DOING BUSINESS IN ETHIOPIA IN 2020
Since 2003, Healy Consultants Group PLC has assisted our Clients with starting companies in Ethiopia. Our services include i) Ethiopia business registration ii) government license registration iii) Ethiopia corporate bank account opening iv) employee recruitment v) visa strategies and vi) office rental solutions.
|Compare different Ethiopia entities||LLC||Fast Nominee||Joint venture company||Free zone LLC||Agro-business setup company||Representative office|
|Also known as||PLC||National PLC||JV||FZE||PLC||Liaison office|
|Best use of company?||All products and services||All products and services||All products and services||Manufacturing and export trading||Agriculture and Agro processing||Marketing & research|
|How soon can you invoice Clients/sign sales contracts?||5 weeks||1 week||5 weeks||6 weeks||5 weeks||Cannot trade|
|How soon can you hire staff?||5 weeks||1 week||5 weeks||6 weeks||5 weeks||6 weeks|
|How soon can you sign a lease agreement?||2 weeks||1 week||2 weeks||2 weeks||2 weeks||2 weeks|
|How long to supply corporate bank account numbers?||6 weeks||1 week||6 weeks||6 weeks||6 weeks||6 weeks|
|How long to supply company registration/tax numbers?||5 weeks||1 week||5 weeks||6 weeks||5 weeks||6 weeks|
|Corporate tax rate on annual net profits?||30%||30%||30%||0% for first 2-4 years, 30% thereafter||30%||Cannot trade|
|Limited liability entity?||Yes||Yes||Yes||Yes||Yes||No|
|Government grants/incentives available?||Yes||Yes||Yes||Yes||Yes||No|
|Government approval required for foreign owners?||No||No||No||No||No||No|
|Resident director/partner/manager/legal representative required?||No||No||No||No||No||No|
|Minimum paid up share capital?||US$200,000||US$200,000||US$150,000||US$200,000||US$200,000||US$100,000|
|Can bid for Government contracts?||Yes||Yes||Yes||Yes||Yes||No|
|Corporate bank account location?||United Bank||Dashen Bank||Bank of Abyssinia||Commercial Bank of Ethiopia||Dashen Bank||Awash International Bank|
|Can secure trade finance?||Yes||Yes||Yes||Yes||Yes||No|
|VAT payable on sales to local customers?||15%||15%||15%||15%||15%||Cannot trade|
|Average total business set up engagement costs?||US$16,800||US$39,500||Request a proposal||Request a proposal||Request a proposal||US$16,800|
|Average total engagement period?||3 months||2 weeks||3 months||3 months||3 months||3 months|
Ethiopia company registration summary
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Advantages and Disadvantages
Advantages of Ethiopia company registration
- An Ethiopia limited liability company (LLC) can be incorporated with only 1 manager and 2 shareholders, who can be of any nationality and our Clients do not need to travel to Ethiopia to complete the engagement;
- Ethiopia is a promising market for international entrepreneurs seeking to do business in Africa because:
- Ethiopia is one of the fastest growing economies in Africa with i) a GDP of US$177.5 billion and growth rate at an average of 10.2% ii) a population of 91.2 million and a iii) Foreign Direct Investments (FDI) inflow of US$3.2billion;
- Ethiopia has a large domestic market with over 90million consumers. Additionally, the country is also member of Common Market for Eastern and Southern Africa (COMESA) offering entrepreneurs a wider access across Africa;
- The Ethiopian Government permits full repatriation abroad of profits, interests, dividends and capital gains without restrictions;
- Ethiopia has an abundant human resource with cheap labour that would be ideal for companies looking to establish labour intensive manufacturing units;
- Ethiopia has huge natural resources potential that could provide opportunities for expansion of hydroelectric power generation, fisheries and agriculture;
- Ethiopia is increasingly becoming more open to foreign investment and has granted its first financial services license on August, 2019 allowing the company to import US$600 million worth of equipment this year;
- Companies established in Ethiopia can enjoy various tax benefits including:
- Investors looking to import investment capital goods including i) construction materials, ii) plant machinery and equipment and iii) spare parts not manufactured within Ethiopia are guaranteed 100% exemption from customs duty;
- Local products and services in Ethiopia produced and intended for export are not subject to any form of taxation otherwise applicable on exports;
- Investors looking to engage in new agribusiness or manufacturing activities in Ethiopia will enjoy a 5-6 years tax holiday from income tax provided they export at least 50% of all their products;
- Local companies are permitted to carry forward their business tax losses for up to 3 years within a tax holiday;
- Ethiopia has customs duty and quota free market access to both the EU and USA under the Everything But Arms (EBA) initiative and African Growth and Opportunity Act (AGOA) trade agreements respectively;
- Currently, the Ethiopian government aims to build adequate infrastructure by 2020 to i) export natural gas and reap approximately US$1 billion of revenue and ii) serve the local markets with natural gas at affordable rates. Therefore, it is an attractive destination for new investors belonging to manufacturing and related industries;
- Ethiopia’s banking industry has significantly improved over the years with more than 500 new branches of commercial banks being established in the country and serving over 20,000 customers per branch.
Disadvantages of Ethiopia company registration
- Starting a business in Ethiopia is challenging for foreign nationals because:
- The minimum paid-up capital required to register a company in Ethiopian is US$200,000 and must be reflected in the company’s account yearly;
- A limited liability company must appoint at least one General Manager during incorporation. If a foreigner, the general manager will be required to secure a work and residence permit;
- There is relative lack of sophistication with regards to business and legal infrastructure. It is common to get conflicting information from various government agencies;
- Before company incorporation is complete, a company must secure a physical office space, sign a lease agreement and get the same authenticated by the Government.
- Foreign companies setting up in Ethiopia will be required to translate all the company documents to Amharic and legalize the same at the Ethiopian Embassy in their country of domicile;
- Doing business in Ethiopia can also be challenging for investors because:
- Companies registered in Ethiopia are subject to i) corporate tax rate of 30% ii) a Value Added Tax (VAT) of 15% iii) withholding taxes and capital gains tax of up to 30%. Individuals are also subject to higher income tax rate of 35%;
- Access to foreign exchange is limited in Ethiopia. Additionally, state owned companies and projects are usually given priority by banks over their private sector counterparts, with regards to foreign exchange;
- There are no international banks in Ethiopia, thus foreign entrepreneurs and investors are forced to seek banking services from the available local banks that are of low quality;
- Corruption in the EPRDF, the ruling political coalition, is endemic and politicians enjoy preferential treatment and access to lucrative sectors of the economy and offering no level playing field;
- Although there are no currency restrictions in Ethiopia, shortage of foreign currency can make repatriation of funds outside of Ethiopia extremely difficult;
- Lack of quality infrastructural facilities along with improper technological readiness that restricts proper utilisation of resources and skills in the country for conducting business at a global level.
- Due to the strict exchange controls, the Ministry of Trade through the local banks, have the power to limit/restrict traders on the volume of import and export of products permitted. Additionally, the local currency (Birr) is not freely convertible;
Best uses for Ethiopia company
- Ethiopia is a good jurisdiction to establish an agricultural product trading and export company. The country has a huge domestic market of about 90million consumers and is also the largest producer of coffee in Africa and top 5 in the world;
- Entrepreneurs keen to invest in leather and leather products will find Ethiopia and opportune destination to invest in. Ethiopia is home to some of the world’s best leather and a leading exporter of leather and leather products in Africa. Some of the globally renowned brands like Calvin Klein and Guess receive their supplies from local Ethiopian companies.
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