Ethiopia: Tax amendments passed by House of Peoples’ Representatives
Introduces a new digital services tax
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September 19, 2025
The Ethiopian House of Peoples’ Representatives on July 17, 2025, passed the Income Tax (Amendment) Proclamation No. 1395/2025, introducing changes to modernize Ethiopia's tax system, simplify administrative procedures, improve compliance and revenue collection, and expand the tax base to cover emerging and digital business sectors.
The amendments will:
- Reduce the minimum presence threshold for establishing a permanent establishment (PE)
- Introduce an alternative minimum tax (AMT) when the total assessable business income results in a tax liability of less than 2.5% of turnover
- Require advance tax payments, declared on a quarterly basis
- Introduce taxation on indirect transfers of Ethiopian assets conducted through offshore entities
- Introduces a stricter framework for the application of income tax incentives for investors
- Provide for the issuance of a new directive, to outline the amount and type of support available to shareholders who utilize their dividends to pay for subscribed but unpaid capital
- Include digital income within the scope of Ethiopian taxation and introduce a new digital services tax (DST)
- Revise withholding tax rates
- Address the deductibility of interest on loans and expenses paid in cash
- Expand the deductibility of charitable donations
- Redefine taxpayer categories
- Increase the monthly income tax exemption threshold
- Introduce a new reporting obligation for government entities
The implementation of the Income Tax (Amendment) Proclamation No. 1395/2025 occurred in phases:
- AMT: Effective from July 8, 2025, and applicable to income tax payable for the preceding fiscal year
- Schedule D and withholding tax on domestic transactions: Effective from August 7, 2025
- All other amendments: Effective from July 8, 2025
Read a 2025 report prepared by the KPMG member firm in East Africa