In May 2025, the Ministry of Finance of the Federal Democratic Republic of Ethiopia issued Directive No. 1064/2025 to implement the Investment Incentives Regulation No. 517/2022. This directive establishes a comprehensive framework for administering income tax holidays and customs duty exemptions.
The directive outlines the duration of tax holidays depending on the sector and location, Special Economic Zones (SEZs) developers outside Addis Ababa eligible for up to 15 years of exemption.
The directive also outlines grounds for revocation of tax holidays, including submission of false information, project termination, or failure to meet reporting obligations. In such cases, investors are required to repay the previously exempted taxes along with applicable interest and penalties. Additionally, investors who incur losses during the tax holiday period may offset those losses against profits earned in the first half of the post-holiday period.
Customs duty exemptions are granted for the importation of capital goods, construction materials, and spare parts, subject to phased importation and verification by government authorities. However, investors are required to procure such goods locally if they are available in sufficient quantity, quality, and at a reasonable price. Duties paid on inputs used to manufacture domestically sourced goods may be refunded.
The directive includes sector-specific provisions. Entities operating in SEZs—including developers, sub-developers, administrators, and enterprises—are entitled to extended tax holidays. Conversely, certain sectors are excluded from tax incentives, such as crypto mining, telecommunication services, and specific manufacturing and agricultural activities. Special provisions also apply to leasing companies and tourism-related investments, with detailed documentation requirements.
To ensure transparency and accountability, the directive mandates the Tax Authority to maintain and submit quarterly reports on tax holidays and the corresponding revenue foregone. Detailed lists of required documents for both tax and customs incentives are provided in Annexes 3 and 4 of the directive.
Transitional provisions allow investors who received incentives under repealed laws, such as Regulation No. 270/2005, to continue benefiting under certain conditions. All prior directives and decisions inconsistent with Directive No. 1064/2025 are repealed.
