Introduction

The Ethiopian Government has made commendable efforts, through legislative and procedural reforms, to improve the investment climate of the country and thereby attract more foreign direct investment. Since 1992, the investment law has been revised four times to ensure the participation of more foreign investments in various sectors of the economy. The latest law, the Investment Regulations No. 474/2020 (the “Regulation”) is promulgated on 02 September 2020.

The Regulation, in a stark deviation from its predecessor has changed the “positive list” approach into a “negative list “. In the repealed Investment Regulation of 2012, foreign investors were only allowed to invest in sectors expressly listed in the investment regulation or in sectors opened by the decision of the Ethiopian Investment Board. The shift towards a ‘negative list’ is probably the most significant aspect of the new investment law because foreign investors are now allowed to invest in any investment area except those that are expressly reserved.

1. Major Amendments in the Regulation

1.1 Opening of Reserved/Restricted Sectors to Foreign Investment

One of the major change the Regulation has brought is the restoration of the “negative listing” of investment areas that are open to foreign investors which enables foreign investors to enjoy a much greater opportunity with regards to the areas that they can invest in. The negative listing approach employs the opening of all economic sectors to FDI except those that are expressly reserved/restricted by law. This approach aspires to cope with the ever-changing technological evolutions and pace of business in a globalized economic sphere. This approach is a reversal of the 2012 Investment Regulation which adopted the “positive listing” method that was restrictive by design.

As part of the negative listing approach, the Regulation provides three categories of investment areas. These are areas exclusively reserved for joint investment with government, areas exclusively reserved for domestic investors and areas exclusively reserved for joint investment with domestic investors. All other sectors not reserved in aforementioned sectors will be open for foreign investment.

1.1.1               Areas of investment that are open for foreign investment:

1.1.1.1           Electronic commerce;

1.1.1.2           Real estate development;

1.1.1.3           Education services;

1.1.1.4           Health services excluding primary and middle level health services

1.1.1.5           Grade 1 construction and drilling services;

1.1.1.6           Wholesale of petroleum and petroleum products and wholesale of own products produced in Ethiopia;

1.1.1.7           Import of liquefied petroleum gas and bitumen;

1.1.1.8           Cement manufacturing;

1.1.1.9           Capital goods finance business;

1.1.1.10        VAS (Value Added Services);

1.1.1.11        Management consultancy services;

1.1.1.12        Engineering consultancy services;

1.1.1.13        Repair and maintenance of heavy industry machineries and medical equipment;

1.1.1.14        Operating lease of industry-specific heavy equipment’s, machineries and specialized vehicles;

1.1.1.15        Star-designated national cuisine restaurant service;

1.1.1.16        Star-designated hotel, lodge, resort, motel, guesthouse and pension services;

1.1.1.17        Producing bakery products and pastries for export market;

1.1.1.18        Railway transport services;

1.1.1.19        Cable-car transport services;

1.1.1.20        Cold-chain transport services;

1.1.1.21        Freight transport services having a capacity of more than 25 tones;

1.1.1.22        Manufacturing;

1.1.1.23        Agro-processing and commercial farms;

1.1.1.24        Any investment activity that doesn’t fall under one of the below three categories (areas exclusively reserved for joint investment with government, areas exclusively reserved for domestic investors and areas exclusively reserved for joint investment with domestic investors).

1.1.2               Areas allowed for foreign investors to jointly invest with the government:

1.1.2.1           Manufacturing of weapons, ammunition and explosives used as weapons or to make weapons;

1.1.2.2           Import and export of electricity;

1.1.2.3           International air transport services;

1.1.2.4           Bus rapid transit; and

1.1.2.5           Postal services excluding courier services.

1.1.3               Areas of investment in which foreign investor/s can own up to a maximum of 49% of share capital:

A foreign investor jointly investing with a domestic investor (Ethiopian nationals or companies wholly owned by Ethiopian nationals) in the following areas can own up to a maximum of 49% of share capital of a joint venture company. These areas are:

1.1.3.1           Freight forwarding and shipping agency services;

1.1.3.2           Domestic air transport service;

1.1.3.3           Cross country passenger transport service using buses with a seating capacity of more than 45 passengers;

1.1.3.4           Urban mass transport service with large carrying capacity;

1.1.3.5           Advertisement and promotion services;

1.1.3.6           Audiovisual services; motion picture and video recording and distribution; and

1.1.3.7           Accounting and auditing services.

1.1.4               Areas of investment exclusively reserved for domestic investors:

1.1.4.1           Banking, insurance and microfinance businesses, excluding capital goods finance business;

1.1.4.2           Transmission and distribution of electrical power through integrated national grid system;

1.1.4.3           Primary and middle level health services;

1.1.4.4           Wholesale trade, excluding wholesale of petroleum and petroleum products and wholesale of own products produced in Ethiopia, electronic commerce;

1.1.4.5           Retail trade, excluding retail of and electronic commerce as provided under appropriate law, of own products produced in Ethiopia;

1.1.4.6           Import trade, excluding liquefied petroleum gas and bitumen;

1.1.4.7           export trade of raw coffee, khat, oil seeds, pulses, minerals, hides and skins, products of natural forest, chicken, and livestock including pack animals bought on the market;

1.1.4.8           Construction and drilling services below Grade I;

1.1.4.9           Hotel, lodge, resort, motel, guesthouse, and pension services, excluding those that are star-designated;

1.1.4.10        Restaurant, tearoom, coffee shops, bars, nightclubs, and catering services, excluding star-designated national cuisine restaurant service;

1.1.4.11        Travel agency, travel ticket sales and trade auxiliary services;

1.1.4.12        Tour operation;

1.1.4.13        Operating lease of equipment’s, machineries and vehicles, excluding industry-specific heavy equipment’s, machineries and specialized vehicles;

1.1.4.14        Making indigenous traditional medicines;

1.1.4.15        Producing bakery products and pastries for domestic market;

1.1.4.16        Grinding mills;

1.1.4.17        Barbershop and beauty salon services, smithery, and tailoring except by garment factories;

1.1.4.18        Maintenance and repair services, including aircraft maintenance repair and overhaul (MRO), but excluding repair and maintenance of heavy industry machineries and medical equipment;

1.1.4.19        Aircraft ground handling and related services.

1.1.4.20        Saw milling, timber manufacturing, and assembling of semi-finished wood products;

1.1.4.21        Media services;

1.1.4.22        Customs clearance service;

1.1.4.23        Brick and block manufacturing;

1.1.4.24        Quarrying;

1.1.4.25        Lottery and sports betting;

1.1.4.26        Laundry services, excluding those provided on industrial scale;

1.1.4.27        Translation and secretarial services;

1.1.4.28        Security services;

1.1.4.29        Brokerage services;

1.1.4.30        Attorney and legal consultancy services; and

1.1.4.31        Private employment agency services, excluding such services for the employment of seafarers and other similar professionals that require high expertise and international experience and network.

1.1.4.32        Transport services, excluding the following areas:

(a)            Railway transport services;
(b)            Cable-car transport services;
(c)            Cold-chain transport services;
(d)            Freight transport services having a capacity of more than 25 tones; and
(e)            Transport services reserved for joint investment with the Government or domestic investors.

Disclaimer: This information is intended as a general overview and discussion of the subjects dealt with. The information provided here was accurate as of the day it was posted; however, the law may have changed since that date. This information is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. Mehrteab Leul & Associates is not responsible for any actions taken or not taken on the basis of this information. Please refer to the full terms and conditions on our website.

Copyright©2020 Mehrteab Leul & Associates. All rights reserved.

Wednesday, 22 July 2020 09:51

Ethiopia Ratifies the New York Convention

Written by
By: Ben Sanderson and Erika Tesfaye

Introduction

Since the appointment of its new Prime Minister (Abiy Ahmend) in 2018, Ethiopia has witnessed a series of broad ranging economic and legal reforms aimed at boosting the economy by encouraging foreign direct investment (FDI). In view of this, on February 13, 2020 the Ethiopian Government approved the ratification of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention. In doing so, Ethiopia becomes the 33rd African and the 162nd international State to sign the New York Convention.

Implications on the ratification of the New York Convention

Ratifying the New York Convention is a significant step forward for Ethiopia and underpins the country’s ongoing efforts to attract greater foreign investment. The adoption of the uniform framework for the recognition and enforcement of arbitral awards will certainly help to improve the country’s profile as a business-friendly jurisdiction.

The previous regime1 for enforcement of foreign judgments and arbitral awards contained a number of grounds which were considered obsolete and ambiguous. The decision to adopt the New York Convention therefore provides international parties with greater certainty and brings the Ethiopian arbitration ecosystem into line with international standards.

One of the most significant stumbling blocks under the old system was the requirement for reciprocity to be demonstrated in order to enforce a foreign arbitral award. In other words, in order for a party to enforce a foreign arbitral award in Ethiopia, the party would have to show that the State where the arbitral award was made would recognize and enforce an arbitral award made in Ethiopia on the basis of reciprocity. As Ethiopia was not a party to the New York Convention, this rule meant that it was virtually impossible to enforce a foreign arbitral award in Ethiopia.

In the well-known Paulos Papassinus case, the Federal Supreme Court denied an application for enforcement of a Greek judgment because the applicant failed to prove reciprocity.2 The Supreme Court found that a party would need to establish the existence of a judicial assistance treaty signed between Ethiopia and the other State. Although the decision rendered by the Supreme Court relates to foreign judgments and not to arbitral awards, it was a widely considered that the courts would reach a similar conclusion regarding the enforcement of foreign arbitral awards. While court decisions in Ethiopia (save those of the cassation bench) do not create precedent, commentators agreed that there was a significant risk that other courts would follow the decision in the Paulos Papassinus case.

Ethiopia is already the recipient of significant flows of FDI, notably in the infrastructure sector, and the decision to bring its recognition and enforcement procedures into line with international best practice is a welcome development. Ethiopia has adopted the New York Convention subject to two common reservations: (i) on the basis of reciprocity to the recognition and enforcement of awards made only in the territory of another contracting State, and (ii) its application only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the laws of Ethiopia. Ethiopian law does not make a distinction between civil and commercial matters and therefore it would be left to the discretion of the enforcing court to determine whether the dispute is commercial in nature or not. Furthermore, the New York Convention will only apply to arbitration agreements made after the date of Ethiopia’s accession. Existing long terms contracts will therefore not benefit from the new regime absent an amendment or restatement of the arbitration agreement.

Conclusion

Addis Ababa is well-placed to become a hub for international arbitration in Africa. Addis is home to both the African Union and the United Nations Economic Commission for Africa, and has many of the facilities and international transport connections which are the envy of other African cities. With these latest reforms, Addis has taken a significant step forward not only in improving Ethiopia’s profile for the ease of doing business, but also to set itself apart as a hub for arbitration in Africa.

The next crucial step for Ethiopia will be to introduce a comprehensive law governing arbitration, which at present is regulated by the Civil Procedure Code. The Ethiopian Government has produced a draft arbitration Proclamation which is currently under consultation. Arbitration practitioners in Ethiopia will be keen to ensure that any new law is in line with international best practice and some commentators are calling for the adoption of the UNCITRAL Model Law. A further updated on progress with this new law is expected later this year.

1The 1965 Civil Procedure Code of Ethiopia (the “Code”), the Federal Courts Proclamation No. 25/1996 and its amendment Proclamation No. 454/2005.

2In the Matters of Paulos Papassinus, Federal High Court, Civil Case No.1623/1980; and in the Matters of Paulos Papassinus, Federal Supreme Court, Civil Appeal Case No.1769/88.

Erika Tesfaye is an Associate at Mehrteab Leul & Associates Law Office. Mehrteab Leul & Associates Law Office is a member of DLA Piper Africa, a Swiss Verein whose members are comprised of independent law firms in Africa working with DLA Piper. DLA Piper is a global law firm operating through various separate and distinct legal entities.

Mehrteab Leul & Associates Law office is a member of DLA Piper Africa, a Swiss Verein whose members are comprised of independent law firms in Africa working with DLA Piper. DLA Piper is a global law firm operating through various separate and distinct legal entities.

Further information on DLA Piper Africa can be found at www.dlapiper.com/africa. This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. Mehrteab Leul & Associates Law office will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as "Lawyer Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.

Authors 


Ben Sanderson         Erika Tesfaye

 

 

 
 
 
DLA Piper Africa DLA Piper Africa
 
Legal update: Protocol on workplace response to coronavirus COVID-19 (Ethiopia)
01 April 2020
On 27 March 2020, Ethiopia adopted a tripartite protocol that outlines workplace response to coronavirus COVID-19. The Ministry of Labor and Social Affairs (MoLSA), the Ethiopian Employers’ Confederation and Confederation of Ethiopian Trade Unions jointly issued the protocol which aims at prevention of coronavirus COVID-19 in the workplace and mitigating the socio economic impacts of the pandemic on workers, employers and the overall economy of the country.

The following is a brief summary of the protocol.
Preventive and protective measures
The protocol emphasises the importance of prevention as the most important tool in the fight against coronavirus COVID-19 and lists precautionary measures specific to the pandemic that have to be taken by employers, employees, and safety officers. The preventive measures to be taken by employers are, for the most part, incorporated in our Legal Guidance for Employers, which can be accessed our website and the DLA Piper Coronavirus Resource Centre. The protocol requires employers to take the following additional preventive and protective measures:
Providing employees with protective materials such as face masks and gloves and training them on how to use them;
Setting up a committee dedicated to the prevention of coronavirus COVID-19 in the workplace led by the manager of the business and made up of trade union and/or employee representatives;
Creating a work space that allows employees to practice social distancing while working;
Avoiding a congested environment inside employee transportation services and ensuring windows are open during travel;
Creating awareness around coronavirus COVID-19 and its prevention among employees using different channels in different languages;
Allocating longer meal breaks to avoid crowds in cafeterias and canteens;
Avoiding gatherings, meetings as well as work situations exposing employees to contracting the disease;
Avoiding meetings and encouraging communication via internet or telephone;
Preparing a space where employees displaying coronavirus COVID-19 symptoms can stay until they are transferred to health centers; and
Preparing regular reports on coronavirus COVID-19 in collaboration with labor unions and/or employee representatives.
Under the labor proclamation, employers have the overall responsibility of taking the necessary measures to adequately safeguard the health and safety of employees. It follows from this general obligation that employers must comply with the above listed specific precautionary measures.
Recommended measures to sustain employment and business continuity
So as to ease the impact of the coronavirus COVID-19 pandemic on employment, the protocol outlines recommended measures that may be adopted for the purpose of protecting workers as well as safeguarding business continuity. While emphasizing the key role of consultation between workers and employers in planning and implementing these measures, the protocol recommends the following measures to be considered step by step with due regard to the severity of the situation:
Employees to take paid annual leave and in the case of employees who do not have unused annual leave, employers to allow them to take at least half of next year’s leave;
Ongoing negotiations towards new collective agreements to be suspended for the next 12 months;
Unimplemented salary raise plans to be suspended for the next 12 months;
Benefits and allowances which used to be provided to employees (such as hardship allowance, transportation allowance, house allowance, commission, bonus and other benefits which are not considered as salary) not to be paid until the crisis finishes;
Based on consultations of employers’ and workers’ unions, revising existing salary scales in a bid to maintain business continuity;
For employees assigned to non-essential positions who temporarily lose their jobs, provision of loans and written assurance that they will be reinstated once the situation stabilizes;
Trade unions and employer associations to mobilize their members to discharge corporate social responsibility during these critical times.
While the above recommended measures might not be legally binding, they certainly provide useful guidance on what should be done in terms of responding to the crisis. It is also important to note that the protocol, a result of a tripartite consultation, calls on all stakeholders but mainly workers and employers to commit to the implementation of these necessary policy measures.

Should you have any questions on the new protocol, please get in touch with us.

Kind regards,
Susheela Rivers Benyam Tafesse Dubero
Head of Employment and Immigration
+251 115 15 97 98
Mehrteab Leul & Associates (DLA Piper Africa, Ethiopia)
 
   
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This publication is intended as a general guidance and discussion of the issues addressed, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. Mehrteab Leul & Associates Law office will accept no responsibility for any actions taken or not taken on the basis of this publication.

Mehrteab Leul & Associates is a member of DLA Piper Africa, a Swiss Verein whose members are comprised of independent law firms in Africa working with DLA Piper.

DLA Piper is a global law firm operating through various separate and distinct legal entities. Further information on DLA Piper Africa can be found at www.dlapiper.com/africa.

This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. Mehrteab Leul & Associates will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as “Lawyer Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
Copyright © 2020 DLA Piper. All rights reserved.  |  APR20  |  A05197

 

 
 
 
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Coronavirus COVID-19: Legal guidance for employers in Ethiopia
With 334,000 plus confirmed cases and over 14,600 deaths across 189 countries and territories, the coronavirus COVID-19 is causing havoc throughout the world. As the virus continues to rapidly spread across different jurisdictions including Ethiopia, it is causing many businesses and employers to look at what measures they could legally take to mitigate risks in the workplace, and protect health and safety of their employees. It is also indisputable that there is much anxiety about coronavirus COVID-19 and its impact regarding employment in the event that a countrywide lockdown becomes mandatory.

To help our clients navigate through this unprecedented time, we have prepared some general guidance on the impact of coronavirus COVID-19 on the employment relationship under Ethiopian law.
Preventive measures
Health and safety
The Ethiopian Labor Proclamation obliges employers to take the necessary measures to adequately safeguard the health and safety of employees at all times. This broad responsibility means that employers have the duty to strictly follow precautionary measures at work place upon the occurrence of pandemics and transmitting diseases. Though there is no official separate directive or guideline issued by the Ministry of Labor and Social Affairs on specific measures to be taken by employers in relation to coronavirus COVID-19, employers are recommended to take the following actions:
Make employees aware of safety and prevention measures in accordance with public briefings, press releases and guidelines by WHO, the F.D.R.E. Ministry of Health and the Ethiopian Public Health Institute (EPHI);
Availing access to information to the employees. This can be done by regularly updating information on scientific developments and professional advises on notice
Providing water, soap, paper towels, sanitizers and trash cans to dispose of used materials in work places to allow employees to practice good hygiene at all times (it is commendable if support can also be extended to those who cannot afford soaps and sanitizing materials at home);
Organizing office spaces in a way the air can easily circulate;
Regularly assessing the health of employees and remind staff to self-isolate in cases where symptoms are observed;
Creating a working office which allows employees to distance themselves from each other and avoid suffocation. The employer should recommend that employees practice social distancing and discouraging physical greetings such as shaking hands;
Avoiding gatherings, meetings as well as work situations exposing employees to contracting the disease;
Regularly cleaning tables, doors, surfaces, elevators and shared equipment at the work place;
Amending domestic and international travel policies;
Providing options to work from home where applicable; and
Providing information and safety measures to visitors and clients at offices
It is important to note that the Labor Proclamation excludes endemic or epidemic diseases (except in the case of employees who are exclusively engaged in fighting such illnesses) from the definition of occupational diseases. As a result, employers are generally obviated from liabilities that arise from employees contracting occupational diseases. Nevertheless, employers are obliged to take precautionary measures at all times including during epidemics.
Quarantine
Quarantine is not specifically recognized by the law. However, given the characteristics of coronavirus COVID-19, there may be different types of quarantine scenarios and each comes with slightly different legal implications. We have provided below the recommend measures on how an employer should handle different types of quarantine scenarios in light of Ethiopian labor laws:

Government-mandated quarantine due to a positive coronavirus
COVID-19 diagnosis

Where an employee has been diagnosed with the virus and the government or health agency requires quarantine, the employee may be treated as being on sick leave to the extent applicable and provided that the employee has available sick leave. The sick leave to be granted could be fully-paid, partially paid or unpaid depending on circumstances.

Government/Health agency-recommended quarantine
Quarantine may be recommended if the employee is showing signs of illness but has not been diagnosed with coronavirus COVID-19. In such circumstances, if the employee is sick and unable to work (for whatever reason), he or she may be entitled to sick leave (paid or unpaid) in accordance with the requirements of the Labor Proclamation. If, however, the employee is feeling well and provided that he/she is able to work from home during the quarantine, the employer may allow him/her to work remotely during such period of recommended or mandated quarantine.

Employer-mandated quarantine
Where the employer asks employees to stay away from work, for reasons related to coronavirus COVID-19, the employee may be entitled to sick leave depending on the individual circumstances of the employee and the requirements of the Ethiopian labor laws.

Employee self-isolation
If the employee is hesitant to come to work because of a fear of contracting the virus, employers are generally encouraged to investigate the reason for the absence and whether there are special circumstances that need to be taken into account, e.g., if the employee is particularly vulnerable or is living with a vulnerable person. Where the reason is legitimate, and the nature of the work allows the employee to work from home, the employer may allow the employee to continue to work from home to the extent possible.

In connection with sick leave, it is important for employers to understand the difficulty that may be encountered by quarantined employees to acquire evidence of ill-health and as such, employers may consider if they have to temporarily adjust their policies in this regard. Additionally, employers are strongly encouraged to seek legal advice to determine to what extent, in what circumstances statutory sick leave may be applicable and to discuss other available avenues in the event sick leave is not applicable.
Working from home
Although it does not provide details, the Labor Proclamation indicates that an employee may work from home when agreement to that effect has been made with an employer. It has been publicly reported that many businesses in various jurisdictions are currently permitting certain groups or even entire staff to work from home on a trial basis to flesh out and address any issues in advance in the event that more widescale home working becomes mandatory. At this stage, employers in Ethiopia are encouraged to review their work from home policies (if any) to make sure these are up-to-date and fit for purpose and that employees who work from home have the requisite technical and material support.
Relevant legal avenues
The Ethiopian Labor Proclamation provides for various measures that could be considered by the employer during challenging circumstances such as the coronavirus COVID-19.
Suspension
Temporary suspension of rights and obligations arising from a contract of employment may be considered in the following cases.
Leave without pay
Suspension of contract of employment can be applied in cases where leave without pay is requested by the employee and granted by the employer. In such cases, the employer’s obligation to pay wages and benefits and the employee’s obligation to perform work will be interrupted for the period fixed by the parties.
Suspension due to force majeure or financial difficulties
The Labor Proclamation provides that the occurrence of a force majeure circumstance which results in the full or partial interruption of the employer’s work for not less than 10 consecutive days justifies temporary suspension of employment contracts. Similarly, financial problems not attributed to the fault of the employer that lead to the interruption of activities of the employer for no less than 10 consecutive days constitutes a valid ground for temporary suspension.

Before suspending employment contracts on the basis of occurrence of one of the above mentioned grounds, the employer is legally required to submit a request for approval to the Ministry of Labor and Social Affairs (MoLSA) or the appropriate labor authority stating the grounds for suspension. The Ministry or the appropriate authority has to determine the existence of a good cause for suspension and announce its decision within three days. If the employer has not received a response from the relevant authority within this period, this will be considered as affirmation of the request and the employer can suspend the employee(s).

When the Ministry or authority approves the request for suspension, it will fix the period of suspension which will not exceed 90 days. On the other hand, the Ministry or the appropriate authority may order the resumption of work and payment for the days on which workers were suspended if it finds that there is no good cause for suspension. In such a case, the employer has a right to appeal to the appropriate labor court within five working days after the final decision has been passed.
Termination
Ethiopian labor law recognizes grounds attributable to organizational or operational requirements of an undertaking as valid causes for terminating an employee after giving notice. One of the grounds that justify termination with notice is fall in demand for the products or services of the employer resulting in the reduction of the volume of work or its profit. In such cases, the employer may terminate employees after giving the applicable advance notice and effecting payment of statutory termination benefits.

However, if the termination affects workers representing at least 10% of the number of workers employed or termination of at least five employees over a continuous period of not less than ten days, in cases where the number of workers in an undertaking is between 20 and 50, the termination may be considered as a “reduction of workers” and will be subject to further regulations and procedures stipulated by the law. In the event of a reduction of workers, the employer should observe the mandatory rules on consultation with trade unions and workers representatives and rules relating to prioritization of employees to be terminated.
For help and support in relation to coronavirus COVID-19, please reach out to your regular contact or alternatively use the contacts in our Coronavirus Resource Center.
 
   
DLA Piper
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This publication is intended as a general guidance and discussion of the issues addressed, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. Mehrteab Leul & Associates Law office will accept no responsibility for any actions taken or not taken on the basis of this publication.

Mehrteab Leul & Associates is a member of DLA Piper Africa, a Swiss Verein whose members are comprised of independent law firms in Africa working with DLA Piper.

DLA Piper is a global law firm operating through various separate and distinct legal entities. Further information on DLA Piper Africa can be found at www.dlapiper.com/africa.

This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. Mehrteab Leul & Associates will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as “Lawyer Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
Copyright © 2020 DLA Piper. All rights reserved.  |  MAR20  |  A05197
Tuesday, 21 July 2020 07:52

New Excise Tax Proclamation, Legal Update

Written by

The Excise Tax Proclamation No. 307/2002 (Previous Proclamation) that had been in effect since 2003 has been repealed. The Ethiopian Parliament has approved a new Excise Tax Proclamation No. 1186/2020 (New Proclamation) on 13 February 2020. Below we provide a summary of the major changes introduced by the New Proclamation.

Scope

The scope of application of the New Proclamation is on excisable imported goods and those manufactured in Ethiopia by licensed manufacturers. Excisable goods are those itemised in a Schedule attached to the Proclamation which currently lists 19 classes of goods and 378 specific items classified under each of the classes.

Registration and licensing by the tax authority

The New Proclamation has introduced a system by which all producers and suppliers of excisable goods have to be mandatorily registered and licensed by the Tax Authority for production and supply of excisable goods and services in Ethiopia and engagement in activities subject to the licensing in a Directive to be prescribed by the Ministry of Finance.

Tax rates

The New Proclamation has introduced the application of a specific excise tax rate that is based on the quantity or weight of goods along with an Ad Valorem rate (i.e. based on percentage of value) as opposed to the Previous Proclamation which adopts only the latter type of excise tax rate. Ad Valorem rates range from a minimum of 5% (e.g. rubber tyre) to a maximum of 500% (most used vehicles with a cylinder capacity exceeding 1800 cc and aged more than seven years). Specific rates are adopted for goods such as beer (in which specific and ad valorem rates apply alternatively, whichever is higher) and cigarettes (in which a combination of both rates apply).

The Ministry of Finance is empowered to increase or decrease the Excise Tax Rate up to a maximum of 10% of the rate indicated under its first Schedule. In order to cater for inflation, the Tax Authority is given the responsibility to apply an inflationary adjustment at least once a year on the Standard Excise Tax Rates according to a Directive to be issued by the Ministry of Finance.

Tax base and time of payment

As a significant shift from the Previous Proclamation, the tax base for goods produced locally is now the factory selling price. This is the price paid by the purchaser or the fair market value of the goods in case of related party transactions less the applicable VAT on supply of goods, the cost of Excise Stamp and the cost of returnable packaging. Excise tax must be shown separately on the transactional invoice.

For imported goods, the tax base is the value of goods to be determined as per the Customs Proclamation plus the applicable Customs Duty payable on the goods.

For goods manufactured locally, the time of exit of goods from factory or their consumption therein determines the time of payment of the tax. On the other hand, the time of entry of goods into Ethiopia is when the tax must be paid for imported goods with the exception of petroleum products in which the Ministry of Finance could give special permits to change such time.

Exemption, refund and deduction

The New Proclamation introduces elements the fulfilment of which renders goods not excisable. It also lists situations and items that are exempt from the payment of Excise Tax. Excisable goods exported or sold to persons with a tax free privilege, excisable goods destroyed by the producer following the Tax Authority’s approval and excisable goods lost or destroyed by accident or other factors beyond one’s control are exempt items in the New Proclamation. The Ministry of Finance is also given the power to exempt goods from the tax due to economic, social and administrative reasons.

The New Proclamation has also introduced a mechanism by which an Excise Tax that is already paid to the Government could be refunded to the taxpayer based on occurrence of certain events such as loss or destruction of goods or their return to the seller by the purchaser.

The deduction of Excise Tax paid on inputs is also allowed for a local manufacturer of all excisable goods save for alcohol, tobacco and sugar.

A monitoring mechanism on excisable goods

The New Proclamation has introduced a monitoring mechanism of excisable goods by the Tax Authority while excisable goods are inside the manufacturing factory of an authorised producer. Accordingly, an officer of the Tax Authority is empowered to investigate the nature and status of excisable goods, to weigh their weights, and count their quantity inside the factory. Authorised manufacturers of excisable goods are in turn obliged to register list of inputs and outputs in an approved form and set up a mechanism by which the officer of the Tax Authority can realise its monitoring responsibilities.

Excise tax stamp

The New Proclamation empowers the Ministry of Finance to issue a Directive that governs stamps that are to be used to identify excisable goods, alcohol products that are exempt from the tax, export goods and those goods produced for the consumption of exempt entities. The time, place and manner of administration of such excise tax stamps is also to be addressed in this Directive. The type and content of the excise tax stamps is to be publicized by the Tax Authority in newspapers having nationwide circulation.

New excisable items and changed tax rates

The other major change introduced by the New Proclamation is the levying of the tax on items that were not excisable under the applicable excise tax law and change of the tax rate on already excisable goods.

The new excisable goods include fats and oils, foods containing sugar, chocolates and cacao products, fireworks, plastic bags, plastic vehicle tyres, artificial flowers and fruits, human and synthetic hair, tractors, special purpose vehicles, trailers, gambling and video game machines are among the newly introduced excisable items.

Penalties

The manufacturing and importation of excisable products without having the appropriate license results in an administrative penalty amounting to double of the excise tax that would have been payable. Fines ranging from ETB 50,000 – 200,000 and imprisonment ranging from a minimum of three to a maximum of seven years are also included as criminal penalties in the New Proclamation for offences committed in violation of the different mandatory provisions of the law. Such administrative and criminal liabilities are in addition to those already provided in the Tax Administration Proclamation unless provided in an overlapping manner, in which case the New Proclamation applies.

Effective date

No effective date is specified and the President of Ethiopia has not signed in the copy of the New Proclamation that was circulated by the Ministry of Revenues. Nonetheless, the Ministry of Revenues circulated the copy with a notice to taxpayers stating that the New Proclamation will take effect beginning from the 14 February 2020, a day after the approval of the Proclamation in the Parliament.

Normally and in the absence of a relevant rule in the law itself, new laws that have been approved by the Ethiopian Parliament – the House of Peoples Representatives, begin to take effect when they are published in the nation’s official publication, the Federal Negarit Gazeta. Article 57 of the Federal Constitution of Ethiopia provides that laws passed by the Parliament must be signed by the President of Ethiopia within fifteen days and it is if the President fails to sign the law within such period that the law will take effect without his/her signature.

Leaving the above controversy on the New Proclamation’s effective date aside, there is a grace period of six months for persons engaged in manufacturing of excisable goods to continue manufacturing without having the appropriate license as indicated above. In addition, those goods for which a letter of credit has already been opened before issuance of the New Proclamation and those goods imported into Ethiopia within six months from entry into force of the New Proclamation will be excised based on the Previous Proclamation.

Introduction

The Ethiopian Government has made commendable efforts, through legislative and procedural reforms, to improve the investment climate of the country and thereby attracting more foreign direct investment. In line with market-oriented economic policy, the investment regime has been liberalised through a series of Government legislation. Since 1992, the investment law has been revised four times to ensure the participation of more foreign investments in various sectors of the economy. The latest law is promulgated in January 2020.

After the appointment of the current Prime Minister (Abiy Ahmed) in April 2018, the Ethiopian Government has taken a fresh road to economic reform, starting by privatising fully owned government enterprises and boosting the private sector. As the role of FDI in the private sector being a key component to a nation’s economy, it was held by the government that amending the existing investment law (Proclamation No. 769 of 2012 as amended in 2014) is a vital step to the reform. As a result the New Investment Proclamation (the Investment Proclamation) was approved on 30 January 2020 by the House of Peoples Representatives. However, the Investment Proclamation is not yet published in the official legal gazette of Ethiopia, the Federal Negarit Gazette.

Major Amendments to the 2020 Investment Proclamation and Draft Investment Regulations

Opening of reserved/restricted sectors to foreign investment

One of the major changes the Investment Proclamation has brought is the restoration of the “negative listing” of investment areas that are open to foreign investors enabling foreign investors to enjoy a greater opportunity with regards to the areas that they can invest in. The negative listing approach employs the opening of all economic sectors to FDI except those that are expressly reserved/restricted by law. This approach aspires to cope with the ever-changing technological evolutions and pace of business in a globalised economic sphere. This approach is a reversal of the 2012 Investment Proclamation and Regulations which adopted the “positive listing” method that was restrictive by design. Under this method, all investment activities open for FDI were positively listed and foreigners could not directly invest in areas not specifically appearing on the list. This has now changed into a negative listing whereby foreigners can invest in all areas of investment except those explicitly reserved.

As part of the negative listing approach, the Investment Proclamation provides three categories of investment areas. These are areas exclusively reserved for joint investment with government, areas exclusively reserved for domestic investors and areas exclusively reserved for joint investment with domestic investors. All other sectors not reserved in the aforementioned sectors will be open for foreign investment. The Investment Proclamation avoided a category of sectors that will exclusively be held by the government and introduces a new category of sectors in which joint investment with domestic investors will be mandatory. Some of the areas of investment which were exclusively reserved for Ethiopian nationals under the previous laws are likely to be opened for foreign investments with the condition that foreign investors undertake these investments in joint venture with the government and/or domestic investors.

Even if it has not yet been made final and approved by the Council of Ministers, the Draft Investment Regulations (the Draft Investment Regulations) to implement the Investment Proclamation has provided the details of the sectors eligible for the above categories. The Draft Investment Regulations divides sectors allowed for foreign investors in context of joint investments into to two depending on minimum percentage of local content (indigenisation) requirement. These are:

Areas of investment in which foreign investor(s) can own up to a maximum of 75% of share capital

A foreign investor jointly investing with a domestic investor (Ethiopian nationals or companies wholly owned by Ethiopian nationals) in the following areas can own up to a maximum of 75% of share capital of a joint venture company. These areas are:

  • forwarding and shipping agency services;
  • domestic air transport services; and
  • inland public transport having a capacity of more than 45 seats and freight transport services having a capacity of more than 32 tones.
  • Areas of investment in which foreign investor(s) can own up to a maximum of 49% of share capital

A foreign investor jointly investing with a domestic investor (Ethiopian nationals or companies wholly owned by Ethiopian nationals) in the following areas can own up to a maximum of 49% of share capital of a joint venture company. These areas are:

  • advertisement and promotion works;
  • audiovisual services, motion picture and video recording, and production and distribution services;
  • accounting and auditing services;
  • mass media services;
  • making indigenous traditional medicines; and
  • Grade 2 construction services.

Furthermore, investment in the transmission and distribution of electricity energy through the national grid system, previously reserved for the government, is now open for joint venture investment with the government.

On the other hand, investment areas, including banking and insurance, that were exclusively reserved for Ethiopian nationals in the previous laws are now open to any person falling within the definition of domestic investor, including foreign nationals of Ethiopian origin. Investment areas that are exclusively reserved for domestic investors include banking, insurance and micro-credit and saving services, retail trade (excluding retail of own manufactured products produced in Ethiopia), import trade (excluding liquefied petroleum gas and bitumen) and few other selected areas of investment that are enclosed into the list with a view to protect domestic investors and small and medium enterprises.

New work permit rules and investment visa

The Investment Proclamation preserves the former rule that any investor may employ duly qualified expatriate experts required for the operation of its business and there will be no restrictions regarding top management positions. However, it further explains what “top management” constitutes. Top management includes chief executive officer, chief financial officer and chief operations officer. Moreover, the Investment Proclamation allows the spouse of an investor or a foreign worker the right to be employed and obtain a work permit in Ethiopia which was not addressed under the 2012 Investment Proclamation. The Investment Proclamation further provides that the Ethiopian Investment Commission or a delegated investment organ may facilitate the processing of visa applications of foreigners and their dependent family members coming to Ethiopia in relation to investment.

Establishment of the Federal Government and Regional State Administrations Investment Council

This is a council chaired by the Prime Minister. The Investment Proclamation established this Council in order to simplify investment and facilitate a synchronised investment system between the Federal government and regional State administration. The Council among other things prevent and resolve limitations to the provision of investment services including the allocation of land by regional state investment administration bodies.

Approval of brownfield investments by the Investment Commission

The 2012 Investment Proclamation requires that a foreign investor seeking to buy an existing enterprise in order to operate it in its current state or to buy shares of an existing enterprise shall obtain prior approval from the Ministry of Trade and Industry. However, the Investment Proclamation changed this and now the approval of brownfield investments is transferred from the Ministry of Trade and Industry to the Ethiopian Investment Commission.

Grievance handling rules

The Investment Proclamation included elaborate grievance handling rules and time efficient resolution of investment disputes. It went to the extent of introducing an arrangement where an investor may file a complaint to the Ethiopian Investment Commission against any decision of federal executive bodies’ decision where it considerably affects its investment.

On the other hand, regulations in relation to minimum investment capital (which ranges from a minimum of USD50,000 to a maximum of USD200,000 per project), repatriation of dividend and profits, access to external loan, the right to open foreign currency account, registration of technology transfer agreement and export-oriented non-equity based foreign enterprise collaboration agreement, one stop services, investment guarantee and protection and ownership of immovable property in the 2012 Investment Proclamation are all maintained in the Investment Proclamation.

Conclusion

The amendment of the 2012 Investment Proclamation is a part of Ethiopian Government’s bid to reform the economy. In its Preamble, the Investment Proclamation provides that it is aimed at producing an economic framework that fast tracks the global competitiveness of the national economy, increases export performance and generates more and better employment opportunities. In the Draft Investment Regulations which is expected to be approved by the Council of Ministers, the Ethiopian Government has taken significant steps in opening up investment areas for foreign participation. Under the Draft Investment Regulations, anything that is not expressly reserved for domestic investors is presumed by implication as open for foreign investment. This is a major change from the 2012 Investment Proclamation, which used to provide that anything that is not expressly open for foreign investment is by implication reserved for domestic investors.

The Ministry of Finance (MoF) approved the import of agricultural mechanization, irrigation and animal feed technologies, and equipment to be tax-free. https://lnkd.in/dMM9Kmi

Wednesday, 22 May 2019 11:09

Recognized by the Legal 500 as a Tier one firm

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Mehrteab Leul and Associates Law Office (MLA) is pleased to be recognized by the Legal 500 as a Tier one firm in Ethiopia. We believe the ranking accurately reflects our first-rate legal services.

Wednesday, 22 May 2019 11:01

Ethiopia Partnership Forum

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Pleased to share that one of our star lawyers, Benyam Tafesse is representing MLA at the “Ethiopia Partnership Forum” hosted by the U.S. Department of State in the Loy Henderson Auditorium at the U.S. Department of State in Washington, D.C. Good Luck Benyam!

Wednesday, 22 May 2019 11:00

Congrats to all DLA Piper Africa Tax Team!

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Our very own Mehrteab leul Kokeb Tadesse Lencho and Sisay Habte are members of the tax team who won the African Transfer Pricing Team of the year last night at the International Tax Review awards. Congrats to all DLA Piper Africa Tax Team!