Ethiopia Issues New VAT Directive, Expanding Registration Obligations for Businesses

Addis Ababa, September 3, 2025 — Ethiopia’s Ministry of Finance has issued a new directive requiring more businesses and professionals to register for Value Added Tax (VAT), a move officials say will strengthen fairness in the tax system and broaden the country’s revenue base.

Directive No. 1104/2025, signed by Finance Minister Ahmed Shide, outlines fresh obligations for taxpayers across multiple categories. The regulation was enacted pursuant to the recently updated Value Added Tax Proclamation No. 1341/2024 and officially comes into force following its registration with the Ministry of Justice and publication on the Finance Ministry’s website.

Who Must Register Under the New Rules

According to the directive, mandatory VAT registration now applies to:

• Category “A” taxpayers under the Income Tax Proclamation.
• Businesses required to maintain accounting records by law.
• Taxpayers who voluntarily keep books of accounts.
• Any individual or entity with annual taxable and exempt turnover exceeding 2 million birr.
• Providers of professional services, even if their annual turnover falls below the 2 million birr threshold, unless they are classified as Category “B” taxpayers.

The changes are designed to close loopholes and ensure taxpayers with mixed supplies of goods and services contribute equitably to government revenues.

Registration and Compliance Timeline

Existing taxpayers falling under the new criteria are required to register for VAT within 30 days of the directive’s enforcement. Once registered, businesses must begin collecting VAT on all taxable goods and services they provide to the market.

Government’s Rationale

The Ministry emphasized that the measure is aimed at enhancing fairness in VAT application, ensuring that professional service providers and businesses with significant turnover are equally included in the tax net.

By tightening VAT registration requirements, officials expect improved compliance, broader revenue mobilization, and better alignment with Ethiopia’s ongoing fiscal reforms.

Effective Date

The directive took effect on September 2, 2025, the date it was registered with the Ministry of Justice and published online.

✅ Key Takeaway: Ethiopia is expanding its VAT system to capture more businesses and professionals, with a strict 30-day compliance window. Companies and service providers above or below the 2 million birr threshold must carefully review their obligations to avoid penalties.