Ethiopia’s Council of Ministers has issued Regulation No. 586/2026, establishing a new system of tax and customs incentives to encourage investment in strategic sectors. The Regulation provides reduced income tax rates, exemptions, and capital allowances for Special Economic Zones, startups, environmental initiatives, and public listings.
Ethiopia’s Council of Ministers has introduced Regulation No. 586/2026, published in the Official Gazette on 23 February 2026, establishing a new system of tax and customs incentives to encourage investment in strategic sectors.
The regulation targets agriculture, manufacturing, import substitution, technology transfer, entrepreneurship, environmental protection, mining and energy, service industries, job creation, and balanced regional development.
The law offers performance-based incentives, including investment capital allowances, reduced income tax rates, exemptions from minimum alternative tax, dividend tax, capital gains tax, and customs duties. Investors must create additional production capacity or value addition, register as taxpayers, maintain separate accounting records for each project, and comply with a ring-fencing system to ensure incentives are used correctly. Incentives are time-bound, non-transferable except as allowed, and revocable in case of legal violations.
Key measures include:
- Special Economic Zone developers and sub-developers: 5% income tax for 10 years, dividend tax exemption for 5 years, and exemption from Minimum Alternative Tax for 10 years.
- Special Economic Zone enterprises: 15% income tax for qualifying sectors; 5% for 10 years in fertiliser manufacturing.
- Startups: 5% income tax for 10 years, dividend tax exemption for 5 years.
- Startup investors: Exemption from capital gains and dividend taxes, and a 3-year Minimum Alternative Tax exemption for loss-making investments.
- Environmental initiatives: 15% reduced income tax for 10 years for participants in the carbon market, and 5–15% reductions for renewable energy or recycled input usage.
- Public listing: 25% reduced income tax for 3 years for companies listing shares on a licensed Ethiopian exchange.
- Scientific research: Deductible expenditures for research conducted internally or via third parties, with certain exclusions.
- Capital expenditure: Deductible for investments of at least USD 2,000,000 or equivalent in Ethiopian Birr on capital goods and building materials in prescribed sectors.
Customs duty and tax incentives also apply to imports, including mining, petroleum, and geothermal equipment. SMEs are exempt from the USD 10 million minimum investment requirement for reduced income tax. Transitional provisions allow incentives granted under previous regulations to remain valid until their expiry. The Ministry of Finance will issue directives detailing eligible sectors and implementation rules.
