Key Change Introduced by the Investment Incentive Amendment Regulation No. 566_2024

Key Change Introduced by the Investment Incentive Amendment Regulation No. 566_2024

Introduction

This legal update briefly discusses the newly enacted regulation on the amendment of investment incentives. The Investment Incentive Amendment Regulation No. 566/2025 (New Incentive Regulation), approved by the Council of Ministers on 14 January 2025, has come into force with its publication in the Federal Negarit Gazette. This Regulation amends the investment incentives provided under the Council of Ministers Regulation No. 517/2022, aiming to enhance employment opportunities by incentivizing investors to create jobs for Ethiopians abroad, attract investment in strategic sectors by offering tailored incentives for sectors crucial to the country’s development, such as mining and petroleum, agriculture, tourism, and construction, and avoid misuse of tax exemptions.

Basic Changes

The changes can be classified into four categories:

1. One of the most significant amendments is related to income tax exemptions for investors who provide employment opportunities outside of Ethiopia to Ethiopians. To benefit from this exemption, the investor must:
   1. Renew their business license
   1. Provide evidence from the Ministry of Labor and Skills confirming that employment opportunities have been secured for at least one year
   1. Obtain qualification certificates from recognized training institutions for individuals placed in foreign countries
2. This amendment aims to encourage investors in the industry of providing job opportunities for Ethiopians and expanding job opportunities abroad. Unlike Regulation No. 517-2022, which required a small number of workers for an investor to qualify for the tax exemption, the revised regulation increases the required number of jobs to qualify for tax exemptions. The exemptions are as follows:
   1. 1-year exemption for employing 2,000–3,000 Ethiopians.
   1. 2-year exemption for employing 3,001–5,000 Ethiopians.
   1. 3-year exemption for employing over 5,000 Ethiopians.
3. The second change concerns the exemption of motor vehicles used for investment purposes. Regulation No. 517-2022 determined the partial or full exemption of motor vehicles based on directives issued by the ministry, excluding pickup and station wagon vehicles. However, the amendment regulation No. 566-2025 provides exceptions and conditions for the exemption of pickup and station wagon vehicles. If an investor operates in a remote or underdeveloped area and is involved in specific sectors such as mining, petroleum, agriculture, tourism, or construction, they may import these vehicles duty-free with approval from the Ethiopian Investment Board.
4. Another significant change introduced by Amendment Regulation No. 566/2025 concerns the transfer of duty-free imported goods among investors holding similar privileges. Under the previous regulation, investors could transfer duty-free imported goods to other investors holding similar privileges without incurring customs duties or penalties. The amendment repeals this allowance, now prohibiting any transfer of duty-free imported goods, regardless of the receiving party holding similar privileges. Duty-free goods must be retained and used solely by the original importing investor. Any transfer, sale, or disposal requires prior approval and may result in the imposition of duties and penalties. This change aims to prevent abuse and misuse of tax exemptions and ensure accountability in tracking the use of duty-free goods.
5. The revised regulation includes two new clauses. First, it authorizes the Ethiopian Investment Board to provide incentives to investors involved in key mining and petroleum activities or in the production of essential inputs for value addition. This enables the Board to offer tailored benefits to projects strategically important for the country’s economic goals. Second, exemptions from customs duties and taxes granted under mining and petroleum agreements signed before the regulation’s entry into force remain valid with the Council of Ministers’ approval.

Compiled by Melkamu Destaw (Junior Legal Associate at MAP Legal Services LLP)

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