On July 17, 2025, Ethiopia’s House of Peoples’ Representatives enacted Income Tax (Amendment) Proclamation No. 1395/2025, which updates the existing Federal Income Tax Proclamation No. 979/2016. The changes took effect on July 7, 2025, with certain provisions—like the local withholding tax—becoming applicable from August 1, 2025.

• What’s New?

1. Broadened Tax Coverage

New definitions now include digital content creators (e.g., influencers, bloggers) and non-resident digital service providers within the Ethiopian tax net.

2. Simplified Taxpayer Categories

• The three-tier system has been collapsed into two categories based on annual turnover:
• Category A: Above ETB 2 million
• Category B: Below ETB 2 million.

3. Updated Tax Brackets

• Employment Income (Monthly):
• Up to ETB 2,000: 0%
• ETB 2,001–4,000: 15%
• ETB 4,001–7,000: 20%
• ETB 7,001–10,000: 25%
• ETB 10,001–14,000: 30%
• Over ETB 14,000: 35%
  • Rental Income (Annual):
• Up to ETB 24,000: 0%
• ETB 24,001–48,000: 15%
• ETB 48,001–84,000: 20%
• ETB 84,001–120,000: 25%
• ETB 120,001–168,000: 30%
• Over ETB 168,000: 35%
• Business Income (Annual):
  •  Higher Withholding and Transaction Taxes
• Withholding tax rates have increased to:
• Dividends: 15%
• Royalties: 10%
• Games of Chance: 20%
• Capital Gains: 15% on property and securities.

5. Stricter Compliance Rules

• Both Category A and B taxpayers must pay advance taxes quarterly, based on the previous year’s liability.
• Cash transactions over ETB 50,000 are prohibited payments must be made electronically or by cheque.

6. Sidestepping Old Exemptions

• The amendment repeals most existing tax exemptions except those explicitly provided in investment laws or by the Council of Ministers. Cooperatives are exempted from this repeal.