The Council of Ministers has approved sweeping reforms to the country’s tax and customs incentive regime with a regulation that casts aside blanket policies for a new, performance-oriented system.
The New Investment Incentives Regulation tabled by officials at the Ministry of Finance and ratified by the Council this week, introduces mandatory performance agreements as part the government’s new approach to incentivizing investment.
Under the previous regime, incentives were often granted based on the sector of operation, such as allowing companies in remote areas to import specialized vehicles duty-free. In contrast, the new regulation dictates that benefits are only sustained if investors meet specific, pre-negotiated targets regarding capital employment, job creation for Ethiopian nationals, and the successful transfer of technology.
Another highlight is the introduction of an investment capital allowance, which allows for a one-time deduction based on the cost of capital assets, and significant exemptions from the Minimum Alternative Tax, Dividend Tax, and Capital Gains Tax for qualifying projects.
These benefits are specifically geared toward large-scale operations, as the law sets a high bar for eligibility, generally requiring a minimum capital investment of USD 10 million for most enterprises.
The regulation is the first to feature terms for startups, which are eligible for a reduced income tax rate of five percent for 10 years.
Oversight and compliance have also been drastically tightened under the new decree. To prevent the leakage of duty-free goods into the local market—a serious flaw that defined the old system—the new regulation mandates that investors submit certified evidence every three months proving that all imported materials were used for their designated projects.
It imposes strict accounting standards, requiring investors to maintain separate books for each incentivized project in a bid to ensure total transparency.
The regulation also sets incentive terms for scientific research, investors who can generate half of their own energy demand (renewably), and businesses engaged in the carbon trading market.
