Ethiopia’s legal system is based on civil law. However, the principles of common law have influenced its procedural laws. Hierarchically, the 1995 Constitution is the supreme law of the land, followed by international treaties and other laws, namely:

• proclamations (legislative acts);
• regulations; and
• directives.

Additionally, the Federal Supreme Court’s Cassation Division legal interpretation has a binding legal effect on all courts. The country’s judicial system consists of a dual structure, which encompasses the federal and regional courts.

The Civil Code of 1960 and the Commercial Code of 2021 provide the main legal/regulatory framework for businesses. The former contains, among others, the general provisions of contract law, whereas the Commercial Code regulates the formation, registration, governance, and cancellation of business organisations. Moreover, the Investment Proclamation No 1180/2020 and its implementing Regulation No 474/2020 promote and regulate foreign investment. The key regulatory bodies include:

• the Ministry of Trade and Regional Integration (MoTRI), which is responsible for commercial registration, licensing and M&A matters; and
• the Ethiopian Investment Commission (EIC), an autonomous government entity mandated to issue, renew and cancel investment permits.

The National Bank of Ethiopia (NBE) serves as the primary regulator of the financial sector and oversees matters such as foreign exchange, external borrowing, and the repatriation of profits abroad.

Foreign direct investment (FDI) in Ethiopia requires approval from the appropriate authority. EIC is the main regulatory body for issuing, renewing, and cancelling investment permits for most sectors. MoTRI oversees mergers and acquisitions and requires prior notification if the combined annual revenue, assets, or registered capital of the entities involved exceeds ETB30 million. Sector-specific authorities also exist. The Ethiopian Communications Authority (ECA) regulates mergers and acquisitions in the telecommunications sector. The Ministry of Mines and the Ministry of Petroleum and Energy handle matters related to the prospecting, exploration, and development of minerals and petroleum.

Specific regulatory requirements apply to certain sectors. Investments in critical infrastructure, such as defence and the national power grid, are reserved exclusively for the government. Some sectors are restricted to domestic investors, including air transport services using aircraft with a capacity of up to 50 passengers. Other sectors permit foreign participation only through joint ventures with domestic partners, typically subject to a 49% cap on foreign ownership, as is the case for freight forwarding and accounting services. In the mining sector, foreign participation is likewise permitted through joint ventures, provided that domestic investors hold a minimum 25% equity stake in the project.

Ethiopia is currently undergoing rapid economic transformation through liberalisation and structural reforms. Regarding the near-term outlook, the country is targeting the liberalisation of state-owned enterprises through the Homegrown Economic Reform Program (HGER). Although Ethiopia has a promising landscape, there are certain challenges to overcome, including political instability in some regions, a shortage of foreign exchange and a lack of reliable water and electricity supply in parts of the country.

Recent regulatory changes are highly relevant to inbound FDI in Ethiopia. A key development is the introduction of the Foreign Exchange Directive FXD/01/2024, which establishes a comprehensive, market-based exchange rate regime that permits banks to negotiate rates independently. Additionally, the 2025 amendment to the Banking Business Proclamation enables foreign banks to acquire up to a 49% stake in domestic financial institutions or to establish wholly owned subsidiaries. The Ethiopian Investment Board’s Directive Number 1082/2025, concerning foreign participation in previously restricted export, import, wholesale and retail sectors, now authorises foreign investors to export raw coffee, oilseeds, and livestock. This Directive also liberalises wholesale and retail trade, subjecting retail operations to a minimum capital requirement of USD2.5 million. Ethiopia’s accession to the African Continental Free Trade Area (AfCFTA) and the implementation of accompanying trade-facilitation and market-opening measures signal a clear policy shift toward greater regional integration and private-sector participation.

Concerning anticipated changes, there are legislative measures awaiting enactment. The Collective Investment Schemes Draft Directive has provisions that will establish a formal regulatory framework for money market funds and real estate investment funds. The Transfer of Significant Ownership in a Bank Draft Directive, once enacted, will require any transfer of shares resulting in a stake of 2% or more to obtain prior approval from the NBE. The NBE is expected to introduce a Directive on Risk-Based Capital Adequacy Requirements for banks to align the newly opened sector with international financial stability standards.

Finally, Ethiopia’s ongoing WTO accession process is expected to drive further legal and institutional reforms that will promote trade and investment liberalisation by aligning with international rules and standards.

The most common business structure in Ethiopia is a private limited company (PLC). PLCs are the preferred business vehicle, especially for private businesses and foreign investors, because they allow for more flexible management, cost-effective setup and less stringent public disclosure requirements. Foreign investors may prefer to set up a share company where the investment is large-scale, capital-intensive or intended for long-term market presence. The share company form is better suited to joint ventures with multiple domestic or institutional partners, facilitates capital raising and future equity participation, and provides a corresponding governance structure.

The capital and local participation requirements may be key considerations when determining the most suitable transaction structure. To establish a wholly foreign-owned enterprise in most sectors, a minimum capital requirement of USD 200,000 applies. This threshold is reduced to USD150,000 for joint ventures with domestic partners. Additionally, certain sectors mandate joint ventures with Ethiopian nationals and impose restrictions on foreign ownership. For instance, in the freight forwarding sector, foreign investors are limited to holding a maximum of 49% equity. These requirements play a significant role in shaping both the structure and feasibility of foreign investments in Ethiopia.

The regulatory requirements differ depending on whether the transaction amounts to an acquisition of control. Control is generally deemed to be acquired when an individual or entity obtains more than 50% of the shares, secures a majority of the voting rights, or gains the authority to appoint or veto a majority of the board of directors. Transactions involving the acquisition of control are subject to mandatory investment screening and require prior approval from the relevant authorities, including the EIC, MoTRI, ECA or NBE, depending on the sector involved.

Conversely, minority investments are subject to relatively minimal requirements, including:

• registration;
• an ownership cap;
• NBE’s approval for foreign currency transactions; and
• notification to the competition authority for investments falling within the notification threshold.

The primary legislation governing M&A is:

• the Trade Competition and Consumers Protection Proclamation No 813/2013;
• the Merger Directive 01/2016; and
• the Commercial Code of 2021.

Accordingly, a mandatory merger notification will be triggered if the combined annual turnover, assets, or registered capital of the acquiring and target entities exceeds ETB30 million.

Foreign investors should be aware that some areas require stringent sector-specific scrutiny. For example, any M&A transaction involving a telecommunications operator requires approval from ECA. A prior notification must be filed with the ECA at least 90 working days before the expected completion of the intended M&A transaction. Likewise, the NBE must first approve the transfer of shares that results in significant ownership in the banking sector. In accordance with the banking business proclamation, significant ownership is defined as a direct or indirect shareholding of 2% or more of the total subscribed capital of a bank by a person.

Moreover, the Capital Market Proclamation requires interested persons (defined as individuals holding 5% or more of a company’s capital) or entities listed on an exchange to disclose any change in their shareholding. Accordingly, interested persons have the duty to disclose shareholding changes exceeding more than 0.5% of the issuer’s capital within a period of ten days as of the date of the change to the Ethiopian Capital Market Authority.

Additionally, under Labour Proclamation No 1156/2019, existing employment contracts and collective agreements remain in force following M&A transactions. Furthermore, completion of all M&A transactions requires tax clearance from the Ministry of Revenue before they can be finalised.

Corporate Governance Rules, Requirements and Norms

Rules

Corporate governance in Ethiopia is primarily governed by the Commercial Code of 2021. Other pertinent laws are the capital market, communication, investment, commercial registration and business licensing, banking and finance, and tax laws. The Commercial Code establishes the corporate governance structure applicable to companies, including the roles and responsibilities of shareholders, boards of directors, management, internal supervisory bodies, audit committees, and auditors.

Requirements

Public or share companies in Ethiopia are subject to more stringent governance, disclosure, and regulatory requirements, while private companies benefit greatly from structural and operational flexibility.

The Commercial Code requires a public company to have a board of directors, of which two-thirds shall not participate in the day-to-day management of the company’s affairs. The company shall also appoint a general manager accountable to the board. Public companies are also required to put in place internal and external oversight mechanisms, including the appointment of audit committees within the board of directors and the appointment of independent external auditors.

Banking services are also governed by the Banking Business Establishment Proclamation No 1360/2025 and the Bank Corporate Governance Directive No SBB/91/2024. The Directive requires banks to have at least nine directors. One-third of the directors shall be nominated and elected separately by non-influential shareholders, another third by all shareholders, and the remaining third shall be independent directors nominated by the existing board and elected by all shareholders. Additionally, the Directive mandates that shareholders ensure at least two female directors are elected to the board.

Norms

Corporate governance in Ethiopia is influenced by norms of accountability, transparency and fairness in corporate management. Boards are expected to independently oversee the company and also to maintain constructive relationships with shareholders and other stakeholders. Management is expected to operate ethically, manage risks prudently, and comply with applicable laws and regulatory expectations.

Legal Entity Forms

The Commercial Code recognises three company forms:

• share company (SC);
• private limited company (PLC); and
• one-person private limited company (OPC).

SC is the only form permitted to operate as a public company, whereas PLC and OPC are used for privately held businesses.

Key Implications for Foreign Investors Considering FDI When Selecting Corporate Forms

PLCs are more commonly used by investors due to their structural and managerial flexibility, as well as their lenient regulatory and disclosure requirements. They provide limited liability and greater credibility as an investment vehicle. Unlike SCs, which require a minimum of five shareholders for incorporation, PLCs can be set up with a minimum of two members. Establishing a board of directors in a PLC is optional, except for certain capital markets service providers.

Minority investors in a company are shareholders and their relationship with the company is governed by the company’s bylaws and the mandatory provisions of the Commercial Code. Minority shareholders have general legal protections, including:

• access to information;
• the right to participate in and vote at shareholders’ meetings;
• the right to receive dividends and a share in a winding-up; and
• the right to challenge unlawful or abusive decisions.

The Commercial Code contains specific provisions protecting minority shareholders in SCs. Where a shareholder holds 90% or more of the company’s share capital, any remaining minority shareholder is entitled to require that shareholder to purchase its shares, and conversely, the majority shareholder may compel the minority to sell its shares. In addition, the general meeting of an SC is prohibited from adopting resolutions that confer an undue advantage on certain shareholders to the detriment of others.

By contrast, the Commercial Code does not provide comparable statutory minority-protection mechanisms for PLCs. Minority rights in PLCs are therefore largely a matter of contract and are addressed through the company’s memorandum and articles of association and shareholders’ agreements.

Foreign investors are required to disclose necessary information when applying for an investment permit, such as their identity, nationality or place of incorporation, business objective, investment capital, ownership structure and the like.

The company is required to register the foreign capital inflow with the EIC, which sends a copy of the registration to the NBE. It is also required to submit a quarterly report on the implementation of its investment project to the EIC until it completes the investment implementation phase.

The company is required to disclose any changes that have the effect of amending its by-laws, such as capital increases or decreases, changes of ownership or control or changes of address.

The company must also audit its financial statements and submit reports to the Tax Authority. It also has reporting obligations to the Accounting and Auditing Board of Ethiopia.

For investments open to foreign investors, there is no foreign ownership threshold, provided the minimum members’ requirement is met.

The nascent capital market came into existence with the enactment of the Capital Markets Proclamation No. 1248/2021 in July 2021. The Ethiopian Capital Markets Authority (ECMA) is the securities market regulatory body, while the Ethiopian Securities Exchange (ESX) is the formal platform for securities exchange.

ESX was formed in October 2023 as a share company, with Ethiopian Investment Holdings (EIH), Ethiopia’s sovereign wealth fund, holding 25%, and other domestic and foreign shareholders, including the Trade and Development Bank Group (TDB), FSD Africa, and the Nigerian Stock Exchange, holding the remaining 75%. Licensed by the ECMA in December 2024, ESX officially launched trading on 10 January 10 2025.

ESX offers a range of markets and financial products across three key areas:

• the equity market (shares and other instruments);
• the fixed income market (treasury bills, bonds, and the interbank money market); and
• the alternative market (innovative financial products and the OTC market).

Currently, three companies (Wogagen Bank SC (WGBX), Gadaa Bank SC (GDAB) and Ethio-Telecom SC (TELE)) are listed, with many more in the pipeline. There has been significant growth in the interbank money market and the T-Bills market.

Historically, banks have been the primary sources of funding for businesses, but with the commencement of the securities market, businesses will soon have additional sources of funding.

The key legislation on securities and capital market regulation is the Capital Markets Proclamation No. 1248/2021. It sets important rules on the issuance and trading of securities, as well as disclosure requirements, aiming to promote capital formation, investor protection, market integrity, market efficiency and transparency. Other key legislations are ECMA’s directives:

• Licensing and Supervision of Service Providers Directive No 980/2024;
• Public Offering and Trading of Securities Directive No 1030/2024;
• Recognition and Supervision of Self-Regulatory Organisations Directive No 1031/2024;
• Licensing, Operation and Supervision of Derivatives Exchange and Over the Counter Markets Directive No 1009/2024; and
• Dematerialisation of Securities Directive No 1047/2025.

The ESX also has a detailed rulebook governing listing and trading in its main, growth and over-the-counter markets.

The key securities exchange requirements include:

• registration of securities with the ECMA;
• fully paid up capital and transferable shares;
• a minimum paid-up capital or market cap of ETB500 million for the main market (MM) and ETB100 million for the growth market (GM);
• a minimum public float of 15% (10% if market cap/equity is ETB2 billion or more) for the MM and 10% for the GM;
• not materially qualified IFRS standard three-year financial statement for the MM and a 2-year financial statement for the GM;
• a minimum of 300 shareholders for the MM and 50 for the GM; and
• profitability in at least one of the three years for the MM and demonstrated growth potential or at least 20% revenue growth in the last 2 years for the GM.

Foreign investors doing business in Ethiopia are not subject to capital market rules and regulations, except for FDI, unless:

• the investor seeks to be listed on the ESX; the foreign entity is a share company; or
• the foreign entity wants to sell shares in the OTC market or buy securities from a share company.

Foreign investment funds in Ethiopia are subject to regulatory review by:

• the EIC, under the Investment Proclamation No 1180/2020; and
• Regulation No 474/2020.

At the same time, sector-specific reviewers include:

• the NBE for banking and finance; and
• the ECA for ICT.

Assessing the area of investment and fulfilment of the minimum capital requirement (USD200,000 for a single project (USD150,000 for joint investment), USD150,000 for technical and consultancy services (USD100,000 for joint investment)) are the principal criteria of the review. Ethiopia follows a negative listing and foreign investors are allowed to invest in areas not reserved for the government, local investors or joint investment.

Regarding foreign investment in the capital market, there are no detailed rules beyond the requirements under the investment laws. However, the ECMA is currently finalising a directive that will permit foreign investors to participate in the capital market and specify the areas in which they may do so. The precise scope and extent of foreign investor participation will become clear once the directive is officially issued.

Merger control is primarily regulated by the Trade Competition and Consumers Protection Proclamation No 813/2013 and the Merger Directive No 1/2016. The authority that accepts merger notifications and issues clearance is the Ministry of Trade and Regional Integration. However, for specific sectors such as banking and finance and communication services, the relevant authorities are the NBE and the ECA, respectively.

Under Ethiopian law, a merger is deemed to have occurred when:

• (i) two or more business organisations that previously had independent existence amalgamate or (ii) when such business organisations pool the whole or part of their resources for the purpose of carrying on a certain commercial activity; or
• (i) when a person or a group of persons directly or indirectly acquires shares, securities or assets of a business organisation or (ii) takes control of the management of the business of another person through purchase or any other means.

The magnitude of a merger is classified into three categories based on the combined annual turnover, assets, or registered capital of the undertaking. Accordingly:

• a merger with a value of up to ETB30 million is classified as a small merger;
• a merger with a value between ETB30 million and ETB300 million is classified as an intermediate merger; and
• a merger with a value above ETB300 million is classified as a large merger.

Small mergers are exempt from the merger notification obligation.

Investors intending to acquire an enterprise as a going concern, or shares thereof, are required to file a merger notification and obtain merger clearance from the Ministry if the transaction satisfies the minimum notification threshold.

The merger assessment may be conducted through a two-phase process. Under Phase One, the Ministry approves the merger proposal if it determines that the merger is not likely to have a significant adverse effect on stakeholders or third parties. Where a merger is likely to have an adverse effect on trade competition, the public interest or the market, but such effects can be addressed through conditions, the merger may be approved subject to the applicants’ fulfilment of the prescribed preconditions.

A decision on an intermediate merger notification and a large merger notification shall be issued within 15 working days and 30 working days, respectively. This timeframe, however, does not include the time required for public advertisements, where such advertisements are deemed necessary.

The following factors may delay the Ministry’s decision beyond the standard timeframe:

• if more information is needed;
• if the assessment’s findings regarding the market, competition or public interest require further analysis and recommendations; or
• if there are other valid reasons.

In such situations, the Ministry advances to Phase Two to conduct a more detailed assessment.

Under Phase Two, the Ministry requires the parties to submit additional information. A decision at this phase shall be issued within ten working days for an intermediate merger and within 15 working days for a large merger, calculated from the date on which the additional information is submitted.

The Ministry evaluates whether the merger is likely to result in a significant adverse effect on trade competition, the market or the public interest. The assessment examines the acquisition of control (directly or indirectly) through shares, assets, or management, as well as market share, supplier concentration and the potential to reduce competition. It also considers efficiencies, pro-competitive gains, technology transfer and broader public interest effects, including potential impacts on stakeholders, consumers and suppliers. The Ministry may approve mergers conditionally if adverse effects can be mitigated or if the merger’s overall benefits outweigh the negative impacts.

The competitive assessment is conducted from three perspectives:

• trade competition perspective – considers the number of actors, market dominance, barriers to entry, potential elimination of competitors, availability of substitutes, import levels, market growth, innovation, pricing and effects on supplier and consumer bargaining power.
• market perspective – analyses the relevant market, demand and supply conditions, product/service price and quality, input and distribution channel conditions, market share and market concentration.
• public interest perspective – evaluates whether the gains from restricting competition are outweighed by adverse social effects, whether the merger enables small and micro businesses to become competitive and any technological, capacity or other competitiveness gains.

The Ministry considers any remedies or other commitments it deems workable when approving the merger. Among others, the Ministry considers the following well-known remedies and commitments when approving a merger:

• structural remedies – divestiture of assets or business units or selling of a portion of shares to prevent excessive market concentration;
• behavioural remedies – accepting commitments relating to pricing, supply, access to essential facilities or restrictions on some anticompetitive commercial practices;
• operational or efficiency-related commitments – committing to take measures that ensure the achievement of efficiency gains, technology transfer or other public benefits;
• employment guarantees – accepting commitments not to lay off employees (this is also supported by the Labour law of Ethiopia); and
• local sourcing – committing to procure goods or services from local suppliers if the merging parties have a local sourcing arrangement.

The competition law obliges the relevant government authority responsible for registering mergers to require the submission of a merger clearance before registering the merger in the commercial register. It further provides that a merger that has not secured the Ministry’s approval shall produce no legal effect.

The Ministry is empowered either to order the suspension of the merger if it is still in the registration process, or to notify the registering authority to cancel the merger from the commercial register if it was registered without the Ministry’s approval. Furthermore, a business-person who carries out a merger in violation of the law may be subject to a fine ranging from 5% to 10% of their annual turnover.

An investor aggrieved by a decision of the Ministry may appeal against it within 30 days of the decision.

Ethiopia does not have a stand-alone foreign investment or national security review regime applicable to FDI. According to the investment laws of Ethiopia, any investor may engage in any area of investment except where it is contrary to law, morality, public health or security.

The investment laws reserve some areas of investment to be undertaken in joint venture with the government or domestic investors, or exclusively by domestic investors, and except for these areas, all areas of investment are open to foreign investors. However, foreign investment applications may be reviewed by the relevant authority in light of national security considerations as part of the general permit issuance process.

Ethiopia does not have a stand-alone foreign investment or national security review regime applicable to FDI.

Ethiopia does not have a stand-alone foreign investment or national security review regime applicable to FDI.

Ethiopia does not have a stand-alone foreign investment or national security review regime applicable to FDI.

FDI Approval

Investment in Ethiopia is primarily governed by the Investment Proclamation No 1180/2020 and the Investment Regulation No 474/2020. These investment laws govern all investments in the country, except those in prospecting, exploration and development of minerals and petroleum.

The authority responsible for receiving and approving FDI applications is the EIC, which:

• ascertains whether the proposed investment is open to foreign investors;
• reviews the adequacy of the submitted documents;
• verifies that the minimum capital requirements have been met; registers the investor in the commercial register; and
• issues the registration certificate and investment permit.

However, for some specific sectors, such as communications services, banking and finance, air transport services and energy, the EIC conducts the registration and issues the registration certificate, while the investment permit is issued by the ECA, the NBE, the Ethiopian Civil Aviation Authority and the Ethiopian Energy Authority, respectively, acting on behalf of the EIC.

Sanctions Regime

Ethiopia does not have a sanctions regime that affects FDI.

Industry- and Sector-Specific Restrictions

The investment laws of Ethiopia follow a negative list approach. Accordingly, areas of investment are categorised as:

• areas reserved for joint investment with:
1. the government; or
2. domestic investors; and
• areas reserved exclusively for domestic investors.

Apart from these areas, all other areas of investment are open to FDI.

Joint investment with the government

Investment areas reserved for joint investment with the government are:

• manufacturing of weapons, ammunition and explosives used as weapons or to make weapons;
• import and export of electrical energy;
• international air transport services;
• bus rapid transit; and
• postal services, excluding courier services.

Joint investment with domestic investors

Investment areas reserved for joint investment with domestic investors are:

• freight forwarding and shipping agency services;
• domestic air transport service;
• cross-country public transport service using buses with a seating capacity of more than 45 passengers;
• urban mass transport service with a large carrying capacity;
• advertisement and promotion services;
• audiovisual services; motion picture and video recording, production and distribution; and
• accounting and auditing services.

The maximum allowable shareholding for foreign investors jointly invested in these sectors is 49%.

Domestic investors investments

The investment regulation outlines around 30 areas of investment reserved for domestic investors, which, among others, are:

• construction and drilling services below Grade I;
• operating lease of equipment, machinery and vehicles, excluding industry-specific heavy equipment, machinery, and specialised vehicles;
• media services;
• customs clearance services;
• lottery and sports betting; and
• attorney and legal consultancy services.

The Banking Sector

The maximum shareholding that a strategic investor may acquire in an existing or new domestic bank is limited to 40% of the total subscribed shares of the bank.

A strategic investors are defined as the following:

• a foreign bank or bank group with an established reputation in its country of incorporation;
• a foreign bank owned by the government of its country of incorporation;
• an international development finance institution;
• a private equity fund; or
• other similar entities, as may be determined by the NBE and which meet the minimum vetting criteria to be set out under NBE directives.

The maximum shareholding for a non-strategic foreign individual investor and a foreign juridical person is set at 7% and 10%, respectively. However, the aggregate shareholding of foreign nationals and foreign-owned Ethiopian organisations in a domestic bank shall not exceed 49% of the total subscribed shares of the bank.

In addition to the above, the Directive sets the following limits:

• maximum limit on aggregate direct and indirect shareholding by a natural person and juridical person, excluding strategic investor, at 15% and 20% of a bank’s total subscribed shares, respectively; and
• the maximum limit on aggregate direct and indirect shareholding by a natural person and juridical person together in a bank at 20% of the bank’s total subscribed shares.

Real Estate Transactions

Under Ethiopian investment law, a foreign investor is entitled to own immovable property necessary for its investment, except for land. In addition, where the investment is in manufacturing, agriculture or any other sector that requires land, the investor is entitled to secure such land on a long-term leasehold basis in accordance with applicable federal and regional land laws. The relevant land administration authorities are required to deliver land efficiently and to establish a transparent and predictable system for handling such requests.

Ethiopia has recently enacted the Foreign Nationals’ Ownership Right of Residential House Proclamation No 1388/2025: a new law that allows foreign nationals to own residential houses. Under this law, a foreign investor may acquire one residential house if they have invested at least USD 150,000, which is significantly lower than the previous threshold of USD10 million under the Investment Regulation. The ownership of more than one residential house shall be governed by a directive to be issued by the Ministry of Urban and Infrastructure Development in consideration of national interest.

Foreign Exchange Regulation

Foreign exchange in Ethiopia is primarily regulated by the National Bank of Ethiopia Proclamation No 1359/2025 and directives issued by the NBE. The country’s investment laws also contain provisions governing capital inflow and outflow, the opening and maintenance of foreign currency bank accounts and the repatriation of payments in convertible foreign currency at the prevailing exchange rate on the date of transfer.

In July 2024, the NBE issued Foreign Exchange Directive No FXD/01/2024 (amended by Directive No. FXD/03/2025), which revised and consolidated the various directives governing the regulation and operation of Ethiopia’s foreign exchange that were in force prior to its issuance. The directive repealed and replaced all previously applicable foreign exchange directives and circulars, and established a unified foreign exchange regulatory framework.

As per the directive, foreign investments which are registered by the NBE or EIC and other pertinent government organs are entitled to repatriate the following upon the NBE’s approval:

• profit and dividends accruing from investment;
• proceeds from the sale or liquidation of an enterprise;
• proceeds from the transfer of shares or ownership of an enterprise;
• repayment of the investment should the investor be unable to start operation (the funds transferred back, however, should not exceed the registered capital); and
• profits from portfolio investment in equity securities or debt securities.

Expatriate employees are also allowed to repatriate their net salary and benefits upon providing the required repatriation documents and the Directive explicitly instructs authorised banks to allow such repatriation.

The Directive also permits foreign investors to acquire external loans; however, the debt-to-equity ratio shall not exceed 60:40 of the foreign capital. Foreign investors seeking external loans must secure prior approval from the NBE. They are required to present, among other documents:

• the draft loan agreement with detailed terms showing interest rates and applicable charges; the loan disbursement schedule;
• the repayment schedule; the borrower-lender relationship; and
• the purpose of the loan.

Furthermore, the Directive allows foreign investors to open and maintain foreign currency accounts in authorised banks. It also permits the following strategic FDI projects to open an offshore account to deposit the proceeds from their equity and loan financing sources:

• a PPP project in the power generation and infrastructure sector that has large capital investment needs;
• a large mining project with a substantial export-earning potential; and
• any other strategic FDI project deemed eligible to qualify for such treatment by the NBE’s Executive Management, considering, among others, their special significance and contribution in terms of size, job creation, import substitution, foreign exchange inflows, technology transfer or sector-specific impact.

Per the Directive, the eligible payments that can be made from the offshore account are:

• external debt service, including any debt service reserve accounts;
• insurance, contractor, and other warranty claims in foreign exchange;
• capital or investment expenses; and
• maintenance and operation expenses.

The main taxes imposed on businesses in Ethiopia include corporate income tax, value-added tax, withholding tax, property tax and capital gains tax. Taxes are imposed on all types of businesses, irrespective of nationality or business type (local or foreign, company or partnership), except LLPs. The tax rates also apply uniformly to all businesses, except withholding tax, where foreign investors are taxed slightly higher. LLPs are exempt from corporate income tax. As pass-through entities, LLPs are responsible for withholding income tax from partners when profits are distributed.

Corporate Income Tax

Corporate Income Tax is imposed on the gross profit earned by businesses. The corporate income tax rate is 30%, applicable to all types of businesses, including branches and subsidiaries of foreign companies and project offices of foreign investors. A minimum alternative tax (MAT) of 2.5% of annual turnover applies if the assessed tax is lower than 2.5% of annual turnover.

Value Added Tax (VAT)

VAT is imposed on:

• a taxable supply of goods or services made by a registered person in Ethiopia;
• on the importation of taxable goods and taxable services; and
• on a reverse-charge supply made to:
1. a registered person;
2. a government entity; or
3. a large unregistered person.

The mandatory VAT registration threshold is an annual turnover of ETB2 million, while the voluntary VAT registration threshold is ETB1 million. As per recent directive, VAT registration is now mandatory for professional service providers, including auditors, consultants, architects and lawyers, regardless of annual turnover. The law recognises zero-rated supplies, as well as exempt supplies and imports. The VAT rate is 15%.

Withholding Tax (WHT)

Except for micro-enterprises, businesses are obliged to withhold tax at a rate of 3% of the gross amount of payment for the supply of goods and services in Ethiopia. It applies when the supply of goods and services in one transaction exceeds 20,000ETB and 10,000 ETB, respectively. The withholding tax rate is 30% for suppliers that fail to provide a TIN and a valid trade license. The amount of tax withheld is deductible from the supplier’s tax payable at the end of the year.

Property Tax

Property tax is imposed on real estate properties (land and buildings) in urban areas. It is calculated at 25% of the property’s value. The tax rates range from 0.2% to 0.1% for land and 0.1% to 1% for buildings. The rates will be applied incrementally, with the higher rates to take effect in four years’ time (0.1% for land and 1% for buildings). The tax rates and the taxable percentages can be adjusted by the Ministry of Finance.

Capital Gains Tax

Tax is also imposed on the capital gains (profits) from the sale of business assets such as shares, bonds or immovable properties. The rate of capital gains tax is 15%.

Depending on their business activity, businesses may also be liable to pay customs duty on imported goods ranging from 0-35%, excise tax on excisable goods manufactured in or imported into Ethiopia ranging from 5%-500% and sur-tax of 10% on goods imported into Ethiopia.

Dividends and interest paid to foreign investors on FDI are subject to withholding tax. Per the Income Tax Amendment Proclamation No 1395/2025, the withholding tax rate is 15% on dividends and 10% on interest on the gross amount of income. Repatriated profit and undistributed profit are also subject to withholding tax at the rate of 15%. Profit will be exempt from such tax if reinvested within the country, subject to certain conditions. Similarly, management or technical fees, royalties and other Schedule D income are subject to a withholding tax rate of 15%.

Ethiopia has signed double taxation avoidance treaties (DTAs) with several countries, which aim to avoid double taxation. The tax rate for investors from countries with a DTA is also usually lower.

Ethiopia has limited anti-treaty shopping rules under both its domestic tax laws and its bilateral treaties. Treaty benefits are not available for a company resident in a contracting state where 50% or more of the underlying ownership or control is held by a non-resident(s) of that country. However, treaty benefits are available if the company (i) is listed on a stock exchange in that other contracting state or (ii) if it is carrying on an active business in that other contracting state and the Ethiopian-source income derived by the company is attributable to that business.

There are some tax planning strategies that companies doing business in Ethiopia can adopt to mitigate their tax obligations. These strategies include interest deductions, transfer pricing, limited intercompany arrangements and the use of net operating losses.

Interest Deduction

Ethiopian law permits interest deduction, allowing companies to trip earnings subject to the thin capitalisation limit under the Income Tax Law. Accordingly, foreign-controlled resident companies can obtain debt from their parent companies and get interest deductions for tax purposes, provided that the debt-to-equity ratio does not exceed 2:1. Even if the debt-to-equity ratio exceeds the permitted ratio, companies can still obtain a deduction for interest if they can justify the debt by an arm’s length bank lending. In all other cases, companies will not be allowed to deduct interest for taxation.

Financial institutions are allowed to have a debt-to-equity ratio above 2:1 due to the nature of their business, although no foreign financial institutions have been established in the country to date.

Intercompany Arrangements

Ethiopian law on intercompany arrangements, including cross-licensing, royalties, etc, is even more stringent, as it subjects such transactions to an arm’s-length principle. However, if the transaction is between related persons whose annual turnover is not over ETB500,000 (USD3,300), it is not subject to an arm’s length transaction. Further, royalties are treated as Ethiopian-sourced income and taxed separately at 15%.

Net Operating Losses

Ethiopian law permits net operating losses to be carried forward for up to 5 years from the tax year the loss was incurred. However, if losses are carried forward from two prior tax years already, further carrying losses forward is not allowed. Losses during tax-holiday periods can also be carried forward for half the holiday period to offset later taxable income.

Capital gain derived by a foreign investor from the disposition of an immovable asset, share or bond is taxable at a flat rate of 15%. An immovable asset includes buildings, except those that have been wholly used as a private residence for two years prior to its disposal, a mining right or an information and petroleum right or information.

Ethiopia does not provide tax benefits to foreign investors for investing through a “blocker” corporation. There is also no tax-preferred business vehicle. Tax benefits are available for eligible investments under the Investment Incentives Directive No 517/2022, depending on the sector, location and export orientation.

The Income Tax Proclamation No 979/2016, as amended by Proclamation No 1359/2025 and the revised Transfer Pricing Directive No 981/2024, provide a set of anti-avoidance rules applicable to all taxpayers, including foreign investors, as outlined below.

Transfer Pricing (TP)

The TP rules apply to the pricing of international and domestic transactions between related persons with annual turnover exceeding ETB500,000. The rules aim to counter profit shifting through related-party transactions by applying an arm’s-length principle to them. Upon a determination of a related party transaction, including those involving a foreign investor, the tax authority adjusts the taxpayer’s income, loss, gains, or deductions. The taxpayer is also obliged to maintain contemporaneous documentation verifying the conditions of the controlled transaction.

Thin Capitalisation

Under the thin capitalisation rule, if a foreign-controlled resident company, other than a financial institution, has an average debt-to-average equity ratio of more than 2:1 for a tax year, it is not allowed to deduct interest paid during that year. However, if the amount of the average debt of the company does not exceed the arm’s length debt amount, a deduction is allowed even if the ratio exceeds 2:1. The rule also applies to a non-resident company with a permanent establishment in Ethiopia.

Income-Splitting

These rules aim to prevent arrangements that artificially split income between related persons to lower tax liability. If a taxpayer transfers income or assets to a related person which lowers the total tax payable by the transferor or transferee, the tax authority is mandated to adjust the income and tax credit of both parties. Accordingly, if a foreign investor engages in income-splitting arrangements, the Ethiopian tax authority is empowered to adjust the income and tax liability of the foreign-owned Ethiopian entity.

General Anti-Avoidance Rule

The income tax laws and the VAT Proclamation No 1341/2024 contain general rules against tax avoidance. These rules allow tax authorities to adjust the taxable income or activity of the taxpayer and the tax liability of the taxpayer or any related person where they determine that scheme(s) are undertaken with the sole or main purpose of obtaining a tax benefit.

Penalties for Tax Avoidance

The Tax Administration Proclamation No 983/2016 imposes an administrative sanction of double the amount of tax that would have been avoided, a fine of ETB100,000 to ETB200,000 and rigorous imprisonment between three and five years.

The Labour Proclamation No 1156/2019 (“Proclamation”), supplemented by regulations and directives, is the principal law on employment matters. The Civil Code of 1960 applies to managerial employees. Case law by the Federal Supreme Court Cassation Bench is also binding on lower courts. The Ministry of Labour and Skills and its regional counterparts are responsible for administering labour issues, while the courts retain adjudicatory power.

A trade union can be established when an undertaking has at least ten employees and the union has at least ten members. Employees in similar activities but in different undertakings with fewer than ten employees can form a general trade union.

Basic labour unions may form a sectoral trade union federation, and federations may form a confederation. Trade unions are voluntary but quite common. They represent members in collective bargaining and labour disputes, and observe working conditions, etc. Collective bargaining is also common, and the employer cannot unduly delay a collective bargaining agreement. A collective bargaining agreement is valid for a minimum period of three years. The law does not envision any statutory body to represent employees.

Employers, including foreign investors, are obliged to adhere to the safety and health standards provided under the Occupational Safety and Health (OSH) Directive 2008.

Employment of expat staff in Ethiopia is allowed if:

• the post cannot be filled by Ethiopians; or
• there is a need in Ethiopia for a person to represent a company headquartered abroad; or
• if an expat who has a share in the business is employed by the business to work in Ethiopia.

Employing expat staff in managerial posts is not restricted. Any expat must get a work permit to be employed in Ethiopia.

Although the Proclamation provides for the establishment of a wage board by regulation to periodically determine minimum wages, no such regulation has been issued and there is no wage board to date. However, a wage board may be constituted soon to determine the minimum wage.

The most common form of employee compensation is cash payment. Compensation in kind can be made if it does not exceed 30% of the wages paid in cash. Equity compensation for employees is not common.

The Private Organisation Employees’ Pension Proclamation No 1268/2022 requires employers to contribute 11% of an employee’s salary to the pension fund, while employees must contribute 7%. The retirement age is 60 years.

Under the Proclamation, employees are entitled to:

• a paid annual leave of 16 working days for the first year of employment and an additional one day for every two years of service;
• sick leave with full pay for the first month, half pay for the next two months and leave without pay for the next three months; in case of occupational injury, in addition to covering the medical expenses, the employer is obliged to pay:
1. full salary for the first three months after the injury;
2. 75% salary for the next three months; and
3. 50% salary for the next six months;
• paid (i) maternity leave for four months and (ii) paternity leave of three days; and
• paid bereavement and marriage leave for three days.

Under the Proclamation, an amalgamation, division or transfer of ownership does not affect the contract of employment. The employment contract continues under the new owner.

As discussed in 10.2 Employee Compensation, employees have a mandatory right to transfer with an acquired business. As employees transfer to the new business owner, with all conditions and benefits, no issues of severance or notice arise. Likewise, collective bargaining or worker consultation is not a requirement for such transactions, although such consultation may be necessary to reassure employees about the continuity of their employment.

FDI screening in Ethiopia essentially focuses on whether the investment is in an area permitted for foreign investors, the fulfilment of the minimum capital requirement, and the fulfilment of other conditions under the investment laws. Other criteria include compliance with moral, public health or security standards. There are no sectors or industries that are subject to particular rules or more scrutiny because of IP considerations. The review is undertaken by the EIC.

Ethiopia has a fairly robust legal framework on various IP areas:

• Patent Proclamation No 123/1995 and Regulation No 12/1997;
• Copyright and Neighbouring Rights Protection Proclamation No 410/2004 as amended by Proclamation No 872/2014 and Regulation No 305/2014;
• Trademark Registration and Protection Proclamation No 501/2006 and Regulation No 273/2012;
• Access to Genetic Resources and Community Knowledge and Community Rights Proclamation No 482/2006; and
• Plant Breeders’ Rights Proclamation No 481/2006.

There are also several directives by the respective ministries and agencies.

The Ethiopian Intellectual Property Authority (EIPA), established in 2003, provides legal protection for IP rights. There is also an IP Tribunal, established in 2017, to examine IP-related disputes and provide recommendations to the Director General of the EIPA.

Ethiopia is further strengthening its IP regime by adopting international treaties. It ratified the Paris Convention for the Protection of Industrial Property in 2017 (Ratification Proclamation No 993/2017) and the Madrid Protocol Concerning the International Registration of Marks in 2024 (Ratification Proclamation No 1352/2024). However, Ethiopia is not a party to the Berne Convention for the Protection of Literary and Artistic Works or to the WTO’s TRIPS Agreement.

Per the Patent proclamation No 123/1995, plant or animal varieties or essentially biological processes for the production of plants or animals are non-patentable. Accordingly, micro-organisms and non-biological and microbiological processes are excluded from patent protection, unlike the TRIPS Agreement, for instance.

Under Ethiopian Patent law, compulsory license can be granted if the invention of a patentee cannot be worked effectively without the invention patented earlier, if the invention of an earlier patentee cannot be worked effectively without the later invention, or where the patentee fails, without legitimate reason to justify his inaction to work his invention in Ethiopia, after the expiration of a period of three years from the date of grant of the patent or four years from the date of grant of filing of the patent application which ever expires last.

Ethiopian IP laws do not protect purely AI-generated works, as protection focuses on human intellectual creation or authorship.

Ethiopia enacted its first comprehensive personal data protection law, the Personal Data Protection Proclamation No 1321/2024 (PDPP), in July 2024. The PDPP mirrors the GDPR. It sets stricter rules on personal data processing, empowers the ECA as a regulator, and imposes fines and imprisonment for violations.

The PDPP applies to data processing by data controllers or processors established in Ethiopia, and to those not established in Ethiopia but that use equipment in Ethiopia and have a representative established in Ethiopia. Thus, the PDPP has extraterritorial application as it subjects foreign investors that process data using equipment and have representatives in the country. Accordingly, all the requirements for lawful data processing, such as data subject rights including consent, access, erasure, data controllers/processors duties including security, etc, apply to them as well.

There is a strong focus on enforcement in the PDPP. The ECA is empowered to issue an enforcement order against an entity that violates such rules to remedy the violation. Violation entails:

• a fine of ETB100,000-600,000;
• forfeiture to the government of any gain made through such act; and/or
• simple imprisonment of one to five years or rigorous imprisonment of five to ten years, depending on the gravity of the offence.

If the violation is committed by an institution, causes damage, or involves sensitive personal data, an additional fine of up to 4% of the total worldwide turnover of the preceding financial year of the data processor or controller is imposed.