supply to an exporter more than 60% of their services or products are also awarded two years extra in income tax exemptions. The Proclamation further awards a 30% reduction of Income tax for consecutive 3 years for investments that go to specified areas identified in the regulation. The three years begin at the end of the tax exemption years. Investors who have incurred a loss during the years of income tax exemption are allowed to carry forward such loss for half the income exemption period after the expiry of such period but not more than five income tax periods. Capital goods and construction materials may be imported duty free except for investors engaged in specific sectors.
Following is a taxes scheme for enterprises doing business in Ethiopia.
• Corporate Income Tax Rate: The standard corporate income tax rate is 30%.
• Capital Gains Tax Rate: 15/30%. The 15% rate applies to gains derived from transfers of immoveable assets. The 30% rate applies to gains derived from transfers of shares and bonds.
• Branch Tax Rate: The standard branch tax rate is 30%.
• 资本利得税率：[15%、30%] 移转不动产适用15%的税率，移转股份与债券适用30%的税率。
• Withholding tax on payment for goods and services: 2%.
• Dividends: 10%. This is a final tax for both residents and non-residents.
• Interest: 5%. This is a final tax for both residents and non-residents.
• Royalties: 5%. This is a final tax for both residents and non-residents.
• Technical Services: 10%. This is a final tax for both residents and non-residents.
• This withholding tax applies to technical services rendered outside Ethiopia.
• 股利：10% [为居民与非居民的最终税款]
• 利息：5% [为居民与非居民的最终税款]
• 权利金：5% [为居民与非居民的最终税款]
• 技术协助服务：10% [为居民与非居民的最终税款] 此项预扣所得税适用于埃国境外的技术服务。
• The VAT rate in Ethiopia is 15%. If a non-resident person who is not registered for VAT in Ethiopia renders services in Ethiopia for a customer registered in Ethiopia, the rendering of services is taxed unless the service is exempted from tax. The customer shall withhold the 15% (Reverse VAT) tax from the amount payable to the non-resident person. The value of services taxable is the amount of consideration that the recipient is obliged to pay for the services, except that if the supplier and the recipient are related persons, the value of the import is its market value.
• Provision of service in Ethiopia without having a Tax Identification Number (TIN) will result in the service provider suffering a deduction of 30% withholding tax by the withholding agent.
An Investment Commission, (the “Commission”) established by the Proclamation oversees investors’ operations. The Commission guarantees access to supplies (water, power and telecom), handles work permit for expatriates and business licenses, exempts from custom duty, Tax identification Number (TIN) issuance…etc. However, investors who disagree with decision of the Commission may appeal the decision to an Investment board. The regulation further guarantees that investments will not be subject to expropriation (nationalization) except in accordance with the law and with due compensation paid in full.
Foreign arbitral awards/foreign judgments are recognized and enforced in Ethiopia where an application for the execution of such has been presented to the relevant division of the High Court or the Supreme Court of Ethiopia (By way of appeal). The enforcement of the award/judgments will be subject to a number of conditions; among them, reciprocity between the country where the award/judgments was rendered and Ethiopia, whether the award/judgment is not against public order or morality, etc. The country is not a contracting party to the New York Convention. Ethiopia is a signatory of ICSID but it has not yet been ratified. Ethiopia is also a contracting member of Multination Investment Guarantee Agreement, (MIGA) and several bilateral investment treaties with US, EU and China.
Industrial Development Zones, (IDZ)
The Proclamation has also deliberated for the establishment of an industrial development zones, called “Industrial Parks” for accelerating the economic transformation and development of the Country by boosting manufacturing capability. In 2015, the Industrial Parks Proclamation 886/2015, (The “Industrial parks Proclamation”) was promulgated. According to the Industrial Parks Proclamation, Investors are given special incentives, guarantees and protections and national treatment. The country is targeting USD 1 billion of annual investment in industrial parks over the next decade to boost exports and make it Africa’s top manufacturer. Currently, there are seven operational Industrial Parks in Ethiopia, with plan to increase their number to fifteen by the end of 2018.
 According to the Investment Commission of Ethiopia, the country has witnessed a dramatic increase of Chinese ODI from US 1 million to US 122 million annually in 2012.
 These are areas specifically mentioned in Art. 5(2) (a-f) of Regulation Council of Minsters Regulation 270/2012, Council of Ministers Regulation on Investment Areas Reserved for Domestic Investors.
 In real estate development, publishing, export trade of coffee, oil seeds, precious, and whole sale trade of supply of petroleum and its by products as well as whole sale of own products.
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