Updated on: 2025/08/04 14:03 (UTC)
Overview
Ethiopia, which officially is known the Federal Democratic Republic of Ethiopia, is located in East Africa. It is bordered by Eritrea to the north, Djibouti to the northeast, Somalia to the east, Kenya to the south, and Sudan and South Sudan to the west.
Ethiopia consists of nine first-order administrative divisions, or urban municipalities, known as kililoch. They are Afar, Amara (Amhara), Binshangul Gumuz, Gambela Hizboch (Gambela Peoples), Hareri Hizb (Harari People), Oromiya (Oromia), Sumale (Somali), Tigray, Ye Debub Biheroch Bihereseboch na Hizboch (Southern Nations, Nationalities and Peoples). The country also has two self-governing administrations: Adis Abeba (Addis Ababa) and Dire Dawa.
Ethiopia’s currency is the birr.
Employers in Ethiopia are required to withhold income taxes and social taxes from all employees and make monthly remittances. Employers also are assessed social taxes and must uphold Ethiopian labor laws.
Ethiopians working in the United States are covered by U.S. tax law with possible treaty and work status exclusions applying. Work within the U.S. states and territories is covered by various labor laws.
Foreign workers generally are bound by the same income tax and labor laws as Ethiopian citizens, but are not liable to social taxes.
CURRENCY DETAILS
The currency of Ethiopia is the birr (Br), also known as the Ethiopian dollar. The internationally recognized three-letter currency code for the birr is ETB. The plural form of birr is the same as its singular form.
When an amount of birr is written using the currency symbol Br or one of its variants (Br., br, and br.), the symbol precedes or follows the numerical value, generally with a space, but sometimes no space, between the numerical value and symbol. When an amount of birr is written using the currency symbol EB or the variant EB., the symbol precedes or follows the numerical value with a space between the numerical value and symbol.
The Amharic language has a language-specific currency symbol for the birr. The Amharic currency symbol for the birr, ብር, consists of two letters of the Ge’ez script used for Amharic that can be transliterated as Br, the predominant currency symbol for the birr in international contexts. When an amount of birr is written using the currency symbol ብር, the symbol precedes or follows the numerical value with a space between the numerical value and symbol.
As per the currency’s alternate name of Ethiopian dollar, when an amount of birr is written using the currency symbol E$, or the variant $E, to distinguish birr from other dollar currencies, and when Ethiopian documents use the general dollar currency symbol $ to refer to birr, the symbol follows the numerical value with a space between the numerical value and symbol. This placement treatment differs from the general placement treatment for currency symbols for dollar currencies, in which an applicable symbol precedes the numerical value with no space between the numerical value and symbol.
One hundredth ( 1 ⁄ 100 ) of a birr is referred to as a santim, which has the same plural form as its singular form, or as a cent, with the plural form of cents.
When amounts of birr are written in Amharic, the comma that in English separates the thousands place from the hundreds place sometimes is not rendered, with the numbers in the thousands place and hundreds place having no symbol or space between them and instead adjacent to each other.
TAXES
The federal government generally enacts laws relating to income tax and social tax.
The Ethiopian tax year runs from July 8 to July 7.
Income Taxes
The Ethiopian Revenues and Customs Authority (ERCA) administers the regulation and payment of income taxes in Ethiopia.
Coverage: Residents are taxed on their worldwide income and nonresidents are taxed exclusively on their Ethiopian-sourced income. Residents are defined as those who either have a domicile or habitual abode in Ethiopia, are a citizen of Ethiopia, or stay in Ethiopia for a period of 183 days in a period of 12 months.
Employees: Employees are defined as individuals, other than contractors, engaged to perform services under the direction and control of an employer. Contractors are defined as individuals engaged to perform services under an agreement by which the individuals retain substantial authority to direct and control the manner in which the services are to be performed.
Rates and Thresholds: Income tax rates are levied on a progressive scale, with rates assessed on employment income ranging from zero to 35%. Ethiopia’s set of personal income tax brackets for employment income also is known as Schedule A.
Ethiopia’s national personal income tax rates and minimum and maximum amounts of monthly employment income for each tax bracket are as follows:| Range of Monthly Income (Ethiopian Birr) | Income Tax Rate |
|---|---|
| Up to Br 600 | Zero |
| More than Br 600 and up to Br 1,650 | 10% |
| More than Br 1,650 and up to Br 3,200 | 15% |
| More than Br 3,200 and up to Br 5,250 | 20% |
| More than Br 5,250 and up to Br 7,800 | 25% |
| More than Br 7,800 and up to Br 10,900 | 30% |
| More than Br 10,900 | 35% |
Registration: Employers must apply with ERCA for a Taxpayer Identification Number (TIN) upon beginning operations. New employees are required to provide employers with their TIN, which employers must provide to the tax authority in their monthly returns.
Taxable Amounts: Employment income includes all payments or gains in cash or in kind received from employment by an individual. Examples include salary, severance pay, annual leave payments, and bonuses.
The following items are excluded from the calculation of taxable income:
- income from casual employees employed not more than one month in any 12 month period;
- pension contributions up to 15% of monthly salary;
- payments as compensation or gratitude in relation to personal injuries or death;
- amounts paid by employers to cover medical treatment of employees;
- transportation allowances granted to employees;
- allowances for hazardous work;
- relocation expenses; and
- income from domestic work.
Withholding Methods: Employers must withhold income tax from all payments, using the Schedule A tax tables located in the Income Tax Proclamation.
Returns and Remittance: Employers must make income tax payments by the 30th day of each month for amounts paid in the previous month and must file monthly returns along with their payments. Employers use Form 1105, Withholding Tax on Payment Declaration, to report to the Ethiopian Revenues and Customs Authority data regarding income taxation of employment income. Employers may make payments electronically to ERCA, or through approved financial institutions.
Employers also must present all workers with a tax withholding certificate, which describes the amounts paid and withheld.
Recordkeeping: Employers must keep a tax record of all payments and taxes withheld for at least five fiscal years after the end of the fiscal year to which the records relate.
Penalties: Late payments are assessed interest and a late payment penalty. The interest rate is set at 25% above the highest commercial lending interest rate during the previous quarter. Penalties for late payments are assessed at 5% of taxes outstanding for the first day of delinquency and an additional 2% on the first day of each passing month.
Penalties for late filings are assessed as follows:
- Br 1,000 for the first 30 days of delinquency,
- Br 2,000 for the next 30 days of delinquency, and
- Br 1,500 for each additional 30 day period of delinquency.
Failure to keep proper records is subject to a fine of 20% of the tax liability for that month.
Failure to withhold taxes is subject to a fine of Br 1,000 for each violation. Managers who knew or should have known of the failure to withhold taxes, as well as the chief accountant or other senior officer responsible for withholding procedures are each subject to a fine of Br 1,000.
Employers that understate their tax liability are subject to a fine of 10% of tax amounts not reported, or 50% if the understatement exceeds 25% of the total tax liability of Br 20,000.
Social Taxes
Employers and employees in Ethiopia are assessed taxes to fund employee pensions and occupational injury insurance benefits. The Private Organization Employees’ Social Security Agency oversees private-sector employee pensions and administers assessment of these taxes. The taxes are contributed to the Private Organizations Pension Fund.
Coverage: All employees and employers in Ethiopia are subject to Ethiopia’s social insurance taxation provisions.
Permanent employees are individuals who have a contract for employment for an indefinite period.
Rates and Thresholds: Private-sector employers are assessed a social security tax rate of 11% for the Private Organizations Pension Fund, and these taxes also are used to fund occupational injury insurance benefits.
Private-sector employees are assessed a social security tax rate of 7% for the Private Organizations Pension Fund, and these taxes also are used to fund occupational injury insurance benefits.
Registration: Employers must register with the Private Organization Employees’ Social Security Agency within 60 days of hiring their first employees and must register employees within 60 days of their hiring date. After registering, employers and employees will each receive a Social Security Registration identification Number. New employees who already possess a social security number must inform their employers.
Taxable Amounts: Employers must calculate contributions based on all salary payments made to employees. The Private Organization Employees Pension Proclamation defines salary as monthly income received by the employees of a private organization, for services rendered during regular working hours without the deduction of any amounts for income tax or any other matter.
Returns and Remittance: Employers, after deducting the employee portion of social taxes from employment income paid to employees, must pay the employer and employee portions of the social taxes by the 30th day after the month when employment income was paid upon which the social taxes were assessed. Employers use a pension contribution declaration form to report data regarding social taxes assessed on employment income.
Penalties: Violations of the Private Organization Employees Pension Proclamation are subject to fines of up to Br 10,000 and a prison sentence of up to five years.
Other Taxes
Ethiopia’s national government does not assess any taxes on employment income other than those covered in the Income Taxes and Social Taxes sections of this primer.
State/Jurisdiction Taxes
Taxes on employment income are not assessed by any of Ethiopia’s kililoch or local jurisdictions.
COMPENSATION AND BENEFITS
Employers must uphold the labor laws of Ethiopia, which are regulated by the Ministry of Labor and Social Affairs. These laws provide regulations regarding minimum wage rates, overtime, hours of work, holidays, leave, wage payment, termination pay, workers’ compensation, and recordkeeping. Retirement plans are covered under social taxes.
Labor Proclamation No. 377/2003 is the overriding body of labor law in Ethiopia.
Minimum Wage
Ethiopia does not have national minimum wage.
Overtime
Work performed in excess of normal work hours, as described below, are considered overtime hours and must be paid at 1.25 to 2.5 times normal wages, depending on the time the work was performed as follows:
- work performed between 6 a.m. and 10 p.m. must be compensated with 1.25 times normal wages,
- work performed between 10 p.m. and 6 a.m. must be compensated with 1.5 times normal wages,
- work performed on a weekly day of rest must be compensated with two times normal wages, and
- work performed on a public holiday must be compensated with 2.5 times normal wages.
Overtime may only be required in the case of an accident (actual or threatened), a force-majeure, urgent work or the substitution of an absent worker assigned on work that runs continuously without interruptions.
Overtime work may not exceed two hours in a day, 20 hours in a month, or 100 hours in a year.
Hours of Work
Normal hours of work may not exceed eight hours a day or 48 hours in a week. Employers must provide all workers with a 24 hour period of uninterrupted rest every week, which, whenever possible, should fall on Sunday and be granted simultaneously to all workers in their employ. Normal hours of work for employees under the age of 18 are limited to seven hours per day. Employees under 18 also are prohibited from performing work between the hours of 10 p.m. and 6 a.m., overtime work, work on weekly resting days and work on public holidays.
Holidays
Ethiopia mandates the following paid public holidays:
- Jan. 7: ‘Gena’ - Ethiopian Christmas
- Jan. 19: ‘Timkat’ - Ethiopian Epiphany
- March 2: Victory of Adwa Commemoration Day
- May 1: International Labor Day
- May 5: Ethiopian Patriots Victory day
- May 28: Overthrow of the Derg Regime
- Sept. 11: ‘Enkutatash’ - Ethiopian New Year
- Sept. 27: ‘Meskel’ - Finding of the True Cross
- Ethiopian Good Friday
- Ethiopian Easter
- Id Al Adha
- ‘Mawlid’ - The Birth of the Prophet Mohammed
- Id Al Fater-End of Ramedan
Holidays without dates have different calendar dates every year.
Leave
Employers must grant employees 14 days of annual leave on their first year of service. Employers are required to provide this to all first year employees who have accrued 26 days of service. This amount must increase by one day of leave for every additional year of service.
Marriage leave: Employers must grant newly wedded employees with three days of paid leave.
Bereavement leave: Employers must grant employees whose spouse, parent or child passes away with three days of paid leave.
Union leave: Employers must provide leaders of trade union with paid leave for the purpose of presenting cases in labor disputes, negotiating collective agreements, attending union meetings, seminars or training courses.
Civil leave: Employers must provide employees with paid leave for the purpose of performing civil rights or duties.
Sick leave: Employers must provide all employees who have completed their probationary period with paid sick leave. The leave may not exceed six months in a 12 month period. Sick leave is paid at normal wages for the first month of leave, 50% of normal wages for the second month of leave and is provided as unpaid leave thereafter.
Maternity leave: Employers must provide pregnant employees with 30 consecutive days of paid preceding the due date of the employees’ children and 60 consecutive days of paid leave after the birth of their children.
Wage Payment
Wages must be paid in cash, unless an agreement stipulates otherwise. Even with an agreement, wages paid in kind cannot exceed 30% of wages. Wages must be paid on a working day and at the place of work.
Employers must keep a record of all wage payments, and their method of calculation.
Bonuses and Special Benefits
Ethiopia does not mandate employers to provide bonus payments to employees.
Termination Pay
Employers or workers wishing to terminate an employment relationship generally must provide notice in writing based on length of service as follows:
- Employed up to one year: one month of notice;
- Employed more than one year but less than nine years: two months of notice;
- Employed more than nine years: three months of notice.
Employees who are terminated due to redundancy generally are entitled to two months of notice.
Employers may terminate employees without notice in the case of termination with cause.
Employers generally must provide the severance payments to terminated employees based on their length of service. Employees with up to one year of service are entitled to 30 times the average daily wage of the employee’s last week of service. Employees with more than one year of service are entitled to the aforementioned amount increased by a third of that sum for every year of service after the first year. If employees are dismissed because the employer goes bankrupt or reduces the workforce by at least 10%, they are entitled to a sum equal to 60 times their average wage over their last week of service.
Workers’ Compensation
Employers are considered liable, irrespective of fault, for employment injuries sustained by their workers. This excludes cases were an employee injures themselves, disobeys express safety instructions or reports to work in a state of intoxication. Employer liability generally includes providing immediate assistance to the injured or sick worker, covering the employee’s medical benefits, making disability payments, paying death benefits and/or paying for funeral expenses of diseased workers.
Recordkeeping
Employers must keep a record of weekly rest days, public holidays, and leave utilized by all employers. Employers must also keep records of their employees’ health conditions and all employment injuries.
FOREIGN WORKERS
Foreign workers are entitled to the same rights as Ethiopian citizens and generally are covered by the same income tax and workplace laws. Foreign workers are exempt from paying social taxes.
Visas: All foreign workers must obtain a work permit in order to work legally in Ethiopia. Work permits are granted by the Ministry of Labor and Social Affairs and must be renewed every year. Work permits can be renewed up to three years. To apply, both the employer and foreign worker must submit an application to the Ministry of Labor and Social Affairs.
To reside legally in Ethiopia for longer than 90 days, foreign workers generally must apply for a residence permit with the Department of Immigration in the Ministry of the Interior.
To enter Ethiopia, foreign workers generally must have an entry visa, which they can apply for at their local Ethiopian embassy or consulate.
Taxes: Foreign workers generally are subject to income taxes but not social taxes in Ethiopia. Residents of Ethiopia are subject to income taxes on their worldwide income, while nonresidents are only subject to taxes on their Ethiopian-sourced income at the same rates.
Wages/Payments: While there is no explicit prohibition against paying employees in foreign currency, foreign exchange of currency is tightly controlled in Ethiopia, and only allowed by approved financial institutions.
WORKING IN THE UNITED STATES
Foreign workers from Ethiopia must meet general visa requirements and be certified to be employed in the United States. General visa requirements for the U.S. are included in the separate
U.S. employers also must check the names of all new-hires and employees against the Specially Designated Nationals and Blocked Persons List, administered by the Treasury Department’s Office of Foreign Assets Control (OFAC). Because OFAC prohibits financial transactions with individuals on the list, employers cannot employ them and may face fines for failing to comply.
Ethiopian workers are eligible to work in the U.S. under H-2B visas, which cover labor or services of a temporary or seasonal nature in occupations other than agriculture or registered nursing. The number of H-2B visas issued each year is limited by U.S. law.
For tax purposes, Ethiopians are subject to U.S. employment-based taxation on income earned in the U.S. unless they can claim an exemption under certain tax treaty provisions or they work under specific visa types that exempt earnings from taxes.
State and local taxation of Ethiopian workers also can apply, although some states within the U.S. recognize international tax treaties that can eliminate that income tax liability for foreign workers.
The U.S. labor laws apply to all workers employed and providing services in the country.
Work eligibility as an employee is contingent upon Department of Homeland Security and Labor Department approval and the employee receiving a U.S. Social Security number from the Social Security Administration.
Tax Residency: In general, employees working in the U.S. on a temporary basis are considered nonresidents for tax purposes unless they qualify for resident status. Employees can be granted permanent resident status through the so-called green card test or if they meet the substantial presence test under the U.S. tax code. More information on these requirements is in the
Permanent residents are subject to U.S. tax requirements the same as U.S. citizens and are taxed under the U.S. system on their worldwide earnings.
Income Taxes: Generally, nonresidents in the U.S. who are from Ethiopia and are working in the U.S. are subject to U.S. taxes based on their U.S.-sourced income. Income is taxed differently based on whether it is categorized as wage income or nonwage income, which includes interest and dividends.
A Form W-4, Employee’s Withholding Certificate, must be filed by each employee with their employer. All nonresidents in the U.S. who are from Ethiopia and are working in the U.S. must claim “single” in Step 1c, regardless of marital status; write “Nonresident Alien” or “NRA” in the space under Step 4c of the form; and may not claim “exempt” in the space under Step 4c.
Nonresident alien employees may adjust withholding using Step 2b or 2c of the Form W-4; certain employees also may be able to use Steps 3, 4a, or 4b. More information about Form W-4 requirements for nonresident alien employees is available in the
Although the versions of Form W-4 issued in 2020 or later significantly differ from the versions issued in 2019 or earlier, nonresident employees that filed a valid version of Form W-4 from 2019 or earlier with their employer do not need to file another Form W-4 with the employer unless they need to implement a change for their withholding. On Forms W-4 issued in 2019 or earlier, nonresident alien employees were required to check the “single” box on line 3, regardless of marital status; write “Nonresident Alien” or “NRA” above the dotted line on line 6; and were not permitted to claim “exempt” on line 7 of the form.
An additional amount is added to a nonresident alien employee’s wages for calculating federal income tax withholding, with the amount based on pay period frequency and the date of the employee’s most recently filed Form W-4. The table of additional amounts applicable to Forms W-4 from 2020 or later and the table applicable to Forms W-4 issued before 2020 are available in the
Nonwage income and self-employed foreign workers can be subject to income tax withholding at a flat rate of 30%.
Additionally, foreign workers may be taxed differently based on the specific type of visa they hold.
Tax treaties: Ethiopia and the U.S. do not have a tax treaty.
Social Taxes: Most foreign workers are subject to paying into the U.S. Social Security system. Foreign nationals who are exempt from paying income tax and who do not have the eligibility to receive a social security number may not be required to pay social taxes. Foreign workers contributing to Social Security for a certain time period may be eligible to receive benefits.
Generally, foreign workers in the U.S. that have specific visas as exchange visitors or students or who are temporarily in the U.S. for agricultural work are not subject to social taxes on income that is obtained from the purpose in which they originally entered the United States.
Totalization Agreements: Ethiopia and the U.S. have not entered into a social tax totalization agreement.
Wage Payment: Under certain visas for certain types of employment, employers are required to pay foreign workers the higher of either the prevailing wage or the actual wage that is paid to U.S. workers that have similar skills and qualifications.
There are no particular requirements that employees be paid in U.S. dollars.
TREATY ARRANGEMENTS
Ethiopia has entered into more than 15 income tax treaties, but has not entered into an income tax treaty with the United States. Ethiopia does not have a totalization agreement with the United States for social tax coverage purposes.
The countries with which Ethiopia has a bilateral income tax treaty in effect are China, Cyprus, the Czech Republic, Egypt, France, India, Ireland, Israel, Italy, Kuwait, the Netherlands, Poland, Portugal, Romania, Saudi Arabia, Seychelles, Singapore, Slovakia, South Africa, South Korea, Tunisia, Turkey, and the United Kingdom.
Ethiopia has an additional income tax treaty in effect with the Netherlands with regard to three of the Netherlands’ special municipalities in the Caribbean Sea. The special municipalities in the Caribbean Sea covered by the treaty with Ethiopia are Bonaire, Saba, and Sint Eustatius.
Ethiopia does not have any totalization agreements for social tax purposes in force.
RESOURCES
All resources in English unless otherwise noted.
General
U.S. State Department: U.S. Relations With Ethiopia
CIA World Factbook: Ethiopia
Currency Details
International Organization for Standardization: Currency Codes - ISO 4217
Unicode Consortium: Currency Symbols
United Nations: United Nations Terminology Database: Ethiopia
Taxes
The Ethiopian Revenues and Customs Authority
Ethiopia Proclamation No. 715/2011
Compensation and Benefits
The Labor Proclamation
Foreign Workers
Ministry of Labor and Social Affairs, Employment of Foreign Nationals In Ethiopia
Ministry of Labor and Social Affairs, Employment Income Tax in Ethiopia
Working in the United States
U.S. Department of Labor:
- Foreign Labor Certification
- Hiring Foreign Workers
U.S. Internal Revenue Service:
- IRS Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens
- IRS Publication 15, Circular E, Employer’s Tax Guide
- IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
- IRS Publication 519, U.S. Tax Guide for Aliens
- IRS Publication 901, U.S. Tax Treaties
Treaty Arrangements