- Introduction
The Ministry of Finance, using the powers vested in it under Article 26 of Proclamation No. 1263/2021 and Article 12 of the Value Added Tax Proclamation No. 1341/2024, has recently issued the Directive on Registration for Value Added Tax No. 1104/2025. This Directive aligns with both the VAT Proclamation and the recent amendment of the Income Tax Proclamation No. 1395/2025, which reduced the taxpayer categories to only two, which are: Category “A” and Category “B.”
Prior to the issuance of this Directive, the obligation to register for Value Added Tax was subject to uncertainty and vagueness. It seems that the new Directive clarifies this by establishing a clear distinction between Category “A” and Category “B” taxpayers with respect to VAT registration obligations. In essence, the Directive addresses two principal issues; The categories of taxpayers required to register for VAT; and the timeline for VAT registration.
- Who Shall Register for VAT?
Directive No. 1104/2025 requires the following taxpayers to register for Value Added Tax (VAT):
- Category A Tax Payers
- Taxpayers who are obliged to keep books of accounts;
- Taxpayers who voluntarily keep books of accounts;
- Birr 2 million Turnover Threshold: Taxpayers whose aggregate annual turnover from taxable and exempt transactions exceeds Birr 2,000,000.00 (two million).
- Who Are Category A and Category B Tax Payers
It is important to clarify who are Category “A” and Category “B” taxpayers. As per Article 2 of the Amendment to the Income Tax Proclamation No. 1395/2025, for tax purposes, there are two categories of taxpayers, which are Category “A” and Category “B” tax payers.
- Category A Taxpayers: Category “A” taxpayers include (a) a body, and (b) any other person whose annual turnover exceeds Birr 2,000,000 (two million Birr).
- Category B Taxpayers: On the other hand, Category “B” taxpayers include taxpayers, excluding bodies, whose annual turnover is less than Birr 2,000,000 (two million Birr).
- Cumulative or Alternative Requirements?
Another issue worth exploring is whether the preconditions for VAT registration, as per the Directive, are cumulative or alternative. Specifically, it is important to determine whether a business entity or a person is required to meet just one of the conditions under the Directive for registration, or whether all the conditions must be satisfied simultaneously. From the wording of Article 2 of the Directive, it appears that the requirements are alternative rather than cumulative.
- Category A: If a business entity or person is a Category A taxpayer, they are required to register for VAT.
- Taxpayers under the obligation of Book-Keeping Requirement: according to the 1341/2016 proclamation Art 12 any business entity or person that passes the threshold of birr 2,000,000 (two million birr) at the beginning, during or end period of 12 calendar months are under obligation to Book-keeping requirements due to this any taxpayer who is obliged to maintain books of account are under obligation to registered for VAT.
- Taxpayers who voluntarily maintains books of account: any governmental or business person whose annual value is less than birr 1,000,000 (one million birr) or above but doesn’t meet the threshold but registered voluntarily are also required to register for VAT.
- Turnover Threshold Requirement: Any taxpayer whose aggregate turnover from taxable and exempt transactions exceeds Birr 2,000,000 (two million Birr) is required to register.
If a taxpayer fulfils one of the above requirements whether they are lawyers or working under any professions, it is required to be registered for VAT unless it is exempted or Zero-rated tax payer as per the relevant VAT Proclamation and VAT Registration.
- Timeline for VAT Registration
The Directive regulates the timeline for VAT registration as well. Existing taxpayers who are obligated to register for VAT under this Directive are responsible to do so within 30 (thirty) days from the effective date of the Directive. Note that the Directive enters into force on the date of its registration with the Ministry of Justice and uploading on the official website of the Ministry of Finance. It is also important to bear in mind that taxpayers are required to collect VAT on taxable goods and services they supply from the date of their registration.
Conclusion
In conclusion, the Directive provides clarity on the duties related to VAT registration and the timeline for registration. Taxpayers are advised to start the registration process immediately, as the period allowed is 30 days from the effective date of the Directive. Additionally, it is important for taxpayers to consider registration for VAT if they fall within any of the conditions discussed above. They must also begin collecting VAT from the date they are registered.
Compiled by: Hanamariam Fantu, Junior Associate at Million Alemu and Partners Legal Services LLP.
Disclaimer: This legal update is for informational purposes only and does not constitute legal advice. Million Alemu and partners Legal Services assumes no responsibility for any actions taken based on the information contained herein.
Should you need any legal advice in this regard, please contact Million Alemu and partners Legal Services LLP. We are your trusted legal partners and can guide you through the legal process. Feel free to reach out to us at info@millionlegalservices.com
