The Council of Ministers has issued Regulation No. 517/2022 on Investment Incentives (‘Investment Incentives Regulation’) that came into effect as of July 22nd, 2022. The Investment Incentives that are offered to eligible investments, including mining, petroleum, geothermal and biofuel sectors are income tax exemption incentives and customs duty incentives.
A. Income tax exemption incentives: - income tax exemptions will be given to eligible investors who engage in new investment, who upgrade or expand their existing investment, or who are engaged in exporting goods or services. The Investment Incentives Regulation has listed out new investment sectors that are entitled to the income tax exemption incentives. The long list that is attached to the schedule attached to the Investment Incentives Regulation includes investments that are engaged in food, beverage, textile and textile products, leather and leather products, wood products, paper, and paper products, printing, chemical, and chemical products, basic pharmaceutical products, pharmaceutical preparation industry, plastic industry, other non-metallic mineral products, basic metal industry (excluding mining of the mineral), structural metal products industry, computer, electronic and optical products industry, manufacture of transport and other transport equipment, agriculture, information, and communication technology development, electricity generation, transmission, and distribution, hotel and tourism, construction contracting, education and training, health services, architectural and engineering works, technical testing and analysis, logistics services, capital goods leasing (excluding leasing of motor vehicles), import and wholesale trade.
The Investment Incentives Regulation provides income tax exemptions in form of income tax deductions as well as exemptions from the payment of income tax. In addition, an investor who incurred a loss during the income tax exemption is entitled to carry forward the loss for a period equaling half of the income tax exemption period. Finally, the Investment Incentives Regulation entitles the enjoyment of the income tax exemption as long as the investor does not cease the investment activity for which it has obtained such income tax exemption or as long as its investment license is not revoked.
Investors who are engaged in providing employment opportunities to qualified Ethiopians abroad will be entitled to income tax exemption whose duration varies based on the number of employees sent abroad for at least one year contract of employment.
The Investment Incentives Regulation has provided the date of the obtainment of the business license or the expansion permit as the commencement date for the calculation of the duration of the income tax exemption.
B. Custom Duty Incentives: - investors who are engaged in new investment or expanding or upgrading their existing investment that is listed in the schedule attached to the Investment Incentives Regulation are entitled to custom duty incentives. Hence, these investors can import the required capital goods and construction materials on a duty-free basis. In the case where the investor buys these goods and materials from the local market, it will be entitled to the refund of the import tax paid on these goods and materials. In addition, the investor who is granted the right to enjoy the custom duty privilege is entitled to import spare parts up to 15% of the goods and materials imported and for a period of a maximum of five years. The Investment Incentives Regulation mandates the Ministry of Finance to determine, by the Directive it issues, the number and types of vehicles (excluding pickups and station wagons) to be imported on a duty-free basis.
C. Incentives for Mining Investments: - In general, investors that are engaged in mining and petroleum activities are not entitled to income tax exemptions. Yet, they are entitled to customs duty as provided under the provisions of Article 16 of the Investment Incentives Regulation. As per this provision, holders of exploration licenses or holder of small-scale or large-scale mining licenses holders or their contractors are entitled to import on a duty-free basis the equipment, machinery, and their consumables. Mining license holders are even granted the privilege to import duty-free aircraft, helicopters, drones, and/or other exploration equipment that are required for collecting relevant information. All these imports need to be pre-approved by the Ministry of Mines, which will approve each of the requests based on the work program of the requesting investors. These privileges are not granted to artisanal mining license holders.
D. Incentives for Petroleum, Geothermal, and Biofuel Investments: - holders of exploration licenses in the fields of petroleum, geothermal, and biofuel works are also given similar rights to import equipment, machinery, and their consumables, like chemicals, dynamites, and other materials. In particular, investors in these sectors are entitled to import on duty-free basis drilling, geological, geophysical, production, treating, processing, transportation, and other equipment and machinery, including aircraft, vessels, house trailers, prefabricated structures, and other items, upon the pre-approval of the appropriate government organ. The expatriate employees of petroleum license holders are also entitled to import household goods and personal effects on a duty-free basis.
E. Re-export or Transfer of Duty-Free Imported Items: -Investors who have imported capital goods, construction materials, equipment, and machinery on a duty-free basis can re-export them or transfer them to other persons with similar privileges or by effecting the payment of the appropriate customs duty. However, transfer of the capital goods or construction materials to persons who are not privileged to the custom duty incentives can be done only where there are compelling conditions that should be supported by the Directive to be issued by the appropriate Tax Authority.
Finally, an investor who contravenes the provisions of the Investment Incentives Regulation relating to the transfer of duty-free imported items will be made criminally liable as per the provisions of Customs Proclamation No. 859/2014 (as amended).
Published on August 22, 2022
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