The Investment Incentive Regulation No.517/2022, approved by the Council of Ministers in May, has come into effect to supplant the Investment Incentives and Investment Areas Reserved for Domestic Investors by Council of Ministers Regulation No. 270/2012 and its amendment Regulation No. 312/2014. The Ministry of Finance will take on the major role of implementing the new regulation, but other federal and regional entities will have complementary roles assigned to them.
- Similar to its predecessor, the new incentive regulation provides for tax holidays and customs duty privileges for investors engaged in certain selected industries and regions. Some businesses are eligible for both while some only qualify for either, the duration of which is provided under the Investment Areas and Income Tax Incentives Schedule (ranging from 1-6 years for most, exceptions being investments in forestry and development & rental of industry with 8-9 and 10-15 years, respectively).
- The income tax exemptions may be extended further based on export performance, place of the investment (investing in disadvantaged and remote areas from the Addis Ababa will be rewarded with tax exemptions for additional years), overseas employment creation for Ethiopians, or loss during the exemption period.
- Investments in star-designated hotels, lodges, and resorts that are “in new, atypical, and selected tourist destination locations” will be entitled to a five-year income tax exemption, even though the conventional rule is that the hospitality sector is not eligible for such an exemption.
- The eligibility periods for income tax exemption starts to run from the date the investor is issued a business license or an investment expansion/upgrading permit. No refunds shall be made available for those who present tax exemption certificates after taxes on production or supply of service have already been paid!
- Capital goods and building supplies may be imported tax- and duty-free by new investors as well as investors extending or modernizing existing investments in the industries indicated in the Schedule. Additionally, eligible investors are permitted to import spare parts for free, although their worth cannot exceed 15% of the total value of the capital goods during 5 year either from the investor’s eligibility date for the incentives or as of the receiving its business license.
- On the other hand, it includes sectors previously excluded by the old regulation from the mandate of the Ethiopian Investment Commission (EIC), namely mining, petroleum, and geothermal energy. However, investments in the first two operations are not eligible for income tax exemption.
- It also new sectors that will be eligible for incentive such as investments in software development, data center and cloud services, business outsourcing process, start-up development service, and research, innovation, enrichment and development works.
- Ambiguities remain, however, and will be cleared through directives soon to be issued by the Ministry of Finance. Until then, directives of the previous regulation remain valid and applicable.
To read further details about the New Regulation, download the full publication on Negarit Gazette using the link below.
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