VAT
REGULATION
REGULATIONS ISSUED PURSUANT
TO THE
VALUE ADDED TAX PROCLAMATION
CHAPTER ONE
General
1.Short Title
These Regulations
may be cited as the "Council of Ministers Value Added Tax Regulations
No.79/2002.
2. Definitions
In these Regulations, unless the context requires otherwise;
1.
"Authority",
means the Federal Inland Revenue Authority ("FIRA"),
2. "Customs
Authority" means the Ethiopian Customs Authority;
3.
"Minister"
and "Ministry" shall mean the Minister of Revenue and the
Ministry of Revenue, respectively.
4. "Proclamation"
means the Value Added tax Proclamation No.285/2002; and
5. "Tax"
or "VAT,” means the Value added Tax impose by the Value Added tax
Proclamation.
3. Supply of Goods or Rendition of Services
1. For
purposes of Article 4,Sub-Article (3) of the Proclamation treats the
supply of goods or the rendition of services to employees as supplies
in the course or furtherance of a taxable activity; and therefore taxable
unless the transaction is exempt under Article 8 of the Proclamation.
2. A
supply of goods or services to employees are treated as supplies for
consideration and therefore may be taxed, even if the employee did not
pay (or paid less than market value) for the goods or services.
3. If
an employer:
a)
provides an employee
a cash advance,
b)
pays a supplier
on behalf of the employee; or
c)
reimburses an
employee
for the cost
of goods or services provided as a fringe benefit, the employer is not
entitled to claim any portion of the cost as a tax credit because the
goods or services provided to the employee are not used in connection
with the employer's taxable activity.
4. If
an employer was denied a tax credit on the purchase of goods or services
(such as a passenger vehicle), the supply of those items to an employee
is not a supply in connection with a taxable activity and therefore
is not subject to tax.
5.
If a registered
person supplies an exempt service (such as a medical service at a company-run
clinic) to an employee, the service is not subject to tax and the employer
is not entitled to tax credits under Article 21 of the Proclamation
for tax on purchases allocable to the exempt services.
6. Where
goods supplied under an installment sale or finance lease (collectively
referred to as a credit agreement) are repossessed, the repossession
is a supply of the good by the debtor under the credit agreement to
the person exercising the right of repossession, and where such debtor
is a registered person, the supply is made in the course or furtherance
of the debtor's taxable activity unless such goods did not form part
of the assets held or used by the debtor in connection with that taxable
activity.
7. The
sale of a lottery ticket by the National Lottery Administration is a
supply of services.
8. Where
a supply consists both of a supply that is charged with tax at a positive
rate and a supply that is charged with tax at a Zero rate, each part
of the supply's treated as a separate supply, unless one part is incidental
to a main supply within Article 5, Sub-Article (1) of the Proclamation.
9. The
rendition of services by an employee to an employer by reason of employment
is not a supply.
10. The
provision of goods on consignment and the transfer of goods to a person
in a representative capacity is not a supply.
11. The
removal of goods from a bonded manufacturing warehouse or any supply
of goods subject to an export trade duty incentive scheme under proclamation
No.249/2001 is treated as a supply of those goods in the course or furtherance
of a taxable activity in Ethiopia. If the goods are sold into the domestic
market, the supply is taxable at the standard rate, and if the foods
are sold for export within Article 7, sub-Article (2) (a) of the Proclamation,
the supply is taxable at the zero rate.
12. A
supply of goods or the rendition of services to a person as agent for
a principal is treated as a supply to the principal.
4.Taxable Activity
1. For
purposes of the definition of a taxable activity under Article 6 of
the Proclamation, anything done in connection with the commencement
or termination of a taxable activity is treated as carried out in the
course or furtherance of that taxable activity.
2. Taxable
activity does not include:
a) an
activity carried on by a natural person essentially as a private recreational
pursuit or hobby or an activity carried on by a person other than a
natural person which would, if carried on by a natural person, be carried
on essentially as a private recreational pursuit or hobby; or
b) an
activity to the extent that the activity involves the making of exempt
supplies.
5.Tax on Imports of Goods
1. Except
where the proclamation provides to the contrary, the provisions of the
customs proclamation, relating the import transit coastwise carriage
clearance of goods and payment and recovery of duty, with such exceptions,
modifications, and adaptations as the Minister may by directive prescribe,
shall apply, so far as relevant, to the tax charged under the Proclamation
on the import of goods.
2. Where
tax is payable on an import of goods, the importer shall, upon such
entry, furnish the Customs Authority with an import declaration and
pay the tax due on the import.
3. The
import declaration shall-
a) be
in the form prescribed by the Customs Authority,
b) state
the information necessary to calculate the tax payable in respect of
the import, and
c) be
furnished in the manner specified by the customs Authority.
4. The
Customs Authority-
a) shall
collect at the time of import and on behalf of the Authority, any tax
due under the proclamation on an import of goods and, at the time, obtain
the name and the taxpayer identification number, if any, of the importer,
and the invoice values in respect of the import; and
b)
shall make arrangements
with the Ethiopia postal Services to perform functions on behalf of
the customs Authority in respect of tax on imports that arrive through
the postal services.
5. Goods
covered by an export trade duty incentive scheme under proclamation
No. 249/2002 are not subject to tax at the time of import, except that
tax is payable upon import if the importer is covered by the duty draw-back
scheme.
1. Article
3, Sub-Article (6) of these Regulations, treats the repossession of
goods under a credit agreement as a supply of the goods. The supply
occurs:
a) on
the day that the goods are repossessed, or
b) when
the debtor may, under any law, be reinstated in his rights and obligations
under the credit agreement, on the day after the last day of any period
during which the debtor may under such law be so reinstated.
2. Article
4, Sub-Article (9) of the proclamation treats, as a supply of goods,
the transfer of a taxable activity (or a portion of a taxable activity)
as going concern, The supply occurs when the transfer under that sub-Article
(9) occurs.
3. Article
3, sub-Article (8) of the Regulations, treats the removal of goods subject
to an export trade duty incentive scheme under proclamation No.249/2002
(including a sale into the domestic market) as a supply of those goods
in the course or furtherance of a taxable activity in Ethiopia. The
supply of those goods occurs when the goods are supplied in the domestic
market, or when the goods are exported, if they are supplied for export
7.Value of a supply
1. The
value of a supply may be reduced by any price discounts or rebates allowed
and accounted for at the time of the supply of goods or the rendition
of services. Post-supply price adjustments must be accounted for in
accordance with Article 13 of the proclamation.
2. Where
a portion of the price of a supply represents tax imposed by the proclamation
that is not accounted for separately, the value of the supply is the
price reduced by an amount equal to the product of the tax.
3.If a registered
person converts a portion of, or an entire good or service from use
in a taxable activity to a different use and the person was allowed
a tax credit in respect of the acquisition of those goods or services,
Article 4, Sub-Article (2) of the Proclamation treats the change in
use as a supply of the goods or services in the course or furtherance
of a taxable activity. The Minister of Revenue may issue directives
on the value of a supply resulting from a change in use under this Sub-Article.
4. The
value of a supply of goods under an installment sale or finance lease
(a credit agreement) is the cash value of the supply. The "cash
value", in relation to supply of goods under a credit agreement,
means-
(a)
Where the seller
or lessor is a bank or other financial institutional amount equal to
the sum of:
i. The
consideration paid by the bank or other financial institution for the
goods, or the market value of the goods, which ever is the greater,
and
ii. Any
consideration for erection, construction, assembly, or installation
of the goods borne by the bank or other financial institution; or
(b)
Where the seller
or lessor is a supplier, an amount equal to the sum of:
i. The
consideration for which the goods are normally sold by the supplier
for cash; and
ii. Any
consideration for erection, construction assembly, or installation of
the goods borne by the supplier.
5. Where
the debtor is deemed to make a supply of goods under Article 3, Sub-Article
(6) of the Regulations as a result of the repossession of goods under
a credit agreement, the value of the supply is an amount equal to the
balance of the cash value of the supply that has not been recovered
at the time of the supply.
6. The
balance of the cash value of the supply under sub-Article (5) is the
amount remaining after deducting from the cash value so much of the
sum of the payments made by the debtor under the credit agreement as,
on the basis of an apportionment in accordance with the rights and obligations
of the parties to such agreement, may properly be regarded as having
been made in respect of the cash value of the supply.
7. The
value of goods subject to an export trade duty incentive scheme under
proclamation No. 249/2001:
(a)
That are removed
for export, or
(b)
Are supplied
but not exported is the market value of the goods
8. Article
4,Sub-Article (11) of the proclamation provides that where the recipient
of a zero-rated transfer or a going concern under Article 7, Sub-Article
(2) (d) of the proclamation, acquired some of the goods in that transfer
for a purpose other than to make taxable transactions,
9.The value
of the supply under Article 7, Sub-Article (8) of these Regulations
shall be the consideration for the acquisition of the taxable activity,
reduced by an amount which bears to the amount of such consideration
the sane ratio as the intended use or application of the taxable activity
for making taxable transaction bears to the total intended use or application
if the taxable activity.
8.Obligatory or Voluntary Registration and Procedure
1. The
Authority may waive the requirement under Article 16 or the Proclamation
to register where the Authority is satisfied that the value of a person's
taxable transactions exceeds or will exceed the amount specified under
Article 16, Sub-Article (1) of the proclamation solely as a consequence
of-
a) a
cessation, or substantial and permanent reduction the size or scale,
of a taxable activity carried on by the person; or
b) the
supply of capital goods that are being replaced with other capital goods
to be used in the taxable activity carried on by that person.
2. Article
18, Sub-Article (4) of the Proclamation provides for the date that registration
becomes effective. While the registering person may select the date
that the registration is to become effective, the Authority, in its
sole discretion, may change that date to the beginning of an accounting
period.
9.Division Registration
1.A registered
person and its separately registered division, and separately- registered
divisions of a head office registered person, are "related persons"
for purposes of the proclamation.
2. A
separately registered division must file a VAT return for ach accounting
period (Article 26 of the Proclamation). Each separately registered
part of the entity is subject to all of the obligations imposed on a
registered person, but it remains a part of the entity.
3. A
registered person may apply for divisional registration if a single
registration requiring a single VAT return imposes an onerous compliance
burden on the registered person. The authority, in its sole discretion,
shall decide if the applicant will experience real difficulties in submitting
a single VAT return.
4. A
registered person may request that some, but not all divisions be registered
separately, and those not registered separately treated as part of the
entity's registration.
5. The
Authority may withhold any refund under Article 27, Sub-Article (5)
(a) of the proclamation to a separately registered division in order
to satisfy the tax, levy, interest, or penalty payable by the entity
or another division.
6. Supplies
made by a separately registered division to the head office or between
separately registered divisions are treated as supplies between related
persons for tax purposes, the supplier must issue tax invoices for those
transactions in accordance with the proclamation, and the recipient
can claim tax credits on the purchases to the extent provided under
Article 21 of the Proclamation.
7. Expense
allocated by the head office to a separately registered division may
be treated as taxable supplies by the head office.
8. Transactions
between the head office and separately registered divisions may be closely
scrutinized by the Authority to prevent the use divisional registration
to obtain unintended tax benefit referred to in Article 60 of the proclamation.
9.
Separate divisional
registration is discretionary with the Authority and, to be eligible,
the head office applicant must satisfy all of the following conditions;
a) The
applicant must be a registered person for VAT purposes, but not a person
who voluntarily registered under Article 17 of the Proclamation;
b) The
application must be in writing and include the applicant's taxpayer
identification number the VAT certificate number:
c) The
applicant must conduct its operation as an incorporated company;
d) The
applicant will experience an onerous compliance burden if it must submit
a single return for its entire business operations. The applicant must
describe in detailed the problems likely to be encountered if divisional
registration is not approved, and the reasons why a consolidated VAT
return for the entire business for each accounting period cannot be
submitted by the due date for each tax period;
e) The division
for which separate registration is requested must maintain an independent
accounting system. This requires the division to record its receipts
and payments and produce financial statements separate from its head
office and/or other divisions:
f) The applicant
must already be preparing divisional accounts before consolidation them.
g) The
division for which separate registration is requested must be separately
identified by reference to the nature of its activities or its location:
h) Each
division must use the same accounting period and the same year-end date
as the entity.
10 The Authority
may impose additional conditions before approving an application for
divisional registration, or may impose different conditions on a newly
registering entity.
11.The registered
person must file a separate application for each division seeking separate
registration on the form and containing the information required by
the Authority, or a newly registering person must submit an application
for registration and an application for divisional registration at the
same time.
13. Each
separately registered division will be issued a taxpayer identification
number and VAT Certificate number that identify it as a division of
the entity.
14. For
purposes of the registration threshold under Article 16 of the Proclamation,
the supplies of each separately registered division are included as
supplies of the entity.
15. The
Authority may require the allocation of tax credits under Article 21,
Sub-Article (22) (c) of the Proclamation to be made on an entity basis,
rather than on a division-by-division basis.
16. The
home office registered person may apply in writing for the cancellation
of the separate registration of a division, or the Authority may initiate
a cancellation of a divisional registration. The following rules shall
apply:
a) Unless
the Authority approves a shorter period, the separate registration of
a division must remain in effect for not less than two years;'
b) If
an entity or a division ceases to satisfy any of the conditions imposed
on divisional registration, the entity must notify the Authority in
writing of the change within 30 days of the date any condition to be
met;
c) The
Authority may cancel a divisional registration if the conditions are
no longer satisfied or if the Authority believe that cancellation is
necessary for the protection of the revenue;
d) The
Authority shall have sole discretion to determine if the divisional
registration shall be allowed to continue;
e) The
cancellation of divisional registration shall be effective from the
date specified by the Authority.
10. Cancellation of Registration
1.
A registered
person must apply for cancellation of registration within 30 days of
the date the person ceases to make taxable transactions.
2. The
application for cancellation under sub-Article (1) shall be in writing,
shall state the date upon which the person ceased to make taxable transactions,
and shall state whether or not that person intends to make taxable transactions
within 12 months from that date.
3. The
Authority shall approve an application for the cancellation of registration
under (2) unless the Authority has reasonable grounds to believe that
the person will make taxable transactions at any time within 12 months
from the date of cessation.
4. While
the cancellation of registration generally takes effect on the date
of cessation, if the Authority is satisfied that the registered person
did not make taxable transactions from the date the registration took
effect, the Authority can cancel the registration retroactive to that
effective date,
5. When
registration is cancelled, to the extent provided under Article 4, Sub-Article
(4) of the Proclamation, the registered person may be deemed to have
sold the goods on hand in a taxable transaction.
6.
Any obligation
or liability under the Proclamation, including the furnishing of returns,
of any person in respect of anything done by that person while the person
was a registered person, is not affected by cancellation of the person's
registration.
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