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August 22, 2022

Ethiopia issues new investment incentives regulation

  • A new Investment Incentive Regulation Number 517/2022 was approved by Ethiopia’s Council of Ministers on 21 May 2022 and published on the Negarit Gazette on 12 July 2022.

  • The new investment incentives regulation aims to expand the coverage of investment incentives and hence boost investment in Ethiopia.

  • Existing and prospective investors should assess how the Regulation impact their existing operations as well as future investment plans in Ethiopia.

Executive summary

Ethiopia recently issued a new investment incentives regulation which was gazetted in the Federal Negarit Gazette on 12 July 2022. The Regulation was issued by the Council of Ministers pursuant to Article 17 of the Investment Proclamation No. 1180/2020 and Article 129(6) of the Customs Proclamation No. 859/ 2014 (as amended).

The Regulation applies to Income Tax and Duty incentives that are granted to encourage investment in eligible sectors.

Generally, an investor who invests to establish a new business is entitled to an income tax holiday for a specified period of time. Investors who invest in areas that are outside of Addis Ababa or other major towns that have low infrastructure development are entitled to an income tax deduction of 30% for three consecutive years after the expiry of the tax holiday.

Detailed discussion


The Ethiopian Government’s Investment Policy categorizes activities into:

  • Those that are reserved for Ethiopian nationals

  • Those that are open to foreign persons

  • Some that are open to foreign persons that must be undertaken in partnership with the Government or Ethiopian nationals

The Regulation has expanded the range of sectors that are entitled to tax incentives as well as introduced focused incentives for certain sectors that it seeks to grow or encourage investment in rural areas.

Some of the key sectors that the Regulation has focused on are ICT, hospitality, health, agriculture, transport and logistics. This Alert summarizes key highlights of the Regulation.

Business location incentive

An investor who invests in an area far from the main towns or areas with poor infrastructure will be entitled to an additional 30% income tax deduction for three consecutive years after the expiry of the tax holiday.

Additionally, new investments will enjoy a five-year income tax exemption if they invest in hotels and hotel equivalents in select tourist destinations. 

Labor mobility

Employers that provide employment opportunities for qualified and certified Ethiopians to work abroad will be entitled to an income tax holiday ranging from one to three years.

Expansionary incentives 

Investors who are expanding or upgrading existing investment will be entitled to an income tax exemption for the additional income resulting from the expansion.

Export of goods and services

Investors who invest outside industrial parks and who export or provide supplies to an exporter of at least 60% of their products or services will be entitled to a one-time income tax exemption for two years in addition to the normal tax holiday. This also applies to investors who invest within industrial parks and who export or provide supplies to an exporter of at least 80% of their products or services.

Customs duty exemptions

The Regulation exempts capital goods and construction materials from customs duty. An investor can import capital goods or construction material for new investments or use it to upgrade existing investments duty-free.

Investors are also entitled to a refund of the import duty paid for raw materials or components used as input for the production of goods if they purchase the goods from local manufacturing industries. 

The Regulation also provide rules on the transferability of duty-free goods or products and related penalties for non-compliance.

Other compliance matters

The Regulation also addresses other pertinent matters related to the tax incentives such as the maintenance of the appropriate records, reporting requirements, administrative roles of the various Government agencies and the investors, among other subject matters.

Next Steps

It is expected that the Ministry of Finance will, where necessary, provide directives on the application of the tax incentives.

Existing and prospective investors should assess how the Regulation may impact their existing operations as well as future investment plans in Ethiopia.

They should also ensure that they comply with the various administrative processes to remain compliant and mitigate possibilities of penalties or withdrawal of the tax incentives.


For additional information with respect to this Alert, please contact the following:

Ernst & Young (Kenya), Nairobi

Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Ernst & Young LLP (United States), Pan African Tax Desk, New York


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