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The Ethiopian government has signed double taxation avoidance deals with four countries; including with its growing trading partners India and China.
The agreements, also with Sudan and Egypt, were jointly tabled to the House of Peoples’ Representatives for approval on Thursday. The Double Taxation Agreements (DTA) are expected to enter force once approved by parliament which would take up to three weeks to put its stamp on the bills.
According to the Ministry of Finance and Economic Development (MoFED), the agreements allows investors not to pay double tax on the same declared income, thus saving businesses coming from India, China, Sudan and Egypt from paying income taxes 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 the 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 follow up negotiations. Taxes on fixed assets would be paid to the hosting country.
The latest deals, each with some unique aspects for every country, stipulates that relevant authorities of the countries will exchange information about tax declarations from businesses who want to capitalize 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, inked bilateral double taxation agreements with each other. Ethiopia has also made similar agreements with other countries previously. On June, 2011 a delegation led by Deputy Prime Minister and Foreign Affairs Minister Hailemariam Desalegn signed a DTA with the United Kingdom in London.
There are an estimated 2,500 double taxation treaties across the globe and the UK has the largest network of pacts, covering over 100 countries.