The Federal Government of Ethiopia recently introduced new Value Added Tax (VAT) Proclamation No. 1341/2024 (Proclamation), seeking to enhance the legal framework that imposes VAT on the consumption of goods and services.

Repealing VAT Proclamation No. 285/2002, the Proclamation seeks to encourage savings and investment and takes into consideration changes that have been made in economic activities, particularly electronic transactions.

New definitions introduced in the Proclamation include:

1. "Electronic distribution platform" means a website, internet portal, gateway, store, marketplace, distribution platform or other similar platform that is operated electronically and through which a supplier provides remote services or electronically ordered goods to a third person (the recipient) through the operator of the distribution platform.
2. "Electronically ordered goods" means goods ordered by way of an electronic communication.
3. "Inbound tourism product" means accommodation, meals, transportation, tours or other tourist activities in Ethiopia.
4. "Prepaid telecommunications product" means a phone card, prepaid card, recharge card, or any other form of prepayment for telecommunication services, including in electronic format.
5. "Remote services" means services provided by a supplier from a place of business outside Ethiopia to a recipient in Ethiopia.

Other salient matters addressed by the Proclamation include the following.

Obligations of a registered person

Registered persons who carry on taxable activities at more than one place of business are required to apply to the Tax Authority for an official copy of the registered person's VAT registration certificate for each place of business.

Registered persons must also specify their VAT registration details on any website, social media account and any other electronic platform through which the person carries on their taxable activity.

VAT registration threshold

The VAT registration threshold has been set at 2,000,000 Ethiopian Birr (ETB2m). Notably, the tax authority may, in determining whether a person exceeds the registration threshold, take into consideration the value of taxable supplies made by a related person.

Notifications

A registered person must notify the revenue authority within 30 days of a change in place of business, address, phone, other contact information, opening and closing of branches, internet address, social media account or other electronic platform used for business purposes.

They must also notify the revenue authority within seven days of ceasing to make taxable supplies.

A taxable person who temporarily ceases to make taxable supplies may apply to the tax authority for a suspension of the person's registration for a maximum period of 12 calendar months.

Electronically ordered goods

A supply of electronically ordered goods by a person carrying on a taxable activity outside Ethiopia, and who does not have a fixed place of business in Ethiopia, is deemed to occur in Ethiopia if:

1. The supplier handles, facilitates, or arranges the delivery or purchase of goods in Ethiopia
2. The supply is made through an electronic distribution platform
3. The operator of the platform procures, arranges or facilitates the delivery of the goods in Ethiopia
4. The goods are not excisable

Where all the above conditions are met, the operator of the electronic distribution platform is treated as having made the supply of goods for VAT purposes.

Remote/digital services

The Proclamation introduces VAT on remote/digital services provided by nonresident persons through an electronic distribution platform.

The supply of remote services through an electronic distribution platform by a person who does not have a fixed place of business in Ethiopia triggers VAT registration in Ethiopia, subject to certain conditions.

Deferral of VAT payment

A taxpayer can apply to the Commission for deferral of VAT payment requirement on imported capital goods.