The Ethiopian Ministry of Finance recently issued a new directive clarifying the application of Capital Gains Tax under Article 58 of the Federal Income Tax Proclamation No. 979/2016. This update provides crucial guidance for both local and foreign investors involved in the transfer of shares, bonds, and other securities.

 The directive primarily addresses the valuation methods for determining the "gain" on a transaction, outlining specific procedures for shares of both public and private limited companies. It clarifies that the historical cost of the asset will be the primary basis for calculation, with adjustments for inflation under certain conditions. Furthermore, the directive establishes a clearer timeline for tax declaration and payment, aiming to streamline the process and improve compliance.

Key takeaways for businesses include the necessity of meticulous record-keeping for all capital assets and seeking professional legal and financial advice before finalizing any share transfer agreements. Our office is prepared to guide clients through these new requirements to ensure full compliance and mitigate potential tax liabilities. We recommend that all business owners and investors review their current asset structures in light of this new directive.