Author: dmethiol_admin

Mahlet Mesganaw, Partner at DMLF

The investment objective of Ethiopia is to improve the living standards of the people of Ethiopia by realizing a rapid, inclusive and sustainable economic and social development. To achieve such an objective, the Ethiopian government has put in place investment incentives on income tax exemptions and custom duty incentives by Council of Ministers Investment Incentive Regulation No 517/2022 done as of July 12,2022.

Income Tax Exemption Incentives

Any investor who formed a new company or any existing investor expanding or upgrading her investment shall be entitled to income tax exemptions, as provided in the schedule attached to the Regulation. Those investors who have invested outside of the industrial park and who engage in export or supplies to an exporter as production or service input, at least 60% of their products and services shall be entitled to additional years of income tax exemption in addition to those provided in the schedule. The commencement period of income tax exemption is as of the date the investor obtained a business license or from the date the investor obtained expansion permit. However, the investor who has incurred loss within the period of income tax exemption period shall be allowed to carry forward such loss for half of the income tax exemption period after expiry of such period.

Custom Duty Incentives

New investor or an investor expanding or upgrading existing investment engaged in one of the investment areas specified in the Schedule, may import duty free capital goods and construction materials necessary for the establishment of a new investment or the expansion or upgrading of an existing investment. Total or partial exemption of motor vehicles from customs duty shall be determined by Directive to be issued by the Ministry of Finance. Such imported capital goods or construction materials imported free of customs duty may be transferred to persons with similar duty free privileges. Otherwise custom duty has to be paid to transfer to those persons who have no similar duty free privileges. The investor may re-export the duty free imported capital goods or construction materials.

Regulatory Institutions

The Ethiopian Investment Commission, Ministry of Finance, Ministry of Mines, Regional Governments, Addis Ababa and Dire Dawa City Administrations Investment Organs, Ministry of Trade and Regional Integration, Ministry of Revenue and Customs Commission are assigned common and specific duties and responsibilities to implement and follow up the implementation of investment incentives.

Revocation of Tax Incentives

Any investor whose investment license is revoked shall return all investment incentives acquired. The Ministry of Finance shall determine the manner of return of investment incentives improperly acquired.

Conclusion

To encourage investment in Ethiopia, the Ethiopian government has provided for its investors income tax exemptions and custom duty exemption privileges. The regulatory institutions duties and follow ups are defined so as to enable smooth implementation of the investment incentives to new investors or those investors expanding or upgrading their investment.

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https://chilot.me/wp-content/uploads/2022/08/Investment-Incentives-Regulation-No.-517-2022.pdf

By Dagnachew Tesfaye, Partner at DMLF

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Introduction 

This article summarizes the Federal Supreme Court Cassation Decision on File No 215383 on 30/05/2022. The adoption case is filed by the 1st and 2nd applicants, namely Wro Arsema and Mr.Yergen. There is no respondent on the case. The case is about whether or not a foreigner husband can adopt his step daughter who is the child of his Ethiopian wife?

Federal First Instance Court

The Applicants filed in the Federal First Instance Court for an approval of their adoption agreement. The child involved in the adoption is the child of the 1st applicant born prior to her marriage with the 2nd applicant. The second applicant who is the adopter of such stepchild is a Dutch nationality. The court said that due to Revised Family Code (Amendment) Proclamation No 1070/2018, adoption of an Ethiopian child by a foreigner is prohibited. Thus the applicants request of approval of their adoption is dismissed by the court.

Federal High Court Appeal

The Applicants submitted an appeal to the Federal High Court. However, the Federal High Court upheld the decsion of the Federal First Instance Court.

Review by the Federal Supreme Court Cassation Bench

The Applicants presented their application for basic error of law to the Cassation Bench. The Applicants stated that the applicants are married in Ethiopia, have a son together and living in Ethiopia. The child to whom the adoption is requested is the daughter of the 1st applicant and not that of the 2nd applicant. Nowadays, this daughter lives together with her step father, who is the 2nd applicant and even uses his name as father’s name as well. The Applicants argued, to enable such a daughter with equal status to her brother, who is born from both the applicants, the adoption by the step father is necessary. The Applicants said, rejecting our request for approval of such an adoption by the lower courts is not in the best interest of our daughter. Thus the Applicants demanded for the dismissal of the lower court’s decision.

The Cassation bench accepted the request of the Applicants for review. The Cassation Bench identified the issue of whether  Proclamation 1070/2018 is meant to prohibit adoption occurring between spouses or not?

The Cassation Bench raised the issue of the appropriate law to govern the case: is it Revised Family Code Proclamation 213/2000 or Proclamation No 1070/2018? The provisions of Proclamation No 213/2000 Article 187 provide the fact that married couples can adopt a child together or when the child to be adopted is one of the spouses only, the adoption by the other spouse is possible. This provision of the Revised Family Code does not stipulate nationality of the spouses as a precondition for an adoption. This provision doesn’t state the adoption of a child of one spouse by the other spouse is allowed only for Ethiopian married couples.

On the other hand, Proclamation No 1070/2018 contains provisions that order the cancellation of provisions of the Family Code Proclamation No 213/2000 Articles 193, 194(3)(d) and (4) that contain the word ‘the adopter being a foreigner’. The Cassation court argued that the provision of Article 187 of the Revised Family Code is not deleted or amended by Proclamation No 1070/2018. Thus, the request of adoption of a child of the Ethiopian spouse born prior to the marriage to a foreigner spouse cannot be rejected mentioning Proclamation No 1070/2018. Specially given the fact that the spouses are married in Ethiopia and residing in Ethiopia as a couple. Therefore, the Cassation Bench concluded that the lower court’s decision rejecting the adoption approval request of the Applicants is dismissed for basic error of law. The Cassation Court ordered the Federal First Instance Court to look into the matter from this perspective and pass a decision on the adoption approval request of the Applicants.

Conclusion

A foreign national spouse who is married to an Ethiopian national can adopt an Ethiopian child of his Ethiopian spouses and the  Revised Family Code(Amendment) Proclamation No 1070/2018 is not intended to stop such an adoption request.

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By DMLF Team

One of the investment incentives in Ethiopia for foreign investors is the privilege of opening bank accounts and operating the same. The Investment Proclamation No 1180/2020 allows foreign investors to open and operate foreign currency accounts in any private bank in Ethiopia for the purpose of their investments. Foreign Investors are defined as an individual or company who has invested foreign capital in Ethiopia. The manner of operation of foreign currency account is determined by the directives of the National Bank of Ethiopia. The National Bank of Ethiopia has issued a directive that is effective as of November 9,2020 namely “Establishment and Operation of Foreign Currency Saving Account for Residents of Ethiopia, Non-Resident Ethiopian and Non-Resident Ethiopian Origin” Directives No. EX1V 68 /2020″ that allows foreign investors who are residents of Ethiopia to open and operate foreign currency accounts in addition to that of local savings or current accounts of their choice.

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By Dagnachew Tesfaye, Partner at DMLF

The Ethiopian Investment Proclamation No 1180/2020 and the Investment Regulation No 474/2020 incorporate technology transfer agreement as part of an investment transaction. Technology transfer has been included in the investment objectives of the country in that the government shall strive to advance the transfer of knowledge, skills and technology required for the development of the country. We shall see what is included in the technology transfer agreement, the procedure involved in registration of such an agreement, the difference between technology transfer agreement and collaboration agreement and a brief summary shall follow.

What is a technology transfer agreement?

The definition of a technology transfer is given in the Investment Proclamation. The Proclamation defines transfer of technology as ‘’the transfer of systematic knowledge for the manufacture of a product, the application or improvement of a process or for rendering service, including management and technical know-how as well as marketing technologies, but may not extend to transactions involving mere sale or lease of goods.’’ Hence technology transfer agreement is a contractual agreement entered between a technology provider and technology recipient in which the technology provider agrees to transfer the technology as defined above.

What is the procedure involved in registering such an agreement?

Any investor concluding a technology transfer agreement in relation to his investment must have the agreement registered with Ethiopian Investment Commission(EIC). The reason is because a technology transfer agreement that is not registered shall have no legal recognition in Ethiopia. In order to register the technology transfer agreement in EIC, the following procedures must be adhered to. The technology provider needs to come up with commercial registration or business license or document ascertaining ownership of technology. If such documents originate outside of Ethiopia, the documents should be authenticated by foreign and domestic authorized bodies to authenticate documents. Then the technology recipient and the technology provider shall enter into an agreement in front of notary public namely the Federal Document Authentication and Registration Agency. The signed technology transfer agreement with the relevant documents and a signed application form shall be presented for registration with EIC. EIC shall render a decision to approve or reject within 30(thirty) working days having conducted the necessary review.

If EIC accepts the technology transfer agreement, then EIC shall register the agreement and issue a certificate of registration for the applicant.  EIC will notify the relevant Federal Executive Organs and copy the National Bank of Ethiopia the registration of a technology transfer agreement. Where EIC rejects the application, EIC shall notify the decision in writing to the applicant.

Differences with Collaboration Agreement

Here, unlike Collaboration Agreement, which restricts the parties to the agreement as domestic investor on the one hand and foreign enterprise on the other, Transfer of Technology Agreement can be concluded among ‘any investor’. The requirement of fulfilling minimum investment capital if one of the parties to the Technology Transfer Agreement is a foreign enterprise is passed silently. In the case of Collaboration Agreement, the law clearly provides the existence of no requirement of injecting minimum capital for foreign enterprises when it comes to Collaboration Agreement. However the law is silent on contribution of capital when entering to Technology Transfer Agreement when one of the parties to the agreement is a foreign enterprise.

To sum up, the  Investment Proclamation and the Investment Regulation provide the concept of technology transfer and provide in detail the procedures as to how technology transfer agreements are reviewed and registered. However the requirement of capital contribution is left unspecified in the case of foreign enterprise agrees with a domestic or foreign investor for technology transfer.

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By Dagnachew Tesfaye, Partner at DMLF

The Commercial Code of Ethiopia Proclamation No 1243/2021 introduces the mandatory task for share companies to create and maintain a website. Such an obligation was not known in the previous Commercial Code of Ethiopia. Construction of a website is made mandatory for a share company only.

The contents of the website should include all necessary information for shareholders, creditors and stakeholders.  The basic contents of the website must include a) the memorandum of association, and amendments thereto, if any; b) notices regarding general meetings and related information; c) approved audit reports; d) report on transactions involving conflict of interest prepared pursuant to Sub-Article (5) of Article 395; e) annual reports and information submitted to the Ministry of Trade and Industry pursuant to this Code or other laws; and f) information that should be publicized according to the memorandum of association. 

The Commercial Code has put the period of time required to maintain certain information on the website. For example notices calling meetings and related information have to remain in the website till the end of the meeting. Moreover, the accounts of the company should remain on the website for five years. Other information of the company has to remain in the website at least six months.

The website has to be accessible to any person. The company must take all necessary measures to protect the security of the website.

The share company has to update and post its contents promptly as well. Moreover to the extent possible the website should accommodate features to conduct electronic meetings and enable voting through electronic means. Such features shall support modernization of the meeting and voting process. For members of the share company, it provides an alternative space to participate in a meeting other than in person or through an agent’s physical presence. The law has given such forms of online meeting and voting legal relevance.

Therefore share companies are obliged to construct and maintain a website that disseminates information about the company’s affairs to its members, stakeholders and to the public. Furthermore the website shall serve as a legal platform that enables participation of its members in meetings and voting.

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By Mahlet Mesganaw, Partner at DMLF

The Investment Proclamation No 1180/2020 has allowed minimum capital requirement NOT to apply for the following investment transactions. 

1. Where a foreign investor  buys a share of a foreign investor in an existing company in full or in part;

2. Where a foreign investor  acquires the entirety of an existing enterprise owned by a foreign investor;

3. Where a foreign investor re-investing his profits or dividends generated from his existing enterprise in any investment area open for foreign investor and

4. Where a foreign investor is elected as member of board of directors following the change of a private limited company to share company.

5. Where a foreign enterprise concludes export oriented non-equity based collaboration agreement with a domestic investor.

Therefore the requirement of minimum capital injection to the above areas of businesses are not required for foreign investors. Those foreign investors and domestic investors operating in Ethiopia can use these options. More so foreign investors who wish to see the opportunities existing on the ground, can use one of the above options to invest in Ethiopia.

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The National Bank of Ethiopia has issued a directive namely Directive No 931/2022 effective as of October 6, 2022 that provide reimbursements to informants of crimes, maintaining their confidentiality, involving illegal money transfer in cash, gold and foreign currencies. The informant shall be handsomely be compensated 15% of cut seized cash or gold or foreign currency. When it comes to seized forged cash notes, depending on the amount seized, the compensation to the informant ranges from ETB 20,000 to ETB 200,000.

By Dagnachew Tesfaye, Managing Partner at DMLF

The National Bank of Ethiopia has issued a directive namely Limits on Birr and Foreign Currency Holding in the Territory of Ethiopia Directive No 927/2022. The effective date of the Directive is as of September 05,2022. This Directive has repealed  and replaced Limits on Birr and Foreign Currency Holding Directives No.65/2020.

ETB 3000 is the maximum amount of Birr a person can hold while entering or exiting Ethiopian territory per travel. However a person traveling to Djibouti may hold up to a maximum of Birr 10,000.

When entering the territory of Ethiopia, a person who resides in Ethiopia has to declare to customs and hold such declaration evidence if the foreign currency amount exceeds USD$4000 or its equivalent in any other convertible foreign currency. Similarly foreign nationals of Ethiopian origin or Ethiopian nationals or foreigners not residing in Ethiopia have to declare to customs and hold such evidence if the foreign currency amount exceeds USD$10,000 or equivalent amount in any other convertible foreign currency. When comparing the current directive with the repealed one the obligation to declare for Ethiopian residents was USD$ 1000 and for the others USD$ 3000.

The time limit to hold a foreign currency of any amount in Ethiopia for a person residing in Ethiopia is 30 days from the date of entry stamped on the passport. He or she has the obligation to convert all foreign currencies at an authorized forex bureau for equivalent sum or deposit to his or her foreign currency saving account. Likewise  foreign nationals of Ethiopian origin or Ethiopian nationals not residing in Ethiopia, who intend to stay more than 90 days, should deposit such a foreign currency into his/her NR Foreign currency account or his/her foreign exchange savings account within 90 days from the date of entry stamped on the passport. However a foreigner not residing in Ethiopia can carry foreign currency in his/her possession upto the visa validity period.

A person residing in Ethiopia who purchases foreign currency from a bank may carry such foreign currency up to 30 days from the date a bank advice is stamped. He/she has to convert the foreign currency at authorized forex bureau for equivalent sum in Birr not to exceed the 30 days time limit.

When traveling out of Ethiopia, a person residing in Ethiopia or non-resident foreign national of Ethiopian origin and Ethiopian national not residing in Ethiopia are allowed to carry a foreign currency of any amount as long as he/she presents a bank advice issued for the purchase of the foreign currency within a period of 30 days from the date of the bank advice. For non-resident foriegn nationals of Ethiopian origin and Ethiopian nationals not residing in Ethiopia, they can carry the foreign currency they have brought to the country. They have to travel back within 90 days and have a customs declaration for an amount exceeding USD$10.000 at the time of entry. Embassy Employee, Temporary Worker of different foreign institution or workshop participant or trainer who entered into the country can carry foreign currency exceeding USD 10,000 (USD Ten Thousand) or the equivalent in other convertible foreign currencies only when he/she can produce a bank advice or employer’s letter or a supporting letter from workshop coordinator which justifies the acquisition of the foreign currency is from a legal source.

The current Directive is silent on the amount of foreign currency a non-resident foreigner can hold while exiting Ethiopia. The previous Directive No 65/2020 for example states that any person not residing in Ethiopia who is traveling abroad can carry with him foreign currency exceeding USD 3000 or the equivalent in other convertible foreign currency is required to produce a bank advice or a foreign currency customs declaration declared at the entry point.

For land transport, a person entering into the territory of Ethiopia from a neighboring country carrying  foreign currency having value more than or equivalent of USD 500 (USD Five Hundred) in conversion shall declare at the border Customs’ branches or stations and may travel abroad by carrying such declared amount by presenting customs declaration.

Finally the Directive states that any person who acquired foreign currency by donation or gift before the coming into force of this directive shall convert all foreign currencies in his/her possession through an authorized forex bureau against the payment to him/her of the equivalent sum in Birr within 30 days from the effective date of this directive. 

In conclusion, unless otherwise provided by this Directive or pertinent laws or without authorization of the National Bank, a person may not transfer or pay foreign currency in cash to a third party either as donation or gift or to discharge any obligation.  

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