Our guide to Payroll in Ethiopia

Ethiopia presents a growing investment landscape, particularly in agriculture, energy, and manufacturing sectors. While the nation welcomes foreign investment, certain entity types face restrictions, necessitating local expertise to navigate registration and tax processes effectively. With a population of approximately 132 million and a strategic location in East Africa, Ethiopia offers significant opportunities for businesses aiming to expand in the region.

1. Introduction to Our guide to Payroll in Ethiopia

Doing Business in Ethiopia

Ethiopia provides foreign investors with a significant opportunity to invest in an expanding African economy. The government welcomes inward investment, with some restrictions upon entity structures.

Basic Facts about Ethiopia

Full Name:	Federal Democratic Republic of Ethiopia
Population:	Approx. 132 million (2024)
Capital:	Addis Ababa
Major Language(s):	Amharic (official), Oromo, Somali, Tigrinya, English
Major Religion(s):	Christianity, Islam
Monetary Unit:	Ethiopian Birr (ETB), 1 Birr = 100 santims
Main Exports:	Gold, Coffee, Cut Flowers, Oil Seeds, Other agricultural products
GNI Per Capita	USD $1,130 (World Bank, 2023)
Internet Domain:	.et
International Dialing Code:	+251

Common Phrases

Hello: ሰላም (Selam)
Good morning: እንደምን አደርክ (Endemin aderk)
Good evening: እንደምን አመሸህ (Endemin amesheh)
Do you speak English?: እንግሊዝኛ ትናገራለህ? (Ingilizigna tinageraleh?)
Goodbye: ደህና ሁን (Dehna hun)
Thank you: አመሰግናለሁ (Amesegenallo)
See you later: እንገናኝ (Behuala enegenagn)

2. Setting Up a Business

Registrations and Establishing an Entity

All companies must be registered with local authorities in order to process payroll.

Banking

It is not mandatory to make payments to employees and authorities from an in-country bank account, however, the inter-country bank charges for electronic transfers can be quite high.

3. Employment Practices

Working Week

The working week in Ethiopia is Monday to Friday 0800 – 1700 hours and Saturdays 0800 – 1230 hours. Lunch breaks are between half an hour and one hour long.

Holiday Accrual

If the employee receives commissions or variable payments monthly, you have to calculate the average of the three months before holidays and based on this average you calculate the payment.

Maternity Leave

An employee is entitled to at least-84 days' paid maternity leave; or 100 days paid maternity leave if the employee gives birth to more than one child at the same time.

An employee may commence maternity leave at any time from 4 weeks before the expected date of confinement, or on an earlier date if a medical
practitioner certifies that it is necessary.

No employee shall work within 6 weeks of the birth of her child, unless a medical practitioner certifies that she is fit to do so.

Subject to the provisions of subsections (2) and (3), the employee may resume employment on the same terms and conditions of employment at the end of her maternity leave. An employer is only obliged to grant paid leave for four terms of maternity leave to an employee.

Paternity Leave

An employee shall be entitled to at least three days paid paternity leave if the leave is taken within seven days of the birth of a child and the employee is the father of the child. The employee will be entitled to the three days paternity leave irrespective of how many of the employee’s children are born within the same leave cycle.

Sick Leave

An employee shall be entitled to sick leave for at least 126 days in any leave cycle.

The sick leave shall be calculated as follows:

The first 63 days shall be paid full wages;
The second 63 days shall be paid half wages.

An employer shall not be required to pay an employee for sick leave if:

The employee fails to produce a medical certificate; or
The employee is entitled to paid sick leave under any law, fund or collective agreement

National Service

Not mandatory

4. Taxation & Social Security

Tax Year

The tax year runs from 1st July to 30th June.

Apprenticeship & Training Tax

The due date for remitting PAYE is by the seventh of the following month.

A PAYE summary statement is due within 30 days after each six-month period.

Taxable Income (Per Month)	Rate %	Cumulative Tax Payable
0 - 600	0	0
601 – 1,650	10	0
1,651- 3,200	15	105
3,201 – 5,250	20	337
5,251 – 7,800	25	747
7,801 – 10,900	30	1,384.50
10,901 +	35	2,314.50

Social Security

Pension Fund is deductible from employees (7% of gross) with the employer paying 11% on the employee’s behalf. Submissions to the NSSF authority are to be made within one month after the month of deduction.

Reporting

Monthly:

For each document please provide the following information:

Legal name/document number of each document	PAYE return	Pension fund
What type of information is required to complete the form?	List of employee PAYE deductions	List of employee NSSF deductions
Where are the documents to be sent to and by what date should they be submitted?	To the Ethiopia Revenue Authority within seven days of month-end.	To the relevant scheme within one month after month of deduction.
Can the documents be submitted by a payroll partner or does it have to be submitted by the employer?	It is advisable to have the employer submit to avoid delays and to ensure a correct receipt is obtained to avoid future problems.	It is advisable to have the employer submit to avoid delays and to ensure a correct receipt is obtained to avoid future problems.	It is advisable to have the employer submit to avoid delays and to ensure a correct receipt is obtained to avoid future problems.
Does the client need to sign the form	Yes	Yes	Yes

5. Payroll Operations

Payroll

It is legally acceptable in Ethiopia to provide employees with online payslips. The payslips must be secured with restricted access

Reports

By law, payroll reports must be kept for seven years.

6. Hiring & Termination

New Employees

Employer files PAYE and pension registration
Client signature and documentation required

Leavers

Standard termination and final pay rules apply

7. Compensation & Benefits

Employee Benefits

Expenses

Any cash allowances pertaining to employee expenditure e.g. telephone; fuel, house, travel etc. will be added onto the basic salary and taxed accordingly.

Any non-cash benefits e.g. company house, company car etc. will be taxed at prescribed rates.

All allowances and benefits are provided at the employer’s discretion and are taxable.

8. Visas & Work Permits

Visas and Permits

In order to hire a foreign employee, the company must apply for a Class B permit for the employee. The application form for this is available from the Department of Immigration (Form TIF.1) at no cost and there is no processing fee.

The application form should be submitted with the following information:

five photographs
birth certificate
curriculum vitae
academic qualifications
proof of experience
organizational chart
offer of employment
proposed contract

The labour department will review the application and make a positive or negative recommendation to the Department of Immigration.

Class B permits have a fee of US $600 for two years. There is a renewal fee of US $300.

9. Location-Specific Considerations

Expense allowances are taxed unless specifically exempted
Employer recommended to file payroll reports directly for accuracy

Further Information For more information, or assistance with Ethiopia tax enquiries please contact: gi@activpayroll.com

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents