Tax Residency in Ethiopia
1. Criteria for Determining Tax Residency in Ethiopia
According to Article 3 of the Income Tax Proclamation (ITP), an individual is considered a resident taxpayer in Ethiopia if they meet any of the following criteria:
- Physical presence in Ethiopia for more than 183 days in a calendar year.
- Domicile in Ethiopia, as determined by the ITP.
- Carrying out business or professional activities in Ethiopia.
- Having a permanent home in Ethiopia.
For companies, tax residency is determined based on their place of incorporation or management and control. A company is considered a resident taxpayer if it is incorporated in Ethiopia or if its management and control is exercised in Ethiopia.
2. Impact of International Tax Treaties on Tax Residency
Ethiopia has entered into several double taxation agreements (DTAs) with other countries. These DTAs may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
The DTAs typically include a "tie-breaker" clause to determine tax residency in cases where an individual or entity is considered a resident of both Ethiopia and the other treaty country. The tie-breaker clause usually considers factors such as permanent home, center of vital interests, and habitual abode.
For example, the DTA between Ethiopia and the United Kingdom provides that an individual is considered a resident of Ethiopia if they have a permanent home in Ethiopia or if their center of vital interests is in Ethiopia.
The DTAs also provide for the exchange of information between tax authorities to prevent tax evasion and ensure compliance.
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