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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.
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.
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.
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:
If neither of these qualifications applies, then you will be considered a non-resident for tax purposes.
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.)
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.
Ethiopia taxes capital gains in two categories: Class A and Class B.
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%.
Ethiopia levies a value-added tax (VAT) on certain goods and services. The standard rate for this tax is 15%.
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.
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.)
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.
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.