Global Mobility Services: Taxation of International Assignees Ethiopia

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1 Global Mobility Services: Taxation of International Assignees Ethiopia Ethiopia Taxation issues & related matters for employers & employees 2017/18

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3 Country: Ethiopia Introduction: PwC is the world's leading provider of professional services. The People and Organisation group works together with its clients to find solutions for the challenges they encounter when transferring people from one country to another. This summary is intended to inform foreign nationals and their employers about high level tax, social security and immigration issues. This guide is not exhaustive and cannot be regarded as a substitute for professional advice addressing individual circumstances. Nevertheless, answers will be found to many of the common questions raised by an expatriate or his/her employer. More detailed advice should be sought before any specific decisions are made about these issues. More information can be obtained from our offices, and in particular the teams specializing in People and Organization Services and Global Mobility. 3

4 Income tax summary Question Answer Basic information 1 The dates of the tax year 8 July to 7 July 2 Types of income that are liable to tax For expatriates working in Ethiopia, taxable income includes, but is not limited to income from employment to the extent that it is derived in respect of employment exercised in Ethiopia, wherever paid. There are various provisions on taxation of fringe benefits provided by employers to employees. Examples include: Debt waiver fringe benefit Household personnel fringe benefit Housing fringe benefit Discounted interest loan fringe benefit Meal or refreshment fringe benefit Vehicle fringe benefit Private expenditure fringe benefit Property or services fringe benefit Employee share scheme benefit 3 How are residents and non-residents treated differently for tax purposes? Residents of Ethiopia are taxable on their worldwide income (employment and non-employment income). Non-residents of Ethiopia are taxable only on Ethiopian source income (to the extent that it is derived in repsect of employment exercised in Ethiopia, wherever paid). 4 Do spouses file tax returns jointly or as individuals? Tax returns are filed individually, where they are required. 4

5 5 Method of determining domestic tax residence In Ethiopia, an individual will be considered tax resident if: He/she is present in Ethiopia for more than 183 days in a period of twelve calendar months either continuously or intermittently; He/she has a domicile within Ethiopia; or He/she is a citizen of Ethiopia who is a consular, diplomatic or similar official posted abroad. 6 Provide some details of the exchange controls in this jurisdiction The National Bank of Ethiopia ( NBE ) regulates the entry and remittance of foreign currencies in Ethiopia through specific directives applicable to both Ethiopians and foreigners. The directives govern the flow of foreign exchange. Virtually all outgoing and some incoming foreign currencies (such as foreign loans) are regulated. Tax rates, allowances and credits 7 Income tax deductible amount Up to 1,500 Birr per month (USD equilivent of $ 65) (the deductible fee amounts shown in the table on page 8) 8 Capital gains tax In Ethiopia gains of a capital nature are subject to capital gains tax (CGT) at rates of 15% or 30%. 9 Rate of employer social security 11% of basic salary (applicable to specific categories of individuals only) 10 Rate of employee social security 7% of basic salary (applicable to specific categories of individuals only) 11 What types of income are exempt from tax/deductible from taxable income? Examples of some tax exempt earnings are: Amounts paid by employers to cover the actual cost of medical treatment of employees; Allowance in lieu of means of transportation granted to employees under contract of employment; Travelling expenses paid to an employee recruited from a place other than the place of employment on joining or completion of employment, including, in the case of a foreign employee, travel expenses from and to their country of origin, but only if the travel expenses have been paid pursuant to specific provisions of the employee s contract of employment; Food and beverages provided for free to 5

6 an employee by an employer conducting a mining, manufacturing, or agricultural business; An amount paid as compensation for personal injury or death of another person; Scholarship or bursary for attendance at an educational institution;maintenance or child support payments; Before arriving in the country 12 What must an individual do in order to be able to work in the country i.e. obtain a work permit, intra company transfer visa, critical skills visa 13 What is the maximum period a work permit will be issued for A business visa / a work permit is required for non-residents to be able to work in Ethiopia. 1 year 14 Can a work permit be renewed Yes 15 What would be the immigration requirements for a short term business visitor For short term business purposes the following visas are available: single entry visas valid for up to 30 days stay multiple entry visas valid for 3 months 16 At what point/type of activity would trigger a tax liability in the country There is no legislation in Ethiopia providing the duration of time that should be allowed for business travellers before a PAYE liability is triggered. However, Ethiopian legislation does state that any individual sourcing income in Ethiopia is taxable either as a resident or nonresident. An individual with any Ethiopian source income would therefore trigger the tax. During the assignment 17 Does an individual need to register as a taxpayer 18 Timeline and process for registering as a taxpayer Yes. Every person having a tax obligation is required to obtain a Tax Identification Number ( TIN ). A person who becomes liable for tax under a tax law shall apply to the tax authority for registration. There is no fee charged by the Ethiopian Revenue and Customs Authority (ERCA) for the taxpayer to obtain a TIN. At the end of the month 19 Tax return filing deadline Individuals who receive employment income only are not required to file personal income tax returns. Instead, employers must withhold tax from each payment to an employee and to pay to 6

7 the tax authorities the amount withheld during each calendar month. This withholding tax represents the final tax liability of employees. 20 PAYE penalty for late filing The ERCA may impose penalties and interest on failure to file a monthly tax return by the due date. 21 PAYE payment deadline PAYE taxes should be paid by the end of the Ethiopian calendar month following the month the income was earned (month for which the payment/income relates to). 22 PAYE Penalty for late payment and late payment interest A taxpayer who fails to pay tax by the due date shall be liable for the following penalties and interest; 1) 5% of the unpaid tax that remains unpaid at the expiration of one month or part thereof after the due date; and 2) An additional 2% of the amount of the unpaid tax for each month or part of a month thereafter to the extent that the tax remains unpaid. At the end of an assignment 23 The process and actions required before leaving the country In order for an expat to exit Ethiopia; 1. A letter of application for clearance from the employing organization must be presented; and 2. The work permit card of the employee must be returned. 7

8 Rates of tax Monthly personal income tax rates for 2017/18 Salary from (Birr) Salary to (Birr) Income tax payable Deductible fee (%) Exempt threshold ,650 10% 60 1,651 3,200 15% ,201 5,250 20% ,251 7,800 25% ,801 10,900 30% Over 10,900 35% 1,

9 Double-taxation agreements Countries with which Ethiopia has doubletaxation agreements in place China Czech Republic France India Israel Italy Romania South Africa Turkey Great Britain and North Ireland Cyprus Singapore Netherlands Egypt Portugal Ireland South Korea Poland 9

10 Contacts Contacts Steve Okello Partner Tel: (0) Judy Muigai Associate Director (0) David Mwiti Senior Manager Tel: (0) Dhruti Sachania Senior Associate (0)

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12 Last Updated: February 2018 This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. PricewaterhouseCoopers and PwC may also refer to one or more member firms of the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), each of which is a separate legal entity. PricewaterhouseCoopers does not act as agent of PwCIL or any other member firm nor can it control the exercise of another member firm s professional judgment or bind another firm or PwCIL in any way.