Ethiopia
Individual - Income determination
Last reviewed - 19 December 2022
Employment income
Employment income derived by an employee shall be deemed to be Ethiopian-source income:
to the extent that it is derived in respect of employment exercised in Ethiopia wherever
paid, or
it is paid to the employee by or on behalf of the Government of the Federal Republic of
Ethiopia, wherever employment is exercised.
According to the Ethiopian Income Tax Proclamation, employment income includes:
Salary, wages, an allowance, bonus, commission, gratuity, or other remuneration received
by an employee in respect of a past, current, or future employment.
The value of fringe benefit received by an employee in respect of a past, current, or future
employment. Please note that the aggregate tax liability on fringe benefits shall not
exceed 10% of the salary income of the employee.
An amount received by an employee on termination of employment, whether paid
voluntarily, under an agreement, or as a result of legal proceedings, including any
compensation for redundancy or loss of employment or a golden handshake payment.
In addition, where the employer is responsible for remitting the tax on behalf of their employees,
the amount of tax paid by the employer shall be included as a taxable benefit.
Equity compensation
The Federal Income Tax Proclamation (FITP) provides that allotment of shares to an employee
under an employee share scheme, including shares allotted as a result of the exercise of an option
or right to acquire the shares, is an employee share scheme fringe benefit.
The value of an employee share scheme fringe benefit shall be the fair market value of the shares
at the date of allotment, reduced by the employee’s contribution for the shares.
Where shares allotted to an employee under an employee share scheme are subject to a
restriction on the transfer of the shares, the employee is treated as having derived the employee
share scheme benefit at the earlier of:
the time the employee can freely transfer the shares, or
the time the employee disposes of the shares.
Capital gains
See the Other taxes section in the Corporate tax summary for CGT rates and additional
information.
Dividend income
Dividends declared by Ethiopian resident companies are subject to a 10% dividend withholding
tax (WHT) for individual shareholders, which is the final tax.
Interest income
Interest income is subject to WHT at a rate of 15%, which is the final tax.
Rental income
Rental income is taxed under FITP No. 979/2016. Taxable value is calculated by taking the gross
residential rental income less allowable deductions.
Exempt income
The following items are exempt from income tax:
Amounts paid by employers to cover the actual cost of medical treatment of their
employees.
Allowance in lieu of means of transportation granted to employees under an employment
contract.
Hardship allowance.
Amounts paid to employees in reimbursement of bona fide travel expenses incurred on
business duty.
Travelling expenses paid to an employee recruited from a place other than the place of
employment on joining or completion of employment, including, in the case of a foreign
employee, travel expenses from and to their country of origin, but only if the travel
expenses have been paid pursuant to specific provisions of the employee’s contract of
employment.
Food and beverages provided to employees by an employer conducting a mining,
manufacturing, or agricultural business.
An amount exempted from tax to the extent it is provided for under an international
agreement.
An amount as compensation for personal injury or the death of another person.
Scholarship or bursary for attendance at an educational institution.
Maintenance or child support payments.
Cash indemnity allowance paid by an employer to an employee, but only to the extent
that the allowance compensates the employee for shortfalls.
