Complete Tax Guide for Americans Living in Ethiopia
- Living as an American Expat in Ethiopia
- Ethiopia at a Glance
- What Are Expat Taxes like for Americans Living in Ethiopia?
- Who Has to File Taxes in Ethiopia?
- Who Qualifies as a Tax Resident in Ethiopia?
- What Types of Taxation Does Ethiopia Have?
- When Are Taxes Due in Ethiopia?
- Essential Tax Forms for US Expats in Ethiopia
- Does the US Have a Tax Treaty with Ethiopia?
- Does the US Have a Totalization Agreement with Ethiopia?
- Navigating Tax Compliance for US Expats in Ethiopia
Living as an American Expat in Ethiopia
Living as a US Expat in Ethiopia can be a unique and rewarding experience for those willing to embrace the country’s culture and way of life. Ethiopia has a rich history and diverse landscapes, from the rugged mountains of the Simien range to the vast deserts of the Danakil Depression.
One of Ethiopia’s most appealing aspects is its friendly and welcoming people. Ethiopians are known for their hospitality and are quick to invite expats into their homes for a cup of coffee or a traditional meal.
As an expat in Ethiopia, you’ll have the opportunity to explore the country’s vibrant markets, sample its delicious cuisine, and experience its unique cultural traditions. You can also take advantage of the many outdoor activities available, from hiking and trekking to wildlife watching and hot-air ballooning.
While living in Ethiopia can be an exciting adventure, it’s essential to be prepared for some of the challenges of expat life. These can include adjusting to the country’s infrastructure and services and dealing with language barriers and cultural differences.
So, what expat taxes can you expect as an American living in Ethiopia? Read on to get the answers you need.
Ethiopia at a Glance
- Primary Tax Form for Residents: Form PIT 1
- 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 must 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 Ethiopian Taxes for expats looks like.
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.
If you earn your income solely from employment in Ethiopia, your income tax will be withheld at the source, and you do not need to file a separate return. However, suppose you have other sources of taxable income, such as foreign income, self-employment income, capital gains, or rental income. In that case, you must file an Ethiopian Personal Income Tax Return (Form PIT 1) to report this to the Ethiopian government.
To ensure compliance, it’s essential to understand the income tax laws in Ethiopia and the filing requirements for your specific situation. By staying informed and meeting your tax obligations, you can avoid penalties and maintain your financial health in Ethiopia. For more information on Ethiopian tax laws and filing requirements, visit the Ethiopian government’s tax website.
Who Qualifies as a Tax Resident in Ethiopia?
Because Ethiopia taxes residents and non-residents differently, it’s crucial to understand how the Ethiopian government defines residency. You will be considered a resident of Ethiopia if either of the following is valid:
- 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?
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 residents and non-residents. (All amounts are given in ETB.)
|Annual Income (ETB)||Ethiopian Tax Rate|
|0 – 600||0%|
|601 – 1,650||10%|
|1,651 – 3,200||15%|
|3,201 – 5,250||20%|
|5,251 – 7,800||25%|
|7,801 – 10,900||30%|
|10,901 and over||35%|
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 and foreign citizens with 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
Taxable corporate income is subjected to a flat rate of 30% for both resident and non-resident business entities. While resident business entities are taxed on their worldwide income, non-resident business entities are only taxed on their Ethiopian-source income.
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.
Essential Tax Forms for US Expats in Ethiopia
If you’re a US expat living in Ethiopia, there are several tax forms that you need to be aware of to stay compliant with US tax laws. Filing these forms is essential to avoid penalties and maintain financial health while living abroad.
Here are some of the necessary tax forms for US expats in Ethiopia:
- Form 1040: This is the main US individual income tax return form, and all US citizens and residents are required to file it each year, regardless of where they live. As a US expat in Ethiopia, you must file Form 1040 to report your worldwide income to the IRS.
- Form 2555: This form is used to claim the foreign-earned income exclusion, which allows you to exclude up to a certain amount of your foreign-earned income from US taxation. If you qualify for this exclusion, filing Form 2555 can help you save money on your US tax bill.
- FinCEN Form 114: Also known as the FBAR, this form is used to report foreign financial accounts to the US government. You may be required to file the FBAR each year if you have any foreign bank accounts.
- Form 8938: This form is used to report specified foreign financial assets, including bank accounts, stocks, and securities. If you meet certain asset thresholds, you may be required to file Form 8938 in addition to the FBAR.
By filing these essential tax forms, US expats in Ethiopia can ensure compliance with US tax laws and avoid potential penalties for non-compliance.
Does the US Have a Tax Treaty with Ethiopia?
As of 2023, there is currently no US-Ethiopia tax treaty in place, leaving Americans living in Ethiopia at risk of being taxed twice on their income. However, the IRS provides several tax benefits to help expats avoid double taxation.
If you are an American living in Ethiopia, it’s important to understand the tax implications of your situation and how to take advantage of the tax benefits available to you. These benefits may include foreign tax credits, foreign earned income exclusion, and foreign housing exclusion.
Consulting with qualified tax professionals like Greenback can help ensure that you comply with US tax laws and take advantage of all the tax benefits available to you. By staying informed and taking proactive steps to manage your tax obligations, you can minimize your tax burden and maintain your financial health while living in Ethiopia.
Does the US Have a Totalization Agreement with Ethiopia?
As of 2023, US citizens and residents working in Ethiopia usually cannot receive Ethiopian social security benefits and are not required to contribute to the Ethiopian social security system due to the absence of a US-Ethiopia totalization agreement.
Foreign citizens who lack Ethiopian roots are unable to contribute to the Ethiopian social security system, which eliminates the risk of double taxation for US citizens and residents working in Ethiopia. However, it’s important to understand the tax and social security rules in Ethiopia to ensure that you comply with local regulations and take advantage of all the tax and social security benefits available to you.
Navigating Tax Compliance for US Expats in Ethiopia
With a better understanding of how Ethiopia taxes US expats, you can confidently fulfill your international tax obligations. However, if you still have questions, our team of experienced CPAs and IRS Enrolled Agents are available to provide you with the advice and guidance you need. Additionally, we offer expat tax preparation and filing services, and we would be delighted to assist you with this process.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.