Ethiopia’s Council of Ministers recently introduced amendments to the Investment Incentive Regulation (No. 517/2022), on January 14, 2025 These changes aim to enhance employment opportunities, streamline tax exemptions for investment-related assets, and attract investments in the mining sector. The changes will take effect upon their official publication in the Negarit Gazette. For foreign and local investors, these amendments present both opportunities and obligations that require careful navigation.
Below, we break down the key developments and their implications.
1. Employment-Related Tax Incentives: Encouraging Job Creation
One of the most notable amendments is on the income tax exemptions for investors who provides employment opportunities outside of Ethiopia to Ethiopians who have obtained qualification certificate from an institution recognized for providing training to persons who are to be placed in a foreign country. Under the revised regulation, the required number of jobs an investor must create to qualify for tax exemption has been increased. Accordingly;
- Investors who provide employment for 2000–3000 Ethiopians are entitled to a 1-year income tax exemption.
- Employment of 3001–5000 Ethiopians grants a 2-year exemption.
- Employment for over 5000 Ethiopians qualifies for a 3-year exemption.
To benefit from these incentives, investors must provide evidence from the Ministry of Labor and Skills, confirming that the employment opportunities have been secured for at least one year. Additionally, the investor must renew their business license.
2. Exemptions for Motor Vehicles Used in Investment Activities
The amendments also clarify the tax exemption for motor vehicles used in investment activities, as specified in Article 13. It establishes that exemptions will now be determined by a directive issued by the Ministry, specifying the types and nature of investment projects eligible for such benefits. Importantly, pickup and station wagon vehicles are explicitly excluded from customs duty exemptions. However, an exception is provided for companies operating in remote areas and engaged in the mining, petroleum, agriculture, tourism, or construction sectors. These companies may import pickup and station wagon vehicles duty-free, subject to approval by the Ethiopian Investment Board. This clause introduces a more regulated and sector-specific approach, balancing investment incentives with stricter controls over vehicle importation exemptions.
3. New Provisions for Mining Investments
A new Sub-Article 4 is added to Article 16, granting the Ethiopian Investment Board the authority to provide additional incentives to companies engaged in strategic mining and petroleum operations. This allows for more tailored incentives for projects considered crucial to the country’s development. Second, a new Sub-Article 3 is added to Article 27, ensuring that exemptions from customs duties and taxes granted under mining and petroleum agreements signed before the enactment of these regulations, with the approval of the Council of Ministers, will remain valid. This provision preserves the validity of prior agreements, offering legal continuity and protecting investments made under earlier frameworks. These changes both strengthen incentives for strategic sectors and ensure stability for existing agreements.
The amendments to Ethiopia’s Investment Incentive Regulation reflect a proactive approach to attracting investment while addressing key economic priorities such as job creation and resource development.
For further information and updates please contact Dawit Kidane Tefera dawit@dablolawfirm.com or visit https://dablolawfirm.com. DABLO Law Firm is the LEX Africa member in Ethiopia.
