Business entity types & details

Sole proprietorship: A sole proprietorship is a type of business that is owned and operated by a single individual. The owner, known as the sole proprietor, holds full responsibility for making decisions, as well as for any profits or losses incurred.

Partnership: A partnership involves a business arrangement where two or more individuals work together for profit. Typically, these groups have no more than twenty participants.

Types: General partnership, limited partnership, limited liability partnership

Limited liability companies: This type of business entity offers protection for individuals from being personally liable for the company’s debts and losses.

Types: Limited by shares, Unlimited by shares, Limited by guarantee

Corporation: A corporation is a form of business entity that provides protection for its shareholders, limiting their losses to the amount they have invested.

Cost Of Registering a Business in Ethiopia

Sole proprietorship

Sole proprietorships are simple and cheap to register, as they do not require specific capital requirements. One sole owner characterizes this business form.

Companies limited by shares:

Private Limited Liability Company

Private limited liability companies are made up of shareholders whose liabilities are protected. The shares of private LLCs cannot be traded on the stock market. The registration costs range between 1,000 and 2,000 Ethiopian Birr (ETB). Moreover, investors must meet a minimum capital requirement of 15,000 ETB and a minimum of 2 shareholders.

Public Limited Liability Company

Public Limited Liability companies are also made up of shareholders; however, the shares can be publicly traded on the stock market. The registration costs range between 3,000 and 5,000 ETB. The minimum capital requirement to register a public LLC is 50,000 ETB and a minimum of 5 shareholders.

Branch office

Branch offices are framed from external parent companies operating outside Ethiopia. The registration cost for branch offices is almost similar to that of a company. There is no minimum capital requirement; however, the parent company must provide its certificate of incorporation and prove it has the required resources to register a business in Ethiopia.

Business Registration Requirements

1. Name reservation certificate
2. Article of Association
3. Minimum capital requirements
4. Physical business address
5. Copies of shareholders' and directors identification documents (including visas- for foreigners)
6. Tax Identification Number (TIN)
7. Registration forms
8. Ethiopian Gazette publication
9. Bank account

Steps of Registering a Business in Ethiopia

1. Choose a business structure

Deciding the internal leadership hierarchy and business structure is the first logical step in registering your business in Ethiopia. Limited liability companies (private and public), branch offices, partnerships, and NGOs are some options available. 

2. Reserve a business name

Reserve a business name with the Ethiopian Investment Commission (EIC). Submit at least three names since some may not be approved. Once approved, your business name will be reserved for only 30 days. 

3. Prepare required documents

Fill out an application form for your business and prepare other relevant documents, such as a business plan and article of association. Pay all the registration and application fees and wait a few days for approval. 

4. Acquire industry-specific licences

Acquire all licenses and permits from the Ministry of Trade and Industry (MoTI) to ensure compliance with Ethiopian laws. 

5. Acquire a Taxpayer Identification Number (TIN) 

You must obtain a Taxpayer Identification Number (TIN) from the Ethiopian Revenue and Customs Authority (ERCA). 

6. Open a bank account

Open a bank account for your business in Ethiopia to ease financial transactions. 

7. Enroll with the Public Procurement and Property Disposal Service (PPPDS)

For your business to be eligible to participate in government tenders, it must be registered with the Public Procurement and Property Disposal Service.

8. Register as an employer with the Ministry of Labour and Social Affairs

Your business should be registered as an employer and abide by labor laws if it will hire staff. Visit the Ministry of Labour and Social Affairs to register.

Business Registration Requirements

1. Investment Permit
2. Minimum Capital Requirement
3. Bank Account Setup
4. Business Registration Certificate
5. Company Name Reservation
6. Commercial Registration (with TIN)
7. Office Space Lease Agreement
8. Work Permits for Foreign Employees
9. Environmental Impact Assessment (EIA)
10. Sector-Specific Licenses
11. Legal Representation

Steps

1. Choose a business form

Access Ethiopian laws and market dynamics before choosing a business form you want to register. You can register as a foreigner in various business forms, such as a limited liability company, sole proprietorship, and representative office.

2. Reserve a business name.

If you are outside of Ethiopia, you can reserve a business name with the Ethiopian Investment Commission (EIC) through the website. The EIC only reserves a business name for 30 days.

3. Apply for an Investment Permit.

The Ethiopian laws require foreigners to apply for an investment permit from the Ethiopian Investment Commission (EIC). Submit your identification documents to the EIC and await approval.

4. Prepare required documents

In addition to shareholders' identification documents, you must submit your investment permit, immigration details, articles on your physical business address, and a memorandum of association.

5. Register your business

The Ministry of Trade and Industry (MoTI) will review your paperwork and registration costs before issuing a business license.

6. Acquire a Taxpayer Identification Number (TIN)

Obtain a Taxpayer Identification Number (TIN) from the Ethiopian Revenue and Customs Authority (ERCA).

7. Obtain a Foreign Currency Registration Certificate

The Foreign Currency Registration Certificate will ease your business’s foreign currency transactions. You can apply for the certificate from the National Bank of Ethiopia (NBE).

8. Appoint local representatives or directors.

Although it is not mandatory for all businesses, you should appoint at least one local director. 

Annual filing documents & requirements

Businesses in Ethiopia must maintain their legal existence and operating validity by meeting annual filing and compliance requirements.

Ethiopian accounting rules must be followed in all financial documentation. Failing to meet deadlines or complying with yearly reporting obligations may result in fines or the suspension of business operations.

Financial statements

All businesses require annual financial statements, including a balance sheet, income statement, and cash flow statement. A certified auditor registered with the Accounting and Auditing Board of Ethiopia (AABE) must review the financial statements.

Income Tax Returns

Businesses must submit annual tax returns to the Ethiopian Revenue and Customs Authority (ERCA). The return should appropriately show the income, costs, deductions, and taxes paid or payable for the business. Unless a grace period is issued, the deadline for filing tax returns is usually three months following the end of the fiscal year.

Annual general meeting

Companies must hold an Annual General Meeting (AGM) by six months after the conclusion of their fiscal year. The AGM minutes must be kept on file with the company's corporate records.

Renewal of business license

Companies are required to renew their business licenses with the Ministry of Trade and Industry (MoTI) annually.

TAKEAWAYS

Learn about Ethiopia's laws, rules, and practices governing business registration, investments, and industry-specific requirements. Choose the business structure that best suits your needs, taking operational flexibility and tax implications into account.

Consider creating local collaborations, particularly in advantageous or necessary fields for local participation. Review and update your compliance procedures and business plans regularly to adjust to changing legal and financial circumstances.

Frequently Asked Questions

What are the minimum capital requirements for registering a business in Ethiopia?

Registering a PLC requires a minimum capital of 50,000 Ethiopian Birr, or around USD 1,250. Furthermore, a quarter of the amount must be paid during registration.

Are foreigners allowed to register business in Ethiopia?

Yes, foreigners are allowed to own and run enterprises in Ethiopia. However, some industries—like banking, insurance, and telecommunications—might have limitations or call for unique licenses.

Do investors enjoy incentives in Ethiopia

Ethiopia has special economic zones (SEZs) created to attract foreign investment. These zones offer advantages like duty exemptions, tax holidays, and expedited regulatory procedures.