Complete Tax Guide for Americans Living in Ethiopia

Complete Tax Guide for Americans Living in Ethiopia

Living as an American Expat in Ethiopia

With more than 113 million inhabitants, Ethiopia has the highest population of any landlocked country in the world. According to various estimates, that population includes at least a thousand US expats. So, what expat taxes can you expect as an American living in Ethiopia? Read on to get the answers you need.

Ethiopian Taxes at a Glance

  • Tax Year: July 8–July 7
  • Tax Deadline: August 7 or September 7
  • Currency: Ethiopian Birr (ETB)
  • Population: 113.6 million
  • Number of US Expats: Estimated 1,000+
  • Capital City: Addis Ababa
  • Primary Languages: Oromo, Amharic, Somali, Tigrinya, and others
  • Tax Treaty: No
  • Totalization Agreement: No

What Are Expat Taxes like for Americans Living in Ethiopia?

As an American living in Ethiopia, you will probably have to pay taxes to the Ethiopian government. Unfortunately, this doesn’t cancel your US tax obligations. That’s because the US has a citizenship-based taxation system. All US citizens are required to report their worldwide income to the IRS regardless of where they live.

What will this mean for your tax planning? Let’s take a closer look at what taxes you can expect from both the Ethiopian government and the US.

Who Has to File Taxes in Ethiopia?

Unlike the US, Ethiopia has a residence-based taxation system. Residents are taxed on their worldwide income, while non-residents are only taxed on income that comes from Ethiopia.

In either case, if your only source of income is from employment in Ethiopia, your income tax will be withheld at the source, and you will not need to file a separate return. If you have other forms of taxable income, such as:

…then you will have to file a return to report this to the Ethiopian government.

Who Qualifies as a Tax Resident in Ethiopia?

Because Ethiopia taxes residents and non-residents differently, it’s important to understand how the Ethiopian government defines residency. You will be considered a resident of Ethiopia if either of the following is true:

  • You have established a permanent or habitual home in Ethiopia
  • You are present in Ethiopia for at least 183 days in any 12-month period (these days do not have to be consecutive)

If neither of these qualifications applies, then you will be considered a non-resident for tax purposes.

What Types of Taxation Does Ethiopia Have?

Income Tax

As mentioned above, residents of Ethiopia are taxed on worldwide income, and non-residents are taxed on only Ethiopian-source income. However, in both cases, the taxable income is taxed at the same progressive rates ranging from 0% to 35%. Below, you can see the 2022 Ethiopian income tax rates for both residents and non-residents. (All amounts are given in ETB.)

Annual Income (ETB)Ethiopian Tax Rate
0 – 6000%
601 – 1,65010%
1,651 – 3,20015%
3,201 – 5,25020%
5,251 – 7,80025%
7,801 – 10,90030%
10,901 and over35%

Social Security Tax

Like the US, Ethiopia maintains a social security system funded by a payroll tax. However, Ethiopia’s social security system is only available for Ethiopian citizens and foreign citizens who have an “Ethiopian origin.” Foreign citizens with no Ethiopian roots are not allowed to pay into this system or receive benefits from it.

Capital Gains Tax

Ethiopia taxes capital gains in two categories: Class A and Class B.

  • Class A refers to immovable assets, such as real estate. This class is taxed at a flat rate of 15%.
  • Class B refers to the disposal of shares and bonds. This class is taxed at a flat rate of 30%.

Corporate Income Tax

Resident business entities are taxed on their worldwide income, while non-resident business entities are only taxed on their Ethiopian-source income. In both cases, taxable corporate income is taxed at a flat rate of 30%.

Value Added Tax

Ethiopia levies a value-added tax (VAT) on certain goods and services. The standard rate for this tax is 15%.

When Are Taxes Due in Ethiopia?

The Ethiopian tax year runs from July 8 to July 7 of the following calendar year. Individuals who receive only employment income from an Ethiopian source are not required to file a separate Ethiopian tax return. If you have to report other forms of income, you must file your annual tax return on August 7 or September 7, depending on your income level.

Does the US Have a Tax Treaty with Ethiopia?

No. There is currently no US-Ethiopia tax treaty. This leaves Americans living in Ethiopia at risk of being taxed twice on their income. Fortunately, the IRS provides several tax benefits to help expats avoid double taxation. (More on this below.)

Does the US Have a Totalization Agreement with Ethiopia?

No. The US and Ethiopia do not currently have a totalization agreement in place. However, because foreign citizens with no Ethiopian roots are barred from contributing to Ethiopian social security, there is no risk of double taxation.

Get Help With Your US Expat Tax Return

Now that you have a better understanding of how Ethiopia taxes US expats, you can make sure you meet your international tax obligations. If you still have questions, our team of CPAs and IRS Enrolled Agents can give you the advice you need. In fact, we can even prepare and file your expat tax return on your behalf.

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