Ethiopia has introduced sweeping changes to its Value Added Tax (VAT) system, requiring a broader range of businesses and professionals to register under the tax regime.
- •The Ministry of Finance, through Directive No. 1104/2025, aims to strengthen compliance, expand the tax base, and improve fairness in the VAT system.
- •Under the new rules, all Category “A” taxpayers, businesses obligated to maintain books of account, and those who voluntarily do so must register for VAT, regardless of size.
- •In addition, any taxpayer with combined taxable and exempt transactions exceeding 2 million birr in annual turnover is now required to register.
The directive also extends VAT obligations to professional service providers, even when their annual turnover falls below the 2 million birr threshold, provided they are not classified as Category “B” taxpayers under the income tax law.
Existing taxpayers who fall within the new criteria have 30 days from the directive’s effective date to register with the tax authority. Once registered, they must begin collecting VAT on taxable goods and services from the date of registration.
Finance Minister Ahmed Shide, who signed the directive into law in Addis Ababa on September 2, 2025, said the move is intended to “ensure fairness in the application of VAT and strengthen Ethiopia’s revenue mobilization efforts.”
The directive officially takes effect once it was published on the Ministry of Finance’s website and is registered with the Ministry of Justice.
Analysts say the expanded scope of VAT registration could bring more businesses into the tax net, particularly in Ethiopia’s growing service sector. However, some smaller firms may face compliance challenges, especially with additional record-keeping requirements.
