Directive to Provide for the Application of Tax Incentives for Expansion/Upgrading of Investment No. 941/2023

SECTION 1 GENERAL PROVISIONS 1. SHORT TITLE This Directive may be cited as “Directive No. /2022 to provide for the Application of Tax Incentives for Expansion/Upgrading of Investments”. 2. DEFINITIONS Subject to the definitions of words and phrases under the Proclamation and Regulation, in this Directive: = = s = - 1/ “Proclamation” means the Investment Proclamation No. 1180/2 020; 2/ “Regulation” means the Investment Incentives Council of Ministers Regulations No. 517/2022; 3/ “Existing Enterprise” means an enterprise on which an investor has acquired business license or any other license and is engaged in production or service rendering activities; 4/ “Person” means a natural or juridical person, Expansi.Incentive. TW/GT

SECTION 2 INCENTIVES ON INCOME TAX EXEMPTION FOR EXPANSION OR UPGRADING OF EXISTING ENTERPRISES 3. UTILIZATION OF INCENTIVES I/° An investor engaged in Expanding or Upgrading existing enterprises shall be beneficiaries of the business income tax exemption as follows; a) Aninvestor who expands the production and service rendering capacity of the existing enterprise in volume: s 4 4 (i) from 50-70% shall be beneficiary of the business income tax exemption on 60% of the tax payable on the profit made from the increase in volume; (ii) from 71-90% shall be beneficiary of the business income tax exemption on 80% of the tax payable on the profit made from the increase in volume; (iii) over 90% shall be beneficiary of the business income tax exemption on 100% of the business income tax payable on the profit made from the increase in volume; b) An Investor who increases in variety or volume by at least 100% by introducing new production or service rendering line of an existing enterprise shall be beneficiary of the income tax exemption provided under the schedule attached with the Regulations on income obtained from the upgrading. 2/ As provided under Article 5(2) the Regulation, the income tax exemption for Expansion or Upgrading shall only apply to the income obtained from the Expansion and pgrading. 3/ For purposes of Sub-article 1(a) of this Article, an Expansion of the existing enterprise shall be eligible for tax incentives when it increases in volume the Expansi.incentive.TW/GT 4. Conditions for being beneficiagz of the In centive 1/ An investor may beco me beneficiary of the €xpansion or upgrading income tax exemption upon fulfilling the follow granted for ing conditions: a) submit evidence showin g that the enterprise production or service has' been engaged in rendering activities for months; at least thirty-six (36) b) submit financial statement certified by an external capital invested to mo auditor showing the dernize the production technology or to increase process, to introduce new the production or servic e type; ¢) submit financial statement - certified by an external volume of production auditor showing the or service rendered completion of the upgrad within a year after ing; the d) if it has been granted tax exemption privilege that it has fulfilled jts ; submit evidence show obligations to declare ing exemption period in acc its income during the ordance with tax laws, tax 2/ fully benefited from the income tax exemption operate his investment, under the Regulation cea and re-engages in anothe ses to qualifies for tax exemptio r investment activity n shall not be which which he has already used entitled 10 a tax exemption for the enterprise dissolved for a period , 3/ For the purpose of sub-ar ticle 2 of this Article; the tax exemption is a com in cases where the benefi pany:; if a shareholder ciary of 50% of the shares of the of the company dissolved New company, the new owns a tax exemption for a per company shall not be ent iod which the company itl ed to dissolved has utilized. 4/ 5/ Expansi.ncentive. Tw/GT 5. TMa — in— tena— nce ol of =Bo a Book okssc of Ac of e Ac co coun untt I/° The investor shall mai ntain a separate books and expenditure for the of accounts for the in Expansion and Upgradin come from g, 2/ The investor shall mai ntain a separate books expenditure for the of account for income Expansion or Upgrad from and provided under Article 76 in g using the apportio of the Income Tax nm en t rule Proclamation No, 979/20 16. Commen = ——ce —-ment Date e of of the Incentives The incentive for Expa nsion and Upgrading the investor received shall commence from updated trade license the date on which Expansion or Upgrading, upon increasing its cap ital due to the

SECTION 3 INCENTIVES ON DUTY FREE IMPORTATION GOODS AND BUILDING OF CAPITAL MATERIALS FOR EXPA UPGRADING OF EXIS NSION OR TING ENTERPRISES Criteria for Exemptio n from Customs Duties 1/ Subject to definitions giv en to Expansion or Upgr ading under the Proclamat ion, 2/ If the Regulatory Institution ascertains that due to the special nature of the 3/ If the investor fails to Expand or Upgrade the plan submitted in accord investment as per the bus ance with sub-article iness duties and taxes on the 2 of this Article, it shal] pay £0ods imported duty fj the ?73,/ 7 Expansi.incentiTw/G ve.T

SECTION 4 MISCELLANEOUS PROVISIONS 8. Liability 1/° Without prejudice to the criminal liabi lity provided under Article 118(2) of Tax Administration the Proclamation No. 983/2016, an inve stor who benefitted from the additional income tax exem ption for Expansion and Upgradin providing exaggerated, false, misleadi g by ng and fraudulent documents rega his business activities; shall be requ rding ired to pay the business income tax period in which he has been exempted. for the 2/ An auditor who prepares or cooperates in prep aring exaggerated, false, misleading or fraudulent documents in relation to sub-article 1 of this article shall be liable pursuant to Article 48 of the Tax Administrati on Proclamation No. 983/2016. 3/ The auditor who is found responsible for the misconduct referred to in sub- article 2 of this article shall be reported by the Regulatory Institution to the Accounting and Auditing Board of Ethiopia for actions to be taken in accordance with the Financial Reporting Proclamation. 9. Effective Date This Directive shall be effective from the date of its publication in the website addr of the Ministry of Finance. ess Addis Ababa ___day of 2022 (S Ahmed Shide Minister of Finance Expansi.Incentive. Tw/GT