Frequently Asked Questions

1.What are the detailed procedure of setting up a company in Ethiopia?

These steps vary slightly depending on the business form under which investors plan to operate their business:

Sole Proprietorship

• Step 1:Collect information from Ethiopian Investment Commission (EIC) Information and Investment Promotion Department about requirements, incentives and etc.
• Step 2:Collect application form from www.investethiopia.gov.et or EIC information desk,
• Step 3:Submit filled and signed application form (by the investor or general manager or authorized person) together with project proposal (business plan) and previous business background (company profile), copy of valid passport, investment/ business visa to Licensing and Registration Department,
• Step 4:Collect bank letter from Licensing and Registration Department to get permission to open a foreign currency account at National Bank of Ethiopia.
• Step 5:Transfer/deposit cash in the opened company bank account,
• Step 6:Collect confirmation letter and credit advise from bank,
• Step 7:Submit two recent passport size photographs of the investor,
• Step 8:Collect investment permit certificate from Licensing and Registration Department.

Private Limited Company (PLC)

• Step 1:Collect application form from www.investethiopia.gov.et or Information Desk,
• Step 2:Collect sample memorandum and article of association, and information about requirements, incentives and etc. from Investment Promotion Directorate,
• Step 3:Submit filled and signed application form (by the investor or general manager or legally authorized person) along with project proposal (business plan), previous business background (company profile), memorandum and article of association, copy of valid passport, and investment or business visa of each shareholder to Licensing and Registration Department,

In case a Company is a shareholder, the following additional documents shall be submitted:

In case of a foreign company: –

– Notarized legal certificate of incorporation;

– Notarized minutes of resolution passed by authorized organ of the parent company authorizing to invest in Ethiopia;

– Notarized document of its memorandum and articles of associations or similar documents of the parent company; and

– Notarized Power of attorney of the agent.

In case of local company: –

– Copy of memorandum and articles of associations;

– commercial certificate;

– minutes of resolution passed by the shareholder’s; and

– Notarized power of attorney of the agent

• Step 4:fill and submit company name application form (available at information desk) with three proposed company names to check uniqueness of the company name.
• Step 5:Collect letter of clearance for unique company name from Licensing and Registration Department
• Step 6:Edit and authenticate memorandum and article of association in line with approved company name.
• Step 7:Collect bank letter from Licensing and Registration Department to get permission to open foreign currency account from National Bank of Ethiopia.
• Step 8:Transfer/deposit cash in the specified company account.
• Step 9:Collect confirmation letter and credit advice from the bank.
• Step 10:submit authenticated lease agreement and TIN number.
• Step 11:submit five recent passport size photographs of the General Manager.
• Step 12:Collect investment permit certificate and commercial registration certificate from Licensing and Registration Department.

Share company or Joint venture

• The requirement for PLC also apply for share company and joint venture.

Branch /Multinational Company

• Step 1:Collect/download application form from www.investethiopia.gov.et or EIC information desk.
• Step 2:Submit filled application form with project proposal (business plan), authenticated parent (mother) company documents and new company general manager’s valid passport and business or investment visa in Licensing and Registration Department.
• Step 3:Collect bank letter from Licensing and Registration Department to get permission to open foreign currency account from National Bank of Ethiopia.
• Step 4:Transfer/deposit cash in the specified company account.
• Step 5:Collect confirmation letter and credit advice from bank.
• Step 6:Collect investment permit certificate from Licensing and Registration Department.

Note:

All documents whose sources are outside of Ethiopia shall be

– Authenticated by the concerned notary office and Ethiopian Embassy in the foreign country; and

– Authenticated and registered by the Ministry of Foreign Affairs of Ethiopia.

Minimum Capital Requirements

– For wholly foreign owned company, the minimum capital requirement is 200,000 USD (USD 100.000 if it is architectural or engineering works or related technical consultancy services, technical testing and analysis or in publishing)

– For joint venture company, the minimum capital requirement is 150,000 USD (USD 50.000 if it is architectural or engineering works or related technical consultancy services, technical testing and analysis or in publishing)

1. How Long does it take to get an Investment License, How often does it have to be Renewed and How much does it cost?

• It takes a minimum of 5 days. However, it takes half a day (5 hours) to get an investment license if the investor has fulfilled all of the requirements (Refer above sub-section for requirements details).
• The license has to be renewed annually at the end of every fiscal year (July).
• EIC charges only 600 birr (USD 26.28) for this service.

1. What are the Rules & Requirements in Hiring of Expats and Locals, and the cost of Labour in Ethiopia?

The Ethiopian labor law governs all hiring (contract), wage and working hours of both expats and local staffs. Below are some of the summary points of the labor law:

• Wage:

Ethiopia has a low cost labour compare to other countries. Ethiopia offers competitive labor cost ranging from USD $40 – $135 monthly. In addition, the country has

• Suitable domestic labor laws and regulations.
• No minimum wage requirements (it’s based on negotiation),
• Educated and easily trainable labor force – over 50 Universities with around half million student population; over 1,300 Technical and Vocational Education and Training (TVET) Institutes with an annual intake close to one million students.
• Overtime pay ranges from 1.25x hourly wage (on work days) to 2.5x hourly wage (on public holidays).
• Working hours: The working hours is set at 48 hours per week;

• Expatriates:
  • Expatriates can be employed in Ethiopia and they are anticipated to develop the local capacity. Therefore, these expatriates are offered a competitive income tax package for a minimum of 2 years. Furthermore, if the proposed investment is out of Addis Ababa, the incentive package increases.

• • There is no limitation on the number of expatriates that can be recruited. However, this also depends on the availability of local professionals, the complexity of the investment and the need for high skilled professionals
• Work Permit: EIC will assist in processing work permit for investors. It takes approximately 3 – 5 days to process and receive a work permit for expat hires. Expats will receive income tax exemption for 2 years starting from the issuance of the business license of the company.

1. What are the Major Trade Agreements of Ethiopia with other Countries?

Ethiopia has signed different trade agreements which have been summarized below:

• Bilateral Investment Treaties (BITs): with ~30 countries including: Algeria, Germany, Libya, Switzerland, Austria, India, Malaysia, Tunisia, Belgium, Iran, Netherlands, Turkey, China, Israel, Russia, United Kingdom, Egypt, Italy, South Africa, Yemen, Equatorial Guinea, Djibouti, Spain, USA, Finland, Qatar, Sudan, France, Kuwait and Sweden.
• Double Taxation Avoidance Treaties (DTTs): with ~12 countries including countries like Czech Republic, Russia, Italy, Turkey, France, South Africa, Kuwait, Yemen, Israel, Tunisia and Romania.
• Generalized System Preferences (GSP): extended to LDCs by most developed and developing countries including; Australia, Canada, European Union, Japan, New Zealand, Norway, Russia, Switzerland, Turkey, USA, India, Chain and South Korea
• AGOA (African Growth and Opportunity Act): is a market opportunity provided by US Government to eligible sub-Saharan African countries (Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Cape Verde, Chad, Cote d’Ivorie, Comoros, Congo, Djibouti, Gabonese, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Malawi, Madagascar, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Sao Tome & Principa, Seychelles, Sierra Leone, South Africa, South Sudan, Swaziland, Tanzania, Uganda and Zambia) to export their qualified products free from tariff and quota.

– Ethiopia’s export has been growing by 80% since the introduction of AGOA

– Ethiopia earned ~$33 million from AGOA benefit in 2014

– The average U.S. applied tariff on apparel is 11.4% compared to an average for all products of 3.5%. But AGOA has avoided this tariff.

• Everything but Arms (EBA): is market opportunity that is given to all LDCs full duty free and quota-free access to the EU markets for all their exports with the exception of arms and armaments.
• Common Market for Eastern and Southern Africa (COMESA): is a free trade area with twenty member states stretching from Libya to Swaziland and Ethiopia is a member.

1. What are the different Local Taxations & Filing Requirements?

• The Ethiopian Revenues and Customs Authority (ERCA) is the body responsible for collecting revenue from customs duties and domestic taxes.
• The Ethiopian tax system comprises direct and indirect taxes. Direct taxes include personal income tax, rental tax, withholding tax, and corporation tax, among others. The main types of indirect taxes are VAT, customs duty, excise and turn over taxes. Main taxes are summarized in the table below.

1. How are the Establishment of Bank Accounts?

The company has to provide an authenticated memorandum of understanding (MoA) and article of association (AoA) to the EIC where a letter will be provided to the investor. The investor can then take this letter to any bank of its choosing and proceed in opening a bank account into which the requested initial deposit (Refer above sub-section) can be made.

1. What are the priority economic sectors of Ethiopia?

Ethiopia has many priority sectors the top of which being the following.

• Textile and Apparel
• Pharmaceutical
• Metal and Engineering
• Leather and Leather Products
• Tourism

1.What are the legal frameworks governing foreign direct investment in Ethiopia?

There are several laws pertaining to foreign direct investment in Ethiopia. The following are, among many others, the most widely used.

A) Investment Laws

• Investment Proclamation (No. 769/2012)
• Investment (Amendment) Proclamation (No. 849/2014)
  • Investment Incentives and Investment Areas Reserved for Domestic Investors Council of Ministers Regulation (No. 270/2012)
  • Investment Incentives and Investment Areas Reserved for Domestic Investors Council of Ministers (Amendment) Regulation (No. 312/2014)
  • Export Trade Duty Incentive Schemes Proclamation (No 768/2012)

B) Industrial Park Laws

• Industrial Parks Proclamation (No. 886/2015)
• Industrial Parks Council of Ministers Regulation (No.417/2017)

C) Foreign Exchange Laws

• Directive on Transparency in Foreign Currency Allocation and Foreign Exchange Management (No. FXD/46/2017).
• Directive for the Amendment of External Load and Supplier Credit No FXD/47/2017,
• Directive for the Amendment of Retention and Utilization of Export Earnings and Inward Remittance No FXD/48/2017

D) Tax Laws

• Income Tax Proclamation No. 979/2016,
• Income Tax Regulation No. 410/2017,
• Value Added Tax Proclamation No 285/2002,
• Value Added Tax (Amendment) Proclamation No 609/2008,
• Value Added Tax Regulation No 79/2002,
• Excise Tax Proclamation No 307/2002,
• Excise Tax (Amendment) Proclamation No 570/2008,
• Excise Tax (Amendment) Proclamation No 610/2008,
• Turn Over Tax Proclamation No 308/2002,
• Turn Over Tax (Amendment) Proclamation No 611/2008,

E) Labor Laws

• Labor Law Proclamation No. 377/2003,
• Labor Law Proclamation (Amendment) No. 494/2006

F) Commercial Matters

• Commercial Registration and Business Licensing Proclamation no. 980/2016,
• Trade Practices and Consumer Protection No. 813/2013,
• Commercial Code of Ethiopia, Proclamation No.166/1960,
• Civil Code of Ethiopia 1960,

1. What are the incentives available for investors?

A) Income Tax

• Any Investor who invests to establish a new enterprise is entitled to an income tax exemption depending on factors like investment sub-sectors, the export quantity and investment are.
• Any Investor who invests in eligible areas of the Country (i.e. Gambella, Benishangul / Gumz, Guji and Borena Zones and etc.) as specified in Regulation No 270/2012 is entitled for income tax deduction of 30% for three consecutive years after the general income tax deduction expired,
• An investor who expands or upgrade his enterprise and increase in volume at least by 50% of its attainable production or service rendering capacity or a new production or service rendering line at least by 100% of an existing enterprise is entitled to the income tax exemption for additional income generated by the expansion or upgrading,
• An investor who invest within industrial parks shall be entitled to an exemption of 2 years if the investment is made in Addis Ababa or special zone of Oromia, or to 4 years’ income exemption period if the investment is made in industrial parks located in other areas,
• An investor who exports or supplies to an exporter as production or service input, at least 60% of his products or services shall be eligible for additional two years’ income tax exemption, if the investment is made in Addis Ababa or special zone of Oromia surrounding Addis Ababa; 4 years’ income tax deduction if the investment is made in other areas,
• An investor who manufacture with industrial parks, and export or supply to exporter his/her produces is eligible for two years of income exemption if the investment is made in Addis Ababa or special zone of Oromia surrounding Addis Ababa and 4 years in other areas.

B) Custom Duty Exemption

• An investor shall be entitled to import duty free capital goods and construction materials for the establishment of a new enterprise or expansion or upgrading of an existing enterprise,
  • An investor who invest in manufacturing or agriculture sector who has invested at least 200,000 USD or equivalent Ethiopian birr at a prevailing rate of exchange and has created permanent employment opportunity for at least 50 Ethiopian nationals shall be entitled to import, duty free capital goods at any time,
  • An investor who invest in another area of investment and who has invested at least 200,000 USD or equivalent Ethiopian birr at a prevailing rate of exchange and has created permanent employment opportunity for at least 50 Ethiopian nationals shall be entitled to import, duty free capital goods up to 5 years,

C) Loss Carry Forward

An investor who has incurred loss within the period of income tax exemption shall be allowed to carry forward such loss for half the income tax exemption period after the expiry of such period.

D) Export Incentives

• With the exception of hide and skins (export tax rate of 150%), no export tax is levied on export,
• An investor who exports or supplies to an exporter as production or service input, at least 60% of his products or services shall be eligible for two years’ income tax deduction, if the investment is made in Addis Ababa or special zone of Oromia surrounding Addis Ababa; 4 years’ income tax deduction if the investment is made in other areas.
• An investor who manufacture with an industrial park, and export or supply to exporter his/her produces is eligible for two years of income exemption if the investment is made in Addis Ababa or special zone of Oromia surrounding Addis Ababa and 4 years in other areas.
• Duty free importation of vehicles based on vehicles directive,

1. How can investors get into industrial parks? Lease price?

The government plan to construct 20 state-of-the-art industrial parks located along key development corridors each with distinct specialty in priority sectors. Currently, there are 15 governments and 10 privately owned industrial parks among which 5 and 1, respectively, are operational.

There is no a special procedure to get in to industrial parks except to the fact that the company must export its products 100%. Once an investor decides to operate within the industry park, the Ethiopian Investment Commission along with the Ethiopian Industrial Parks Development Corporation will facilitate the entire process.

There are 3 types of leases and prices for industry parks; readymade sheds, readymade land, and raw land.

• Readymade sheds are available start at a price of $2 per m2 per month

Lease Period	Adama & Dire Dawa Industry Parks	All other Industry Parks
Year 1 – 4	$2.75 per m2 per month	$2.0 per m2 per month
Year 5 – 7	$3.0 per m2 per month	$2.5 per m2 per month
Year 8 – 10	$3.5 per m2 per month	$2.75 per m2 per month
Year 11 – 15	$4.0 per m2 per month	$3 per m2 per month

 

• Readymade land

Investors are expected to pay a single fee of $.04 cents per m2, plus land development recovery costs which may vary by location. Investors are also expected to build their own factory sheds at own expense. The readymade land includes developed roads and utility infrastructure. Land recovery costs are calculated based on a progressive method. The IPDC will make such issues clear in the land sub-lease agreements.

An example for Kilinto Industry Park is provided for references. The average cost for Kilinto Industrial Park is $3.59 m2 per annum (no built sheds will be prepared but serviced land). The detail payment of the infrastructure cost for the park based on progressive rate for the lease period can be seen as follows:

– Year 1-5: 0.8975 (~0.9) USD m2per annum

– Year 6-10: 1.795 (~1.8) USD m2 per annum

– Year 11 +, a flat rate of USD 4.34 m2 per annum

Note: up on the decision of the developer and/or the investment board of Ethiopia, the lease price may vary for upcoming industrial parks.

• Raw Land

Investors are expected to pay a single fee of $.04 cents per m2 and all costs of land development and infrastructure are to be covered by the investor.

2. Is there any minimum capital requirement for domestic investors to work inside the industrial parks?

Eligible local investors who exhibit a feasible proposal would have the opportunity to join the parks by showing 15% equity in cash via bank letter of the total investment cost. There is no minimum capital requirement for local investors to be in to the parks, but the very nominal figure as of the small-scale enterprises is not applicable so that the total capital should be reasonable enough.

3. Which Industrial Park is ideal for small label factory setup?

The Government of Ethiopia follows a specialization/cluster approach the development and designation of industrial parks. Currently there is no industrial park designated for specialization in printing and related industries. Some of the parks in pipeline might be open for multiple sectors subject to park standards and export potential of investors. Based on the specific investment plans submitted to it, the Ethiopian Investment Commission allocates/facilitates the allocation of investors in suitable industrial parks.

4.What is the minimum capital investment for foreigner?

The minimum capital requirement for foreign investors is USD 200,000. Amount is reduced to USD 150,000 when the investment is joint venture with a domestic investor. For certain technical works such as architecture, technical testing and publishing minimum capital requirement is USD 100,000 when it’s fully foreign owned and USD 50,000 when joint venture with a domestic investor.

5. What is the minimum shed size and/or land size that can be given to investors?

An investor can request any size of shed or land so far as planned to utilize it as soon as possible. There is no as such minimum and maximum limit sizes. Request for a specific size of shed and/or land is approved from different investment objectives of the country.

1. Is repatriation of investment and dividends allowed?

Capital repatriation and remittance of dividends and interest is guaranteed to foreign investors under the Investment Proclamation. Any foreign investor has the right, in respect of an approved investment, to make the following remittances out of Ethiopia in convertible currency at the prevailing exchange rate on the date of remittance:

• profits and dividends accruing from an investment;
• principal and interest payments on external loans;
• payments related to technology transfer or management agreements;
• proceeds from sale or liquidation of an enterprise;
• proceeds from the sale or transfer of shares or of partial ownership of an enterprise to a domestic investor;
• compensation paid to a foreign investor;

Expatriates employed in an enterprise may remit, in convertible foreign currency, salaries and other payments accruing from their employment in accordance with the foreign exchange regulations or directives of the country.