OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA 2 Year No. 29 ADDIS ABABA - 4h July , 1996 CONTENTS Regulations No. 7/1996 Investment Incentives Council Regulations Ministers Page 225 COUNCIL OF MINISTERS REGULATIONS NO . 7/1996 COUNCIL OF MINISTERS REGULATIONS TO PROVIDE FOR INVESTMENT INCENTIVES These Regulations are issued by the Council of Ministers pursuant to Article 5 of the Definition of Powers and Duties of the Executive Organs of the Federal Democratic Republic of Investment Proclamation No. 37/1996 . PART ONE General 1. Short Title These Regulations may be cited as the " Investment Incentives Council of Ministers Regulations No. 7/1996 . " 2. Definitions Unless the context otherwise requires , in these Regulations : 1. “ Proclamation ” means the Investment Proclamation No. 37/1996 ; 2. “ Customs Duty ” includes taxes levied on imported goods ; " Income Tax ” means tax levied on profits from business and categorized as the revenue of the Federal Government , Regional Governments or as their joint revenue ; 4. " Board " means the Federal Investment Board ; Unit Price The African Law Archive 5. “ Authority ” means the Ethiopian Investment Authority ; 6. The definitions provided for under Article 2 of the Proclamation shall apply to these Regulations . PART TWO Exemption from Income Tax 3. Pioneer Investment Activities 1. Pioneer investment activities shall be those listed in Schedule One attached to these Regulations . 2. An investor who invests in pioneer investment ac tivities by establishing a new enterprise shall be exempt from income tax on the following conditions : ( a ) where the investment is in Addis Ababa , Nazareth or in a locality within a radius of 15 kms of the main highway connecting the two cities , the period of exemption shall be for 3 years ; ( b ) where the investment is in relatively under developed Regions such as Gambella , Benishan gul and Gumz , South Omo , certain zones in Afar , Somali and other regions to be determined by the Board , the period of exemption shall be for 5 years ; ( c ) where the investment is in localities other than those specified in sub - Article 2 ( a ) and ( b ) of this Article , the period of exemption shall be for 4 years . 3. Notwithstanding the provisions of sub - Article ( 2 ) of this Article , a foreign investor who invests in accor dance with Article 11 ( 3 ) of the Proclamation shall be entitled to exemption from income tax for a period of 2 years , where the amount invested is less than 500,000 U.S. Dollars or its equivalent in Birr . 4. Promoted Investment Activities 1. Promoted investment activities shall be those listed in Schedule Two attached to these Regulations . 2. An investor who invests in promoted investment activities by establishing a new enterprise shall be exempt from income tax on the following conditions : ( a ) where the investment is in Addis Ababa , Nazareth or in a locality within a radius of 15 Kms of the main highway connecting the two cities , the period of exemption shall be for 1 year ; ( b ) where the investment is in relatively under developed Regions such as Gambella , Benishan gul and Gumz , South Omo , certain zones in Afar , Somali and other regions to be determined by the Board , the period of exemption shall be for 3 years ; ( c ) where the investment is in localities other than those specified in sub - Article 2 ( a ) and ( b ) of this Article , the period of exemption shall be for 2 years . The African Law Archive – No. 29 4 " July 1996 Page 227 3. Notwithstanding the provisions of sub - Article ( 2 ) of this Article , a foreign investor who invests in accor dance with Article 11 ( 3 ) of the Proclamation shall be entitled to exemption from income tax for a period of 1 year , where the amount invested is less than 500,000 U.S. Dollars or its equivalent in Birr . 4. Notwithstanding the provisions of sub - Articles ( 2 ) and ( 3 ) of this Article , an investor who invests in Addis Ababa in investment activities specified in Schedule Two C ( 8 ) , ( 9 ) , ( 11 ) , ( 42 ) and ( 43 ) , D ( 2 ) and G shall not be entitled to income tax exemption . 5. Expansion and Upgrading of Existing Enterprise 2 years ; 1 year . 1. An investor who invests in expansion or upgrading of an already existing enterprise engaged in pioneer or promoted investment activities shall , with respect to such expansion or upgrading , be entitled to income tax exemption on the following conditions : ( a ) for pioneer investment activities : ( b ) for promoted investment activities : 2. An exemption of income tax in accordance with sub Article ( 1 ) of this Article shall be applicable where the additional income generated from the expansion or upgrading is separately held in a different account . 3. The restrictions made under sub - Article ( 4 ) of Article 4 of these Regulations shall also apply to expansion and upgrading of already existing enterprises . 6. Minimum Capital 1. An investor shall be entitled to incentives provided for under Articles 3 and 4 of these Regulations where the investment capital allocated to the new enterprise is not less than : ( a ) 250,000 Birr , in the case of a domestic investor ; ( b ) 500,000 U.S. Dollars , in the case of a foreign investor ; ( c ) 300,000 U.S. Dollars , in the case of a foreign investor's contribution to a joint investment ; ( d ) 100,000 U.S. Dollars or its equivalent in Birr , in the case of a foreign investor reinvesting his profits or dividend . 2. An investor shall be entitled to incentives provided for under Article 5 of these Regulations where the invest ment capital allocated to the expansion or upgrading project , compared to the capital of the already existing enterprise , is not less than the following percentage : ( a ) where the capital is from Birr 250,000 up to Birr ( b ) where the capital is greater than Birr 2,000,000 up to Birr 5,000,000 ..... ( but not less than Birr 900,000 ) ; The African Law Archive Page 228 ( c ) where the capital is greater than Birr 5,000,000 up to Birr 20,000,000 ( but not less than Birr 2,000,000 ) ; ( d ) where the capital is greater than Birr 20,000,000 u to Birr 50,000,000 ( but not less than Birr 7,000,000 ) ; ( e ) where the capital is greater than Birr 50,000,000 up to Birr 100,000,000 ( but not less than Birr 15,000,000 ) ; ( f ) where the capital is greater than Birr 100,000,000 20 % ( but not less than Birr 25,000,000 ) . 3. ( a ) The actual capital of an already existing enterprise shall be as audited and verified by auditor's report or , in the absence of such report , as accepted by the the appropriate investment organ after examination of documents submitted to it . ( b ) The provisions of sub - Article 3 ( a ) of this Article shall also apply to capital invested in the expansion or upgrading of existing enterprises . The period of exemption from income tax shall begin from the date of commencement of production or of provision of services , as the case may be . An investor who has incurred loss within the period of exemption from income tax shall carry forward his loss under the following conditions , for the number of years specified hereunder , after the termination of the tax holiday : 1. where the investment is in Addis Ababa , Nazareth or in a locality within a radius of 15 kms of the main highway connecting the two cities and where such investment falls under pioneer or promoted activities for 3 years ; 2. where the investment is in relatively underdeveloped regions such as Gambella , Benishangul and Gumz , South Omo , certain zones in Afar , Somali and other regions to be determined by the Board : ( a ) for pioneer activities : ( b ) for promoted activities : 4 years ; 3. where the investment is in localities other than those specified in sub - Articles ( 1 ) and ( 2 ) of this Article : ( a ) for pioneer activities : ( b ) for promoted activities : 3 years . 9. Expenditures on Research and Training An expenditure incurred by an investor on research and training programmes to upgrade or expand an enterprise shall be deductible for income tax purposes . 10. Methods of Calculation of Depreciation 1. Subject to the choice of the investor , depreciation allowance shall be calculated annually either on the basis of straight line or accelerated depreciation methods . 5 years ; 5 years ; The African Law Archive * 2. The choice made by an investor in accordance with sub - Article ( 1 ) of this Article shall be indicated at the time of application for investment permit . 3. The method of calculating depreciation allowance chosen by the investor in accordance with sub - Article ( 2 ) of this Article shall be used throughout the duration of the enterprise . PART THREE Exemption from Customs Duty 1. An investor who invests in pioneer or promoted activities enumerated in Schedules ONE , TWO and THREE of these Regulations , the minimum capital specified in Article 6 hereinabove , shall be exempt from payment of customs duty on machinery and equipment necessary for the establishment of a new enterprise or for the expansion or upgrading of an already existing enterprise . 2. Notwithstanding the provisions of sub - Article ( 1 ) of this Article , a foreign investor who reinvests a minimum capital of 40,000 U.S. Dollars or its equivalent in Birr , drawn from the profit of an already existing enterprise , in expansion or upgrading shall be exempt from payment of customs duty on machinery and equipment necessary for said investment . 3. An investor who invests in activities of less than Birr 250,000 capital , enumerated in Schedule FOUR at tached to these Regulations , shall be exempt from payment of customs duty on machinery and equipment necessary for the investment . 4. Notwithstanding the provisions of sub - Articles ( 1 ) and ( 3 ) of this Article , an investor who invests in Addis Ababa in investment activities specified in C ( 8 ) , ( 9 ) , ( 11 ) , ( 42 ) and ( 43 ) of Schedule TWO , F of Schedule THREE as well as B ( 5 ) , ( 6 ) , ( 8 ) and ( 26 ) of Schedule FOUR shall not be exempt from payment of customs duty . 5. Capital goods shall be imported free of customs duty . Provided , however , where substitutes of capital goods required to be so imported are locally produced , the Board shall publicize such substitute capital goods by directives issued from time to time . 6. Goods imported free of customs duty shall not be transferred to third parties not entitled to duty - free privileges , unless prior payment of customs duty is effected thereon . Agricultural Investments The following machinery and equipment , and accessories thereof , together with spare parts of up to 15 % of their value shall be exempt from payment of customs duty : The African Law Archive * No. 29 4 " July 1996 – Page 230 1. agricultural machinery for the preparation of virgin farmland and heavy earth moving equipment for the construction of farm roads ; 2. equipment necessary starting from land preparation or smoothing up to crop harvesting or for separating or cleaning of agricultural produce ; 3. equipment necessary for breeding animals or for separating , preparing or cleaning animal products as well as for fishery development ; 4. production machinery and equipment necessary for agro - industries . 13. Machinery and Equipment to be Imported Duty Free for Manufacturing Investments Machinery and equipment directly put to production of goods , and accessories thereof , together with spare parts of up to 15 % of their value as well as steel structures necessary for construction of factory buildings shall be exempt from payment of customs duty . 14. Machinery and Equipment to be Imported Duty Free for Construction Investments Construction machinery and equipment , together with spare parts of up to 15 % of their value , necessary for contractors , water - well drilling and other water related construction works as well as for leasing - service purposes shall be exempt from payment of customs duty . Hotel and Tourism Services 1. Durables of big importance necessary for kitchen work as well as for laundry services in star - rated hotels and lodges inside parks and historical sites shall be exempt from payment of customs duty . 2. The type and quantity of goods to be imported as under sub - Article ( 1 ) of this Article shall be determined by directives issued by the Board . 16. Equipment to be Imported Duty Free for Investments in Educational Services Equipment necessary for educational services including laboratory equipment , as specified in directives issued by the Ministry of Education in respect of educational institutions at various levels , shall be exempt from payment of customs duty . 17. Equipment to be imported Duty Free for Investments in Health Services Equipment necessary for health services including laboratory equipment , as specified in directives issued by the Ministry of Health in respect of health institutions at various levels , shall be exempt from payment of customs duty . The African Law Archive -No . 29 4 " July 1996 – Page 231 18. Equipment to be Imported Duty Free for Investments in Transport and Storage Services Vessels and small ships for transportation of people and goo ls on inland waters , aircrafts with a seating capacity of up to 20 passengers or with a cargo capacity of 2,700 kg . , other equipment and accessories thereof for aviation services , air cooling equipment to be installed in warehouses , cranes and in - house vehicles for transporting goods together with spare parts of up to 15 % of their value shall be exempt from payment of customs duty . 19. Equipment to be Imported Duty Free for Investments in Engineering and Technical Consultancy Services Equipment for surveying , designing , photogrametry and cartograhpy , measurement and accuracy devices and the like , with the exception of such office equipment as computers and photocopiers , equipment necessary for engineering and technical consultancy services and acces sories thereof shall be exempt from payment of customs duty . Activities in Waste Disposal Services Vehicles for lifting and transporting solid or liquid waste , and accessories thereof , together with spare parts of up to 15 % of their value shall be exempt from payment of customs duty . 21. Machinery and Equipment to be Imported Duty Free for Investments in Generation of Electrical Energy and in Petroleum Refining Machinery and equipment , and accessories thereof , neces sary for generating , transmitting and distributing electrical energy as well as for refining of petroleum , together with spare parts of up to 15 % of their value , shall be exempt from payment of customs duty . 22. Support Machinery and Equipment Support machinery and equipment such as forklifts , electric generators , compressors , machinery and equip ment for installation of electric and water supply lines , conveyors , laboratory equipment , boilers and main tenance equipment , radio communication equipment , special purpose vehicles with refrigerators or sprayers and vehicles designed for transporting live animals shall , where ascertained necessary by the Authority for the investment project , be exempt from payment of customs duty . 23. Vehicles The type and quantity of vehicles to be exempted from payment of customs duty , as deemed necessary for the commencement and operation of investment activities , shall be determined by directives to be issued by the Board in consideration of their nature , size or location . The African Law Archive - No. 29 4 » July 1996 – Page 232 PART FOUR Miscellaneous Provisions 24. Inapplicable Regulations and Directives Any Regulations or directives inconsistent with these Regulations shall not be applicable with respect to matters covered herein . 25. Effective Date These Regulations shall come into force as of the 18th day of June , 1996 . Done at Addis Ababa , this 4th day of July , 1996 . PRIME MINISTER OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA The African Law Archive