The Federal Government of Ethiopia approved a new VAT Proclamation (VAT Proclamation No. 1341/2024), which repealed VAT Proclamation No. 285/2002. The new VAT proclamation introduces marketplace rules, VAT on remote services, and increases the VAT registration thresholds.

Timeline

The Federal Government of Ethiopia approved the new VAT Proclamation in July 2024. Implementing regulations and directives are expected to be further released.

Impact

15% of VAT will be chargeable on remote services

Ethiopia imposes 15% VAT on B2C remote services supplied by foreign suppliers. The VAT Proclamation defines remote services as services supplied by a supplier from a place of business outside Ethiopia to a recipient in Ethiopia.

The VAT Proclamation determines that the place of supply is in Ethiopia if

• the services are physically performed in Ethiopia by a person who is in Ethiopia at the time of the supply,
• the services relating to immovable property in Ethiopia,
• the services are remote services supplied to a resident of Ethiopia,
• the services are a supply of an inbound tourism product, or agency or booking services relating to a supply of an inbound tourism product,
• the services are telecommunications services that can be used only in Ethiopia or
• the services are telecommunication services where the mobile country code of the International mobile subscriber identity is stored on the subscriber identity module card used by the recipient in Ethiopia.

B2B remote services provided by nonresidents are subject to the reverse charge mechanism.

Determining the customer’s location

A recipient of a supply of remote services shall be considered a resident of Ethiopia if at least two non-contradictory pieces of evidence establish residency, such as

• the recipient’s billing address,
• the recipient’s bank account,
• the recipient’s fixed landline through which the service is supplied,
• the mobile country code on the SIM card or
• the recipient’s IP address.

Marketplace rules

Under the new VAT rules, operators of electronic distribution platforms without a fixed place of business in Ethiopia may be deemed the supplier of remote services when facilitating transactions for non-VAT registered residents. This applies if the operator authorizes charges, deliveries, or sets terms for the supply, effectively shifting VAT responsibilities to the platform. Registered suppliers, however, remain responsible for their own VAT obligations.

Under the new VAT proclamation an electronic distribution platform means a website, internet portal, gateway, store, marketplace, distribution platform or other similar platform that is operated electronically through which a supplier makes a supply of remote services or electronically ordered goods through the operator of the distribution platform to the recipient.

VAT registration threshold

The new VAT Proclamation increases the VAT registration threshold from ETB 1 million to ETB 2 million. This amount must be exceeded within 12 calendar months, and related parties’ taxable supplies shall be combined.

Implementing regulations

The Council of Ministers will issue Implementing Regulations and Directives for the proper implementation of the new VAT Proclamation.

Businesses providing remote/ digital services to consumers in Ethiopia must prepare their operations to comply with the new VAT regime in order to eliminate future penalties.