Addis Ababa: Ethiopia has signed double taxation avoidance pacts with four countries, including its growing trading partners India and China.
The agreements, also with Sudan and Egypt, were together tabled in the House of Peoples' Representatives for approval on thursday. The Double Taxation Agreements (DTAs) are expected to come into force once they are approved by parliament which could take up to three weeks.
According to the Ministry of Finance and Economic Development (MoFED), the agreements allow investors not to pay double tax on the same declared income, thus saving businesses coming from India, China, Sudan and Egypt from paying income tax twice.
A memo MoFED attached with the bill says the avoidance doesn't cover other types and indirect taxes a country may levy other than income tax. In case of withholding taxes, Ethiopia agrees with the partners to share revenues.
Ethiopia also agrees with the four countries to encourage investment flow by granting a tax holiday to investments in selected sectors as part of the deal. The selected areas are to be determined in followup negotiations. Taxes on fixed assets would be paid by the hosting country.
The latest deals, each with some unique aspects for every country, stipulate that the relevant authorities of the countries will exchange information about tax declarations from businesses who want to capitalise as per the countries' agreement. This is hoped to ease efforts to investigate any anomalies that might indicate tax evasion.
It is not unusual for a business or individual who is a resident in one country to make profits in another where he has investments. This person may find that he is obliged by domestic laws to pay tax on that gain locally and pay again in the country in which the gain was made.
Since this discourages investors from opening businesses abroad, many nations, over the recent past, have inked bilateral double taxation avoidance agreements with each other. Ethiopia has also concluded similar agreements with other countries previously.
There are an estimated 2,500 double taxation avoidance treaties across the globe.