The Withholding Tax (WHT) system in Ethiopia is governed primarily under (Income Tax Proclamation) and its amendments. It serves as a mechanism for collecting income tax at the source of payment rather than from the recipient. The system applies to payments made by resident persons (including government bodies, businesses, and organizations) to suppliers, contractors, professionals, and service providers. Withholding agents are legally obligated to deduct a prescribed percentage from specified payments and remit the amount to the tax authority.
This is perhaps the most common form of withholding tax, often referred to as Pay As You Earn (PAYE). Every employer in Ethiopia acts as a withholding agent for the government. They are legally required to deduct tax from the monthly salaries of their employees based on the progressive tax brackets and remit it to the tax authority. withholding tax proclamation in ethiopia pdf
The 2023 amendment was significant because it adjusted the long-standing 2% withholding tax rate that had been in place for decades. For years, businesses operated under the rule that goods supplied by registered persons were subject to a 2% deduction. The amendment signaled the government's intent to harmonize tax rates with international standards and address inflationary pressures. The Withholding Tax (WHT) system in Ethiopia is
Reading the "withholding tax proclamation in Ethiopia pdf" is not enough; you must understand how courts interpret it. Withholding agents are legally obligated to deduct a
The amendment revised the employment income tax brackets, increasing the zero-tax threshold: Ethiopia issues a new Income Tax Proclamation
If the WHT exceeds the final tax liability, the excess is refundable.
: A new 15% tax is imposed on profits repatriated by a non-resident entity. Employment Income Tax Brackets (Effective 2025/2026)