Ethiopia tax rates 2026

Employers apply the bands to each month's pay. Rental income and the business income of individuals use the same six bands on an annual basis.

An individual is resident in Ethiopia for tax if they have a domicile in the country or spend more than 183 days there within a one-year period, counting one continuous stay or several visits added together. Ethiopian citizens posted abroad in consular or diplomatic service stay resident. The arrival and departure years are split: a newcomer is resident from the day they first start living in Ethiopia, and someone who leaves for good stops being resident after their last day in the country.

Pay for work done in Ethiopia is Ethiopian income wherever it is paid, so a salary from a foreign payroll or into a foreign account stays inside the charge. Pay from the federal government counts as Ethiopian income even when the work is done abroad. Income is taxed in schedules, each with its own rates: employment, rental, business, and a group that covers dividends, interest, royalties, winnings and capital gains.

The tax year for individuals runs from Hamle 1 to Sene 30 in the Ethiopian calendar, which is 8 July to 7 July. An employee with one employer files nothing: the employer withholds the tax from every month's pay, and the withholding receipt counts as the assessment. A return becomes due only for someone paid by two or more employers in the same month or obliged to withhold tax on their own income.

Business taxpayers are split by size. Category A covers every company and any individual with annual turnover of ETB 2,000,000 or more, and files within four months after the year ends, with a profit and loss statement and a balance sheet. Category B covers individuals below that threshold and files within two months. Tax is paid when the return is filed. Dividends, interest, winnings and gains not already settled by withholding are declared within two months of the transaction.

Non-residents pay tax only on Ethiopian-source income, and most of it is withheld from the gross payment: 15% on dividends, insurance premiums and management or technical fees, and 10% on interest and royalties. Foreign entertainers pay 15% of their gross fees from performances in Ethiopia, with no deduction for travel or other costs.

Foreign firms reach a taxable presence quickly. Technical, managerial or consultancy services delivered in Ethiopia create a permanent establishment once they run for more than 91 days in a tax year or in any one-year period, and the same 91-day test applies to building sites and construction projects. Income a non-resident earns from digital services provided in Ethiopia is Ethiopian-source income, and a separate digital service tax, capped by law at 5%, falls on it.

Residents pay 15% on dividends and 10% on interest, both charged on the gross amount. Royalties carry 10%, or 5% for royalties from art and culture. Interest a bank earns on its deposits with another bank, and interest a seller charges on goods or services sold on credit, is taxed as business income instead.

Capital gains tax of 15% applies to shares, bonds and buildings, and the calculation allows a 30% inflation adjustment. A building held and used wholly as the owner's private home for the two years before the sale is exempt. Assets outside those three classes fall outside the tax.

Rental income tax covers rent from houses, buildings and warehouse space; buildings that an industrial park developer leases out are excluded. Landlords and Category A sole traders work out the tax on the annual version of the salary scale in the table above.

Category B traders pay tax on gross sales instead of profit: 2% up to ETB 100,000 a year, 3% up to ETB 500,000, 5% up to ETB 1,000,000, 7% up to ETB 1,500,000 and 9% from there to the Category A threshold. Income from digital content creation, such as advertising, sponsorships and affiliate marketing on video and social platforms, counts as business income when it is earned regularly for profit and backed by accounts.

The Income Tax (Amendment) Proclamation No. 1395/2025 rewrote the salary scale for income earned from 8 July 2025. The tax-free band rose to ETB 2,000 a month from ETB 600, the number of bands fell from seven to six, and the 35% top rate now starts above ETB 14,000 a month instead of ETB 10,900. Every employee earning more than ETB 600 a month pays less: the saving rises with pay up to ETB 14,000 and stays at ETB 550 a month above it.

Investment income moved the other way from 7 August 2025. Dividend tax for residents rose from 10% and royalty tax from 5%, savings deposit interest lost its 5% rate, and gains on shares and bonds dropped from 30% to the rate buildings already paid. Category C and the separate turnover tax were abolished, which put every small trader on the gross-sales scale.