Photo by Anna Tarazevich
To have your business registered in Ethiopia requires amongst other things the following, an Initial Registration of the Company Name, your company’s Memorandum, an Article Of Association, an approved tax identification number, acquisition of a certificate of commercial registration, based on the specific industry a business might be required to apply and obtain a certificate of competency as proof of its capacity to offer its proposed services.
Businesses would also be required to register for a trade/business license which is renewable every 6 months. This is required to ensure the business can operate commercially. Furthermore, the registration of pension and income for a business with employees is also a compulsory requirement. Businesses would also be required to have a registered tax account. (business.gov.et)
See below the procedure, time, and possible cost of doing business in Ethiopia.
(Source: doingbusiness.org)
| Doing Business in Ethiopia |
| No. | Procedure | Time to Complete | Possible Costs |
| 1 | Reserve a unique company nameAgency: Ministry of Trade or Trade Bureau at sub-city level The entrepreneur reserves a unique company name. Form is submittedNae is reserved and a confirmation letter is issued by the Ministry/Bureau addressed to the Ethiopian Revenues and Customs Authority. | 1 Day | ETB 27 |
| 2 | Authentication of the company documents and the lease agreement at the DocumentsAuthentication and Registration Office (DARO)Agency: Documents Authentication and Registration Office (DARO) Authentication of the Memorandum and Articles of AssociationPartners appear in person on the appointed date, with an original copy of their letter of appointment (power of attorney) and a valid identity card. The validity of documents, authenticity of the signatures, and the genuineness of the identity cards are confirmed.Partners sign the documents before the notary public and pay a stamp duty flat fee of ETB 350, as well as 100 ETB /4 copies and Birr 1 per additional person. | 2 Days | ETB 451 |
| 3 | Obtain a tax identification number (TIN)Agency: Ethiopian Revenue and Customs Authority Submit an application form along with a memorandum and articles of association.A taxpayer registration certificate is issued to the company for submission at the sub-city along with its application for incorporation. | 1 Day | No charge |
| 4 | Register the company and obtain the Commercial registration certificateAgency: Commercial Register Applicant registers the Memorandum and Articles of AssociationThe commercial register delivers a registration certificate. Payment is done at the same time. | 1 Day | ETB 102 |
| 5 | Make a company sealAgency: Seal maker While the law does not specifically require a company to have a seal, it is required and commonly used in practice. The seal maker is a private service provider thus, the pace of its service delivery depends on its cost, reputation, and quality. The seal maker will require the business license and TIN of the company. | 1-3 Days | ETB 550 |
| 6 | Register the company and employees with the Private Organization Employees’ Pension Fund Agency: Private Organizations Employees Social Security Agency (POESSA) According to Article 4 of the Private Organization Employees Pension Proclamation No. 715/2011 enacted June 2011, any private organization shall, for registration, submit to the agency copies of its establishment law, personal data of its employees taken at the time of first employment, letter of employment issued to the employee and other particulars determined by the Agency within 60 days from the date of establishment of the company or employer. | 1 Day | No Charge |
| 7 | Register with the Ethiopian Revenue and Customs Authority for VATAgency: Ethiopian Revenue and Customs Authority A newly established firm must register for VAT if its turnover is at least ETB 500,000 based on VAT Proclamation No. 285/2002, Article 16. Article 16 (1) (b) of the VAT Proclamation and Article 4 (3) of Directive No. 25/2009. A Directive for VAT registration states that persons engaged in the following business activities must register; importers, manufacturers of plastics and plastic products, shoe factories, contractors above Grade 10, computers and accessories shops, manufacturers and sellers of leather and leather products, electronic shops, and jewellery shops. Once registered, the VAT certificate is obtained. | 1 Day | No Charge |
| 8 | Publish the name in a nationwide newspaperAgency: Ethiopian Press Agency Companies publish the name for 15 days in a national newspaper to ensure availability.The company applies for the name registration certificate in the absence of any objection | 15 Days | ETB 300 |
| 9 | Reserve a unique trade nameAgency: Ministry of Trade or Trade Bureau at sub-city level After publication in the newspaper, the company can continue to register for the trade name and pay all relevant fees. Article 24 (1) of the 2010 Commercial Registration and Business LicensingThe proclamation states that any person desiring to engage in a commercial activity shall register his trade name at the place where he is registering in the commercial register. Before the registration of a trade name in the commercial register and in the trade name register, it shall be verified that another business person has not got the trade name registered in the tradename register or in the commercial register. | 1 Day | ETB 27 |
| 10 | Obtain a business licenseAgency: Ministry of Trade or Trade Bureau at the sub-city level Present the Principal Registration, and proof of the new Tax Identification Number, and pay the relevant fees. For certain categories of businesses to obtain a business license. Present a certificate of competence in the field of commercial activity to also get a business license.Business License is issued same day documents are provided | 1 Day | ETB 102 |
Ease of Doing Business in Ethiopia
According to the data gathering and visualization platform -Statista, “Ethiopia scored 48 points in the ease of doing business, ranking it 159th out of 190 countries in 2020” (statista.com).
The ease of doing business rankings focuses on critical areas for establishing and operating a business. These areas include starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.
In some of the following areas, Ethiopia exhibits poor performance, especially in areas like starting a business (#167 ranking); construction permits (#168); getting credit (#175); and protection of minority investors (#178). At the same time, a comparably better record is seen in enforcing contracts (#67 ranking), paying taxes (#130), getting electricity (#131), registering property (#144), and resolving insolvency (#148). (cepheuscapital.com)
Prime Minister Abiy Ahmed Ali to reduce bottlenecks and work towards improving the ease of doing business in partnership with the Ministry of Trade and Industry, National Bank of Ethiopia, Ministry of Revenue, Customs Commission, Addis Ababa City Administration, Ethiopian Electric Utility, Federal Attorney General, Federal High Court, and Federal First Instance High and Supreme Court, is introducing sweeping reforms with a focus on short, medium and long term goals on the ease of doing business in the country.
Some of these reforms are reducing the time to obtain water and sewerage connection from Addis Ababa water supply and sewerage authority (AWASSA) by 50% (currently at 75 days vs. 30 days in Rwanda), automating business registration & licensing, reducing the time it takes for connection by 50% (current average:60 days vs 15 in Rwanda) through outsourcing connection and installation work to private companies (done in Rwanda, Kenya, etc.), Reduce no of says for registration of property and obtain title deed by 50% ( currently at 52 days Vs 7 in Rwanda)-eliminate newspaper publication and 15 days awaiting, among many others. See the full list at (cepheuscapital.com)
Business Culture
In Ethiopia, personal connections are as important as signing off on business partnerships. Business interactions usually start with social conversations that are focused on building rapport. This is geared towards building trust between and establishing a lasting partnership between parties. Meetings normally come to an end once all parties have concluded all that they need to say or a senior member brings the business meeting to an end.
Local etiquette such as standing to greet others, using appropriate titles, offering business cards with either the right hand or both hands but never with the left hand, and not folding of business cards received are a necessary part of the business culture to adhere to.
As is expected in most business agreements, written contracts are more binding than verbal ones and are expected to be thought through. Foreign investments are mostly welcome in Ethiopia due to its link to aid and investment.
While Ethiopia has a strong anti-corruption policy in place, it is not uncommon to experience corrupt transactions, especially with the bureaucratic corridors.
Infrastructure
Ethiopia’s biggest infrastructure challenge resides in the power sector with outages that would hinder business productivity. It is advisable to invest in backup generators or alternative electrical sources when setting up businesses in the country. Aside from this, the country is investing in upgrading its transport network through the creation of more accessible roads to the rural sector as well as exploring viable options for road maintenance.
Efforts are also underway to provide accessibility to Information and Communication Technology (ICT), especially for businesses.
For entrepreneurs planning business operations in Ethiopia, obtaining capable local legal representation well-versed in the registration process and having frequent communication with applicable government departments can minimize the risk of delay and guarantee compliance with all regulatory standards. With sufficient preparation and knowledge of both the procedural and cultural environments, business establishment in Ethiopia can be an achievable task with great long-term potential.
Okechukwu Nzeribe works with the Onitsha Chamber of Commerce, in Anambra State, Nigeria, and loves unveiling the richness of African cultures. okechukwu.onicima@gmail.com
