The 2021 amendment (Regulation No. 485/2021) clarified, replaced or added few articles to the 2017 regulation. Here are the key changes:

1. Article 34 (Deduction for Business Assets under Lease)

The old Article 34 is deleted and replaced. The new version clarifies that:

• Lease payments for assets under Financial Lease or Operating Lease are deductible business expenses but no allowance for depreciation.
• Business owning asset under hire Purchase Agreement is entitled to claim depreciation on the asset.

2. Article 40 (Depreciation on Partially Used Buildings)

The old Article 40 is deleted and replaced. The new version clarifies that if a building is fully completed and partially used for business, depreciation is allowed only in proportion to the business-use portion of the building.

3. Article 42(1) (Loss Carry Forward)

The old Article 42(1) is deleted and replaced. The new version clarifies that when a taxpayer has losses carried forward from multiple years, the loss from the earliest year must be deducted first. It also emphasizes that a loss can only be deducted if the taxpayer has taxable income.

4. Article 44(2) (Foreign Currency Exchange Losses)

The old Article 44(2) is deleted and replaced. The new version provides more specific rules on how to treat foreign currency exchange losses:

• Losses related to buying capital goods are added to the capital goods’ value (for depreciation).
• Losses related to operating expenses are treated as expenses of the fiscal year.
• The taxpayer must prove the loss with evidence as prescribed by the Tax Authority.

5. Article 42(5) (Third Loss Carry Forward for Manufacturers)

A new sub-article (5) is added to Article 42. This gives the Minister the power to allow a taxpayer in the manufacturing sector to carry forward a third consecutive loss for a good cause.

6. Article 56(1) (Inflation Adjustment for Taxable Assets)

The old Article 56(1) is deleted and replaced. The new version states that the cost of Class “A” and Class “B” taxable assets shall be adjusted for inflation as determined by a directive issued by the Minister.

7. Article 68 (Business Loss Carry Forward under Repealed Proclamation)

The old Article 68 is deleted and replaced. The new version clarifies that a taxpayer with an undeducted business loss from the repealed Proclamation can continue to deduct it according to the rules of the repealed Proclamation.

Effective Date: October 29, 2021

Amends: Ethiopia Income Tax Regulation No. 410/2017

Implements: Federal Income Tax Proclamation No. 979/2016