Ethiopia Payroll & Tax Overview

Transcription

1 Ethiopia Payroll & Tax Overview A GUIDE TO DOING BUSINESS IN ETHIOPIA 2018

2 Contents 1.0 Key Country Facts and Public Holidays Business and Culture in Ethiopia Visas and Work Permits Tax and Social Security Compliance Statutory Absence/Payments About This Payroll and Tax Overview 10

3 1.0 Key Country Facts and Public Holidays 1.1 Official Language Amharic 1.2 Currency Birr (ETB). 1.3 Country Dial code The country dial code is Country abbreviation The country abbreviation is ET 1.5 Statutory Filing Payment Methods Taxpayers can file their tax returns online. 1.6 National Minimum wage None; some government institutions and public enterprises set their own minimum wages: public sector employees, the largest group of wage earners, earned a monthly minimum wage of 420 birr Ethiopian ($21); employees in the banking and insurance sector had a minimum monthly wage of 336 birr ($18). 1.7 Filing Deadlines Within 30 days of the end of each calendar year. 1.8 Fiscal year 8 July - 7 July. 1.9 Time Zone EAT (UTC+3) Holiday Holiday Type 7 th January 7 th January Ethiopian Christmas Day National Holiday 19 th January 19 th January Epiphany National Holiday 2 nd March 2 nd March Adowa Victory Day National Holiday 14 th April 6 th April Ethiopian Good Friday National Holiday 16 th April 8 th April Ethiopian Easter Sunday National Holiday 1 st May 1 st May International Labor Day National Holiday 5 th May 5 th May Freedom Day National Holiday 28 th May 28 th May Derg Downfall Day National Holiday 26 th July 15 th July Eid-al-Fitr National Holiday 11 th September 22 nd August Eid al-adha National Holiday 2 nd September 11 th September Ethiopian New Year National Holiday 27th September 27 th September Meskel National Holiday 1 st December 21 st November The Prophet's Birthday National Holiday

4 2.0 Business and Culture in United Ethiopia 2.1 Establishing as an Employer To register a company in Ethiopia, an entity must select a company name and submit proper documents to the Documents Authentication and Registration Office (DARO). Once a letter is obtained from the Commercial Registry, the company must open a bank account in Ethiopia. Once a bank account is secured, the entity must register with the Ethiopian Revenue and Customs Authority for income tax and VAT. Before conducting business, an employer must apply for a Taxpayer Identification Number or TIN. 2.2 Employment Average working hours are eight hours per day and a 48-hour workweek. Employees are entitled to a 24-hour rest period each week, which typically falls on Sunday. Overtime may not exceed two hours per day, 20 hours per month, or 100 hours per year. Minor employees under the age of 18 are not permitted to work over seven hours per day and may not work between the hours of 10pm and 6am. In accordance with the Labour Proclamation, wages mean the regular payment to which the worker is entitled to in return for the performance of the work that he/she performs under a contract of employment. Wages are independent of overtime premium, allowances, bonus, commissions, service charges received from the customers and other incentives paid for additional work. Wages are only paid for the work done by the worker except in case interruption on employer's behalf which makes it impossible to work (i.e. interruption in supply of tools and raw materials).

5 3.0 Visas and Work Permits 3.1 Visas All foreign employees must obtain a work permit in order to lawfully work in Ethiopia. Both the employee and the employer must apply for a work permit. A work permit is provided by the Ministry of Labour and Social Affairs and is renewed on an annual basis. To reside in Ethiopia for more than 90 days, the employee must apply for a residence permit with the Department of Immigration. All foreign workers are exempt from paying social taxes even though they are entitled to the same rights as Ethiopian citizens. 3.2 Work Permit in Ethiopia Obtaining a work permit in Ethiopia is relatively easy, as compare to many other services provided by the government. The lead time to get a work permit at the Ministry of Labor and Social Affairs is not more than two days. However, this is only possible provided that all the requirements provided by the Ministry are fully complied with. It is possible to travel on a business Visa and convert it into a work permit. Further the work permit can be processed parallel to employee travelling on a business visa. The basic eligibility criteria for getting work permits are as per the procedural requirements provided by the Ministry of Labor and Social Affairs. The requirements may differ depending on the type of organization that is going to hire the expatriate worker i.e. it may be a Non-governmental organization, a government or a private organization. Moreover, the requirements may also differ in the kind of permit the applicant seeks to obtain i.e. a new work permit, to renew an existing permit or to wants obtain clearance for the permit. So obtaining a work permit involves a strict requirement of providing the work permit of the hiring organization, a recommendation letter from the concerned governmental bodies and other pertinent government organs, based on the kind of work for which the work permit is requested, providing an appropriate Educational and Experience documents. This criterion differs from Private Organization, Non-Governmental Organizations (NGOs/CSO), a Government Organ. 3.3 Residence Permit in Ethiopia Once a foreigner acquires a work permit from the Ministry of Labor and Social Affairs Office it is possible to request for a residence permit from Ethiopian Immigration authority. The requirements to obtain a residence permit are an application letter requesting the permit, the appropriate and valid travel documents, Visa, Health certificate and other required documents.

6 4.0 Tax and Social Security 4.1 Tax UPDATE - According to Fana Broadcasting, The House of People's Representatives has approved the new tax proclamation on July 26, The new taxation will be effective as of Hamle 1, 2008 or July 08, There were a few changes to what was announced on June 08, For example, the range was changed to ; 586-1,650 was changed to 601-1,650 ; 1,651-3,145 was changed to 1,651, - 3,200, etc... Here are the formulas on how to calculate personal (employee) income tax, pension, gross and net income in Ethiopia. Salary Income Tax = (Gross Salary * Tax Rate) - Deduction Employee Pension - Gross Salary x 7% Net Income = Gross Salary - Salary Income Tax - Employee Pension - Other Taxes (If applicable) Employee Pension - 7% Company Pension - 11% New Tax Rates No. Salary Range (ETB) Tax Rate Deduction (ETB) Birr Non-Taxable ,650 Birr 10% 60 Birr 3. 1,651-3,200 Birr 15% Birr 4. 3,201-5,250 Birr 20% Birr 5. 5,251-7,800 Birr 25% 565 Birr 6. 7,801-10,900 Birr 30% 955 Birr 7. Over 10,900 Birr 35% 1,500 Birr Old Tax Rates No. Salary Range (ETB) Tax Rate Deduction (ETB) Birr Non-Taxable Birr 10% 15 Birr ,400 Birr 15% Birr 4. 1,401 Birr - 2,350 Birr 20% Birr 5. 2,351 Birr - 3,500 Birr 25% 235 Birr 6. 3,551 Birr - 5,000 Birr 30% Birr 7. 5,001 Birr and Above 35% Birr

7 Taxes on monthly salaries are calculated during the monthly payroll preparation and have to be paid to tax authorities within one month after having been deducted from the employee. The same applies also for the various provident funds and pension schemes. There are stiff penalties for late submission of tax returns and all other statutory deductions. The directives for fringe benefits and other income from employment are sometimes difficult to apply due to inefficient distribution of directives to all stakeholders. In Ethiopia, all income from employment like various allowances like fuel, representation, cash indemnities etc. are taxable. The tax rates for payout for accrued, unutilized annual leave during termination processing are heavy: they are pro-rated over the period of months the income applies to and are subject to the maximum tax rate. The tax rate for severance pay, however, is much lighter as it is taxed at a monthly salary rate to support the concept that the employee may not have financial difficulties whilst searching for his next employment. Employment contracts whether permanent or temporary are always copied to the private organization employees pension offices. The rates applied for provident fund & pension schemes sometimes confuse accountants and cause inaccuracies as the rates for provident fund varies from company to company. Payments for outstanding performance or the award of cash prizes at times like marriage are not tax effective. They are taxed at the same rate as the normal monthly salaries. Most allowances like fuel, representation & house allowances are taxed fully as long as the whole remuneration package is above a certain level. The payment of accrued leave is complicated. Accrued annual leave paid on termination of contract should be prorated over several months and should reflect that actual income received and the tax rates applicable at time of earnings. It is therefore strongly recommended to get employees to take their vacation 4.2 Social Security Employers must make monthly withholding payments within 30 days following the end of the previous month's payroll. Employers contribute about 11 per cent of the payroll towards Ethiopian Social Security. Employees typically contribute seven per cent of their salary towards Social Security

8 5.0 Compliance Employers must make monthly withholding payments within 30 days following the end of the previous month's payroll. Employers contribute about 11 per cent of the payroll towards Ethiopian Social Security. Employees typically contribute seven per cent of their salary towards Social Security. 5.1Data Retention Employers are recommended to retain data for a minimum of 10 years 5.2 Termination pay Employers or employees who wish to terminate employment must do so in writing. The notice that must be given depends on length of service. For example, for employment up to one year, one month's notice is required. Employment lasting more than one year but less than nine requires two months of notice. Employment exceeding nine years requires three months written notice.

9 6.0 Statutory Absence/Payments 6.1 Annual leave Workers are entitled to 14 days of paid annual leave on completion of one year of service plus one working day for every additional year of service. For a worker with 5 years of service, the period of paid annual leave is 18 working days. A worker is granted his first period of leave after one year of service and his next and subsequent periods in the course of each calendar year, in accordance with a leave schedule drawn up by the employer on worker's consent and to the need for maintaining the normal functioning of his undertaking. A worker may request the employer to take his annual leave in two parts, or defer a period of leave on employer's consent. However, such deferment cannot exceed two consecutive years. If the employment contract expires before a worker could avail the right to annual leave, compensation for leave is made in proportion to the length of his/her service. Apart from this provision, any agreement, collective agreement or other agreement, providing compensation in lieu of annual leave or renouncing or waiving the right to paid annual leave is null and void. In case a worker falls sick during the annual leave, the provisions related to sick leave are applicable. Annual leave may be interrupted and employer recalls worker on leave only where unforeseen circumstances require his presence at his post. The recalled worker is entitled to a payment covering the remainder of his leave excluding the time lost for the trip and the employer has to bear the expenses incurred by the worker as direct consequences of his being recalled and per-diem. 6.2 Weekly rest days Workers are entitled to 24 consecutive hours of rest per week. Labour Law requires that weekly rest day, in principle, should be Sunday for all employees. If it is impossible to provide weekly rest day on Sunday. due to nature of work, another day be substituted as weekly rest day Weekly rest must include the period from 6 a.m. to the next 6 a.m. Where the nature of the work or the service performed by the employer is such that the weekly rest cannot be a Sunday, another day may be made a weekly rest day as a substitute. 6.3 Maternity leave In accordance with the Constitution of Ethiopia and Labour Proclamation, female workers are entitled to fully paid maternity leave of 90 days (30 days antenatal and 60 days postnatal) on recommendation of medical doctor. If a pregnant woman does not deliver within 30 days of antenatal leave, she is entitled to additional leave until her confinement. If a pregnant woman delivers before the 30 days period has elapsed, postnatal leave commences after delivery. Other than maternity leave, workers are also entitled to paid leave for medical examinations related to pregnancy and paid leave during pregnancy on recommendation of a medical doctor. Maternity leave is fully paid leave. The Labour Proclamation requires that a pregnant worker be granted fully paid leave during the first 30 days of her leave, i.e., before confinement and it is silent about the payment for the 60 days post confinement. However, Constitution of Ethiopia provides that women workers have the right to maternity leave with full pay. No maternity related statutory benefits are provided. A new law, i.e., Social Health Insurance Proclamation has been passed in All employees are required to members of social health insurance scheme. However, this law does not expressly deal with maternity related health benefits. 6.4 Sickness The Labour Proclamation provides for the paid sick leave for up to 6 months on completion of probation period if sickness is certified by a qualified doctor. A worker is entitled to sick leave if he/she is incapable of work owing to the sickness other than resulting from occupational injury. A worker must inform the employer about his/her absence due to sickness and provide a medical certificate issued by a medical organisation recognized by the Government. The employer may provide paid sick leave as follows: - 100% of wages during the first month of sick leave; - 50% of wages during the second & third months of sick leave; and - unpaid leave from the fourth until sixth month. The Social Health Insurance Proclamation, passed in 2010, provides medical and health services to the workers. All workers are required to be a member of social health insurance scheme. Employment of a sick worker is secure during the term of his sick leave. 6.5 Marriage leave Newlywed employees are entitled to three days of paid leave after their marriage.

10 7.0 About This Payroll and Tax Overview 7.1 Copyright All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher. 7.2 Disclaimer Every effort has been made to ensure that all information in this booklet is correct at the time of publication. This information should be used as reference only and not as a sole source of decision making. 7.3 The Global Payroll Association Global Payroll Association is the first international payroll association of its kind. We are a central hub for all-things payroll. A one-stop-shop supplying comprehensive directories, interactive training and in-depth country resources. We are here to help you with your global payroll needs, no matter how complex, connecting you with the world s leading experts and offering a forum to network with other like-minded global professionals. Global Payroll Association welcomes international payroll, HR and financial professionals of all levels.

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