Employer Tax Contributions

Tax Type	Rate	Base
Personal Income Tax (PAYE)	0% - 35% (Progressive)	Employee's gross monthly income
Social Security (Employer)	11%	Employee's gross salary (up to ETB 15,000 ceiling)
Social Security (Employee)	7%	Employee's gross salary (up to ETB 15,000 ceiling, withheld by employer)

Filing & Compliance

• Monthly tax declaration (Form 17) and payments due by the last day of the following month.
• Annual summary of employment income and taxes withheld for each employee must be submitted.
• Social security contributions are due by the 10th day of the following month.

In Ethiopia, employee tax deductions encompass various areas, including income tax, pension contributions, and withholding tax, impacting both employers and employees.

Income Tax

• Taxable Income: Includes employment income, business profits, and investment income.
• Tax Rates: Progressive rates apply to employment income. Consult the tax brackets for specific rates and deductible fees based on monthly salary.
• Tax Withholding: If income is solely from Ethiopian employment, tax is withheld at the source. Other income sources require filing an Ethiopian Personal Income Tax Return (Form PIT 1).

Pension Contributions

• Mandatory Contributions: Compulsory for Ethiopian citizens employed by private organizations registered with the Private Organisation Employees Social Security Agency. Optional for foreign citizens of Ethiopian origin. Not applicable to other foreign nationals.
• Contribution Rates:
  • Employer: 11% of the employee's basic salary.
  • Employee: 7% of their basic salary.
• Payment Deadline: Within 30 days from the deduction date.
• Non-Compliance: Failure to remit contributions for three months allows the Social Security Agency to deduct arrears from the company's bank account.

Withholding Tax (WHT)

• Obligation: All entities and specified sole proprietors must deduct WHT on domestic transactions.
• Rates: Generally 2% of the transaction value. 30% if the supplier fails to provide a Taxpayer Identification Number (TIN) and valid trade license.
• Thresholds:
  • Services: ETB 3,000
  • Goods: ETB 10,000
• Remittance: Monthly to the tax authority.

Other Deductions

• No provisions exist for deductions related to employment expenses, alimony, charitable contributions, childcare, life insurance premiums, or mortgage interest.
• No standard deductions or personal allowances are available.

Additional Information

• Residency: Individuals residing in Ethiopia for over 183 days in a 12-month period are considered residents for tax purposes. Residents are taxed on worldwide income, non-residents only on Ethiopian-sourced income.
• Union Dues: Employers are legally obligated to deduct union dues from employee salaries and transfer them to the union's bank account upon employee consent.
• Tax Year: July 8th to July 7th.
• Further Information: Always consult with a tax professional for personalized guidance. Tax laws and regulations are subject to change, and this information is current as of February 5, 2025.