Ethiopia: New VAT rules for nonresident digital services providers

Proclamation No. 1341/2024, implementing value added tax (VAT) on the cross-border provision of digital services, was approved in July 2024 by the House of Peoples’ Representatives of Ethiopia. The Council of Ministers is anticipated to release implementing regulations soon.

The draft regulation outlines key details, including the definition of remote electronic services and their providers, registration requirements, necessary documentation, the types of invoices that must be issued, and the tax filing and payment responsibilities of service providers. Additionally, the draft mentions that an implementing directive will be introduced to clarify the tax payment process and the acceptable currencies for settling tax obligations.

Scope

The regime imposes VAT (currently at 15%) on the provision of “remote services,” which are defined as services that are provided by a seller from a place of business outside Ethiopia to a recipient in Ethiopia. Moreover, nonresident providers may also be liable for VAT on the provision of the following services:

• Services physically performed in Ethiopia
• Immovable property services,
• Inbound tourism products (e.g., accommodation, meals, transportation, tours, or other tourist activities in Ethiopia)
• Agency or booking services relating to a supply of an inbound tourism product
• Telecommunications services that can only be used in Ethiopia

B2B v. B2C

The regime applies to covered services made to final consumers (“B2C sales”) located in Ethiopia.

Customer location

For remote services, a recipient of a supply of remote services would be treated as a resident of Ethiopia if at least two of the following apply:

• The recipient’s billing address is in Ethiopia
• The recipient’s bank account is in Ethiopia, including the account the recipient uses for payment or the billing address held by the bank
• The recipient’s fixed land line through which the service is supplied to the recipient is in Ethiopia
• The mobile country code of the International mobile subscriber identity stored on the subscriber identity module card used by the recipient is Ethiopia
• The Internet Protocol (IP) address of the device used by the recipient, or another geolocation method is in Ethiopia
• Any other commercially relevant information indicates that the recipient is resident in Ethiopia

Marketplace rules

The proclamation clarifies that an electronic distribution platform is liable for remote services it facilitates if it:

• Authorizes the charge for the supply to the recipient
• Makes or authorizes the delivery of the supply to the recipient
• Directly or indirectly sets a term or condition under which the supply is made

Registration

The proclamation states that taxpayers must register for VAT if they perform taxable sales above 2,000,000 Birr (approximately US$17,500) in any period of 12 calendar months. Future regulations and directives will provide details on the registration process.

VAT invoicing

The proclamation states that taxpayers are required to issue VAT-compliant invoices. However, the invoicing requirements will be set in future regulations.

Penalties

Penalty provisions in the general VAT law will apply. 

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com

Chinedu Nwachukwu | chinedunwachukwu@kpmg.com

Stephen Nganga | swnganga@kpmg.co.ke

Kenneth Wanjohi | kwanjohi@kpmg.co.ke

Daniel Hailegiorgis | danielhailegiorgis@kpmg.co.ke