Ethiopian Business Development Services Network (EBDSN)

 Investment Policy

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Investment Opportunities   I   Investment Procedures


Investment Policy

Ethiopian Investment Commission (EIC)
P.O.Box 2313 Addis Ababa, Tel. 251-1-539474/ 251-1-510033,
Fax: 251-1-514396 ,


The Economy  top
The Ethiopian economy is predominantly agricultural and the production in such sector constitutes a major part of the countries economy, contributing about 45 per cent for the country’s gross domestic product (GDP) and about 62 per cent for total exports. It accounts for 85 per cent of total employment. Coffee, a major cash crop, is of high quality and contributes about 62 per cent of total agricultural exports. So, it is a major source of foreign-currency earnings. Manufacturing, mining, trade, tourism, construction, services, etc., which make up the remaining 55 per cent of GDP, supplement agriculture. Industry contributes only 11 per cent to GDP and 16 per cent to the total exports.

Agriculture is predominantly in the hands of small farmers working on individual small holdings mainly for household consumption. So, the sector has remained fragmented and inefficient. This is a vivid indication that Ethiopia’s agriculture is characterized by its low level of mechanization and makes the sector receptive to technological adaptation and attractive to investment, both foreign and domestic.

Varieties of crops are grown in different parts of the country seasonally. The main crops are cereals (teff, barely, maize, wheat, sorghum, and millet), pulses (horse beans, vetch and lentils) and oil seeds (niger seed, flax, rape seed, sesame, castor beans and soya beans). The main cash and industrial crops are coffee, oil seeds, pulses, cotton, sisal, tobacco, fruits and sugar cane.

As aforementioned, 10.9 per cent of the GDP comes from the industrial sector supplying important consumer goods to the domestic market. The major manufactured export products include clothing and apparel, canned and frozen meat, semi-processed hides and skins, sugar and molasses, footwear, tobacco, beverages, oil cakes and bees wax.

Although less than 3 per cent of the GDP currently comes from the mining sector, there are proven reserves of minerals such as gold, platinum, tantalum, nickel iron-ore, coal, marble, potash, copper, silica, limestone, diatomite, etc., as well as oil and natural gas, awaiting exploitation and making the country a destination for business and investment to both foreign and domestic investors.

Economic Liberalization  top
Since 1992, the Government has successfully implemented a series of reform programmes in order to transform the economy from command to market economy, speed up the integration of the economy into the world economy and encourage the wider participation of the private sector in the development of the national economy. Such reforms include, among others, the following short-term economic stabilization and structural adjustment measures:

  • deregulation of domestic prices;

  • liberalization of foreign trade;

  • privatization of public enterprises;

  • abolition of all export taxes and subsidies;

  • devaluation of the exchange rate followed by the introduction of inter-bank foreign currency market and the determination of exchange rates based on market forces;

  • enhancing private sector development and private-public partnership through providing effective industry association; and creating a forum for consultation between the private sector and the government;

  • promulgation of a liberal investment law for the promotion and encouragement of private investment, both foreign and domestic;

  • issuance of a new labour law;

  • strengthening and enhancing institutional support for the export sector through strengthening/revitalizing existing institutions and establishing such new institutions as :

    • the Ethiopian Livestock Marketing Authority;

    • the Ethiopian Leather and Leather Products Technology Institute,

    • the Ethiopian Export Promotion Agency;

As a result, a great deal has been achieved since 1992 in moving from a highly centralized economy to a more liberal market economy. Particularly, as a result of such liberalization, the economy has showed a marked improvement growing at annual average rate of 6.4 percent in the last several years. The rate of inflation declined from around 20 per cent in 1992 to an annual average rate of below 4 per cent for the last ten years. The country’s foreign exchange has improved, the budget deficit has declined to acceptable level and above all private investment activities have flourished.

Initial Investment Capital and Investment Areas  top
A foreign investor, who intends to invest on his/her own, except in consultancy services and publishing, is required to invest not less than USD 100,000 in cash and/or in kind as an initial investment capital per project. The minimum capital required of a wholly foreign investor investing in consultancy services or publishing is USD 50,000, which may be in cash and/or in kind. A foreign investor reinvesting his/her profit or dividends, or exporting 75 per cent of his/her outputs, however, is not required to allocate a minimum capital.

A foreign investor is allowed to invest in all areas of investment except those reserved for government, Ethiopian nationals and other domestic investors.


Areas of Investment Reserved for Domestic Investors

The following areas are exclusively reserved for domestic investors:

  • retail trade and brokerage;

  • wholesale trade (excluding supply of petroleum and its by-products as well as wholesale by foreign investors of their products locally produced);

  • import trade (excluding LPG, bitumen and up on the approval of the Council of Ministers; materials used as inputs for export products);

  • export trade of raw coffee, chat, oil seeds, pulses, hides and skins bought from the market and live sheep, goats and cattle not raised or fattened by the investor;

  • construction companies excluding those designated as grade 1;

  • tanning of hides and skins up to crust level;

  • hotels other than those star-designated, motels, pensions, tea rooms, coffee shops, bars, night clubs and restaurants excluding international and specialized restaurants;

  • travel agency, trade auxiliary and ticket selling services;

  • car-hire and taxi-cabs transport services;

  • commercial road transport and inland water transport services;

  • bakery products and pastries for the domestic market;

  • grinding mills;

  • barber shops, beauty saloons, and provision of smith workshops and tailoring services except garment factories;

  • building maintenance and repair and maintenance of vehicles;

  • saw milling and timber making products;

  • customs clearance services;

  • museums, theaters and cinema hall operations;

  • printing industries.

Notwithstanding the provision of paragraph 1 of this schedule, the following areas of investment are exclusively reserved for Ethiopian nationals:

  • banking, insurance and micro credit and saving services;

  • travel and shipping agency services;

  • broadcasting services; and

  • air transport services using aircraft with a seating capacity of up to 20 passengers.

 Major Investment Incentives 
To encourage private investment and promote the inflow of foreign capital and technology into Ethiopia, the following incentives are granted to both domestic and foreign investors engaged in areas eligible for investment incentives:

Customs Import Duty
One hundred per cent exemption from the payment of import customs duties and other taxes levied on imports is granted to an investor to import all investment capital goods, such as plant machinery and equipment, construction materials., as well as spare parts worth up to 15% of the value of the imported investment capital goods, provided that the goods are not produced locally in comparable quantity, quality and price.

Investment capital goods imported without the payment of import customs duties and other taxes levied on imports may be transferred to another investor enjoying similar privileges.

Some investment areas such as hotels (other than star designated), whole sale, retail and import trade, maintenance service, etc. are not eligible for exemption from customs duty. (Please see schedule two)

Exemptions from customs duties or other taxes levied on imports are granted for raw materials necessary for the production of export goods. In accordance with the Proclamation No. 249/2001, three duty incentive schemes are available for exporters. They are Duty Draw-Back Scheme, Voucher Scheme and Bonded Manufacturing Warehouse Scheme. Taxes and duties paid on raw materials are drawn back at the time of export of finished products. The duty draw back scheme applies to all taxes at the time of importation, and those paid on local purchases.

Exemption from Payment of Export Customs Duties
Ethiopian products and services destined for export are exempted from the payment of any export tax and other taxes levied on exports.

Income Tax Holiday
Any income derived from an approved new manufacturing and agro-industry investment or investment made in agriculture shall be exempted from the payment of income tax for the periods depicted in the following table, depending upon the area of investment, the volume of export, and the location in which the investment is undertaken.

Profit tax holiday is granted subject to Council of Ministers Regulation No.84/2003 issued on the basis of the Investment Proclamation No. 280/2002 as follows:


Areas and Periods of Tax Exemption

Conditions for Profit Tax Eligibility

Profit tax exemption

Profit Tax exemption for investments made in underdeveloped regions

An investor engaged
in a new manufacturing or agro-industry activity:

If he exports at least 50% of its products

5 years

6 years

If he supplies at least 75% of its products, to an investor, as an input for the production of export items



If it exports less than 50% of its products



If the project is evaluated under a special circumstance by the BOI

up to 7

up to 8

If the production is for the local market



If the production mentioned above in (c) is considered by the BOI to be a special one



Expansion or upgrading of the above projects:

If the expansion or upgrading increases the existing production by 25% , in value and 50% of the production is to be exported



Board of Investment
Moreover, the Council of Ministers may also award profit tax holiday for greater than seven years. However, the Board may issue a directive to deny income tax exemption right granted to investors producing only for local market, as may be necessary. The period of exemption from profit tax begins from the date of the commencement of production or provision of services, as the case may be.

Loss Carried Forward
Business enterprises that suffer losses during the tax holiday period can carry forward such losses for half of the income tax exemption period following the expiry of the exemption period.

Guarantees to Investors  top
Ethiopia provides the following guarantees to foreign investors:

Repatriation of Capital and Profits
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.

Guarantee Against Expropriation
The constitution of the Federal Democratic Republic of Ethiopia protects private property. The Investment Proclamation also provides investment guarantee against measures of expropriation and nationalization that may only occur for public interest and in compliance with the requirement of the law. Where such expropriations are made, the Government guarantees to provide adequate compensation corresponding to the prevailing market value of property and such payment shall be effected promptly.

Other Guarantees
Ethiopia is a member of the World Bank-affiliated Multilateral Investment Guarantee Agency (MIGA) which issues guarantees against non-commercial risks to enterprises that invest in signatory countries. Ethiopia is currently concluding bilateral investment promotion and protection agreements with a number of developed and developing countries, and it is ready to conclude such treaties with any country at any time. Ethiopia has also signed the World Bank treaty, “the International Convention on Settlement of Investment Disputes between States and Nationals of other States (ICSID)”.

Taxation  top
The principal taxes currently in place are profit tax, turn over tax (TOT), value-added tax (VAT), excise tax, customs duty and income tax from employment. VAT has replaced sales tax. TOT and withholding taxes have been introduced recently. Other taxes include corporate tax, dividend income tax, royalties and stamp duties.

The Government has recently been introducing a series of measures to reform the tax system with a view to encouraging investment and foreign trade. On the whole, the reform process is to reduce the rates but broaden the base.

Corporate Income Tax
The corporate income tax (tax on profit) in Ethiopia is 30 per cent.

Turn Over Tax (TOT)
A 2 per cent tax is payable from supplying of goods to the local market and rendering of construction, grain mill, tractor, combine harvesting services undertaken in the country. A 10 per cent tax is payable on other sectors excluding the above mentioned services.

Excise Tax
Excise tax is levied on selected items when produced locally or imported from abroad. The tax rate ranges from ten per cent to hundred per cent.

Customs Duties
Customs duties are payable on imports by all persons and entities which have no duty-free privileges. The main regulation on customs duty has introduced a harmonized system of classification of goods and the rate of customs duty ranges from 0 to 35 per cent.

Income Tax from Employment
Personal income tax is payable as per Proclamation No.286/2002. According to this law, the first Birr 150 of monthly personal income is exempted from payment of income tax. For monthly income of Birr 151 and above the marginal tax rates range from 10 per cent to 35 per cent with 7 income brackets as shown below.


Income tax from employment

Monthly income (Birr)

Tax rate(%)

Up to 150












Above 5000


Export Taxes
There are no taxes on export products and services from Ethiopia.

Withholding Tax
Withholding tax is payable on import of goods and is set at 3 per cent of the same cost, insurance and freight. In case of organizations, having legal personality, government agencies, private non-profit institutions, and non-governmental organizations (NGOs), the amount withheld is 2 per cent of the gross amount of payment.

Value Added Tax
Value added tax is levied on those businesses whose turnover is over and above Birr 500,000 per year. They are expected to pay 15 per cent VAT. All export goods and basic services, however, are exempted from VAT.


Principal Taxes

Tax Rate

Corporate Income Tax


Turn Over Tax (TOT)

2% and 10%

Excise Tax

10% up to 100%

Customs Duties

0% up to 35%

Income Tax from Employment

0% up to 35%

Export Taxes


With holding Taxes


Value Added Tax


Tax Treaties
Ethiopia has concluded tax treaties with a number of countries and is also ready to conclude similar treaties with other countries for the purpose of avoidance of double taxation.

For more details refer to the web site of the
Ethiopian Investment Commission:

Investment Opportunities   I   Investment Procedures