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Ethiopia

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Ethiopia Introduces New Rules for the Taxation of Capital Gains

According to recent reports, Ethiopia's Ministry of Finance issued Directive No. 8/2019 on 30 June 2019, which provides new rules for the taxation of capital gains on the disposal of certain assets. Some of the key points of the Directive include the following:

  • A 15% tax rate applies for gains from the disposal of immovable property and a 30% rate applies for gains from the disposal of shares and bonds (in line with current rates);
  • For property held entirely for the purpose of deriving rental income or for use as a business asset, the consideration received from the disposal of the asset that exceeds the net book value of the asset will be included in the rental or business income of the taxpayer, while the consideration exceeding the cost of the asset will be subject to capital gains tax;
  • If a company sells its share for an amount exceeding par value, the gain will be included in business income;
  • For immovable property, the cost basis will be adjusted for based on an annual inflation rate set by the Ministry of Finance;
  • Taxpayers required to keep books of account must submit documentation/information to the tax authority evidencing the acquisition date and cost, depreciation deductions, and consideration received from disposal; and
  • If documentation evidencing the consideration is deemed insufficient, the tax authority may use the fair market value of the asset for computing the taxable gain.

The Directive is effective from 30 August 2019.

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