Withholding Tax in Ethiopia: Rates, Withholding agent

What is withholding tax in Ethiopia? What are the rates of withholding tax in Ethiopia? Who is withholding agent in Ethiopia? These are important questions and this page provides explanation of withholding Tax in Ethiopia: Rates, Withholding agent.

The section on withholding tax is adapted from the Ethiopian Revenues and Customs Authority websitehttp://www.erca.gov.et/ and from the Income tax Proclamation Number 286/2002. However, it’s advisable that a reader gets the documents for a comprehensive understanding of the existing proclamations and regulations.

  1. Income Tax Proclamation No. 286/2002 or 286/1994 (according to the Ethiopian calendar – EC) (Download) and its amendment Proclamation No. 608/2008 (Download).

One may also visit http://www.erca.gov.et.

Withholding Tax

Withholding Tax

Withholding tax is the current payments of income tax at time of goods imported and payments made on account of goods and certain services.

Rates of withholding tax

On imported goods at 3% of the sum of cost, insurance and freight (CIF). On payments made to taxpayers at 2% on cost of supply goods involving more than Birr 10,000 in any one transaction or contract and services involving more than Birr 500 in one transaction or service.

In addition, a withholding agent who makes a payment to a person who has not supplied a TIN (Taxpayer Identification Number) is required to withholding 30% of the amount of the payment.

A taxpayer who has not supplied the TIN to the withholding agent, in addition to the above 30% is liable to pay a fine of Birr 5000.00 or the amount of the payment whichever is less.

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When the tax is due?

  • On imported goods at customs clearing time;
  • During payments made for goods & services;

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What is the withholding agent?

Withholding agent is any person with a tax collection obligation as provided in the income tax proclamation N0 286/2002.

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Who are withholding agents?

Organization or any company Government Owned Enterprises, Share Co, private Limited Co, partnership, etc incorporated under the law of Ethiopian or abroad, private non-profit organization and Non Governmental Organization (NGO) having legal personality.

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Obligations and records of withholding agents

  • Issue serially numbered official receipt to persons and organizations from whom tax is withheld;
  • Fill in a form provided, taxpayer identification number (TIN), total payments and tax withhold.
  • Transferring the tax withhold to the tax authority within ten days from the end of month of transaction.
  • Withholding agent shall maintain and make available for inspection, records in relation to each fiscal year for payments made and tax withheld.
  • The withholding agent shall keep the records for five (5) years after the end of the fiscal year to which the records relate.

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Which types of services are subject to withholding tax?

Types of services that are subject to withholding tax: –

  • Consultancy
  • Designs, written materials, lectures and dissemination of information;
  • Lawyers, accountants, auditors and other services of similar nature
  • Sales persons, arts and sports professionals and brokers including insurance brokers and other commission agents
  • Advertisements and entertainment programs for television and radio broadcasts
  • Construction
  • Advertisement services
  • Patents for scientific and intellectual works
  • Rent for lease of machineries building and other goods including computers
  • Maintenance services
  • Tailoring
  • Printing and
  • Insurance

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What if the withholding agent fails to withhold?

  • If a withholding agent fails to withhold or under withhold he shall be made to pay the full amount of the tax to the Tax Authority, but the withholding agent is entitled to recover this amount from the payee.
  • The tax withholding liability imposed by the income tax proclamation shall be treated as a tax liability for purposes of any article providing taxpayers with the right to contest the amount of tax due or to recover tax paid.
  • An agent who fails to withhold tax shall be liable for a penalty of Birr 1000 for each instance of failure to withhold the proper amount.
  • The above-mentioned penalty of Birr 1000 is imposed on the following individuals.
  • A manager who knew the failure
  • A chief accountant or senior officer who is responsible for supervision or control of withholdings

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How the Tax Authority accounts for the collection of tax on imports and the withholding of tax on payments?

If the amount of income tax collection on the import of goods and tax withheld on payments to specified person results in underpayment, business income tax actually due for the year, as determined at the time of declaration of income tax, the taxpayer is required to pay the difference with the declaration. If the amount represents overpayment of the tax actually due for the year the Tax Authority shall refund with in 90 days.

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