At MALO Law Firm, we understand that understanding the legal landscape of investment incentives can be complex. In this blog post, we break down the key tax and customs privileges available to manufacturing investors under Ethiopian law based on the latest proclamations, regulations, and directives.
Customs Duty & Import Tax Privileges
Under Investment Incentive Regulation No. 517/2022, eligible investors holding a valid investment license (but before obtaining a business license) are entitled to import capital goods such as equipment and machinery used in production free of customs duty and import taxes.
What About Construction Materials?
Yes, construction materials are also eligible for duty-free import, subject to conditions outlined in Ministry of Finance Directive No. 1064/2025. However, imports must be phased:
30% at the start of construction
Another 30% upon certification that the first batch was used as intended
The final 40% once 60% of previously imported materials are confirmed used
Investors wishing to import all materials at once must provide a bank or cash guarantee to the Customs Commission.
Key Notes:
Capital Goods import must occur before obtaining a business license.
Application for duty-free import must be submitted via the single-window system to the Investment Commission for approval.
Capital goods are exempt from all taxes except welfare tax.
Spare parts up to 15% of the total value of capital goods may be imported duty-free within five years of incentive eligibility.
Corporate Profit Tax Incentives
Eligible investors in manufacturing and priority sectors may benefit from tax holidays (profit tax exemptions) as per Investment Proclamation No. 1180/2020 and Regulation No. 517/2022.
For example, manufacturers of computers, accessories, electronic components, and boards enjoy a three-year income tax exemption.
Additionally, losses incurred during the tax exemption period may be carried forward for half of the exemption period, providing further financial flexibility.
The tax holiday period begins from the date the business license is issued or from the start of an expansion period.
Licensing Advantages
From an incentive standpoint, it’s crucial to import capital goods before obtaining a business license. However, once imported, securing a business license is highly recommended. It provides:
- Stronger legal certainty
- Easier dealings with customs and authorities
- Continued access to duty-free imports of spare parts and eligible materials
- Smoother compliance and enforcement of incentive rights during operations
VAT & Withholding Tax
While VAT (15%) and withholding taxes generally apply, the incentive framework primarily focuses on customs and income tax relief. A tax holiday does not exempt a company from VAT, but VAT paid can often be recovered through VAT credits.
Ready to Invest in Ethiopia?
Understanding these privileges can significantly impact your project’s feasibility and profitability. At MALO Law Firm, we provide tailored legal guidance to help investors like you maximize benefits and ensure compliance.