Ethiopia: Further guidance on application of new VAT rules for nonresident digital services providers

The Ethiopian Council of Ministers in March 2025 issued Value Added Tax (VAT) Regulation No. 570-2025 (the “Regulation”) providing further guidance on the application of the new VAT rules for nonresident digital services providers, which were approved in July 2024. Read more in TaxNewsFlash.

There are still significant aspects of the regime that remain unclear, including the effective date of the obligations and the application of the platform rules and obligations.

An updated summary of the current regime is as follows:

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

The Regulation applies to a foreign supplier, defined as those supplying electronically ordered goods, remote services, or operating electronic distribution platforms. Taxable electronic services include: a) electronic games and betting; b) internet-based bidding; c) electronic books and digital content; d) mobile apps, e-books, movies; e) subscription media services (news, magazines, TV, music, podcasts, blogs, journals, periodicals, social networking, websites, web apps); f) software, drivers, websites, firewalls; g) electronic information management (hosting, data storage, file sharing, cloud services); h) music provision (audio clips, broadcasts, live streams, ringtones, songs); i) search engine and automated help desk services; j) online ticket sales for events, theaters, restaurants; k) digital content for audio-visual or digital media; l) other electronic taxable supplies as determined by the Ministry of Finance.

Business-to-business (B2B) v. Business-to-consumer (B2C)

The regime applies to covered services made to final 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.

The Regulation provides that foreign suppliers must register online using a form approved by the Tax Authority, providing details such as their name, contact information, compliance officer's details, website URL, national tax ID, and certificate of incorporation. The tax authority may request additional documents to verify the information. Once registered, the supplier receives a tax identification number (TIN) and VAT registration number for filing returns and paying VAT.

VAT invoicing

The Regulation provided that a registered foreign supplier shall not issue a tax invoice for taxable supplies made but shall issue an electronic invoice or receipt specifying the following: a) the individual serial number of the invoice or receipt; b) the name, address, TIN, and VAT registration number of the foreign supplier; c) the name and address of the recipient of the supply; d) the date of the supply; e) a description of the goods or remote services supplied; and f) the consideration for the supply and the VAT charged.

Compliance requirements

The Regulation provides that a nonresident and unregistered person who supplies telecommunications services or goods and services electronically to individuals in Ethiopia, unless through a VAT-registered agent, must register for VAT.

Registered foreign suppliers must file VAT returns electronically for each accounting period by the end of the following month. However, they can apply to file quarterly returns.

If granted, their accounting period becomes quarterly. Failure to file or pay on time may result in the withdrawal of quarterly filing permission.

VAT payments must be made electronically by the return due date and can be reported and paid in United States dollars, Euros, British Pounds, or other foreign currency as approved by the Ministry of Revenue.

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