The year 2016- 2017 saw lots of legislative activities from the Federal House of Representatives (HoPR) and the Council of Ministers (COM). A total of 114 proclamations and regulations were collectively enacted by the COM and HoPR. In this issue of our legal update, we will summarize the key legislations that were passed in this period with particular focus on commericial matters. We also have the full list of legislations available for download.
The Ethiopian constitution grants the House of People’s Representatives (HoPR) the mandate to enact laws (“Proclamations”) on all matters of federal jurisdiction. The HoPR has exclusive jurisdiction with respect to enacting laws in sectors, including but not limited to, the utilization of land and other natural resources, foreign trade, patent and copy rights, labor law and commercial law. It also has the authority to ratify bilateral and multilateral treaties and agreements concluded by the executive branch of the government. Treaties and agreements, so ratified, become an integral law of the land. The Constitution delegates the Council of Ministers (COM), as the highest organ of the executive branch, to enact secondary legislations, known as “Regulations".
Commercial Registration and Licensing Council of Ministers Regulation No. 392/2016
The Commericial Registration and Licensing Regulation (CRLR) was passed following the enactment of the Commercial Registration and Business Licensing Proclamation No. 980/2016 (the “Proclamation”) (Please refer to our June 2016 issue of the legal update for further information relating to this Proclamation). The regulation provides detailed provisions on the requirements for the registration, renewal, substitution and cancellation of certificates and licenses for different types of business activities. These include partnerships, limited liability companies, holding companies, franchises, commercial representative offices, branch offices, sole proprietors, foreign sectoral associations, border traders and project offices Moreover, the CRLR provides rules on registration, substitution of certification and cancellation of trade names and business names for business organizations. The overall focus of the CRLR is on procedural steps for issuance, cancellation, and amendment of key company incorporation documents such as commercial registration, business license, trade name registration and commercial representative with exception of one provision that lists out goods which can be retailed by manufacturers and importers. The list includes motor powered manufacturing machineries, motor powered vehicles, office and household furniture, medical equipment, lifts and chemicals. Normally, manufacturers and importers are permitted to sell their products only on wholesale.
Double Taxation Avoidance and Fiscal Evasion Treaty Ratifications
The HoPR ratified double taxation avoidance (DTA) and fiscal evasion treaties with Poland, Morocco, Korea, Slovakia, State of Palestine, Singapore, Mozambique and Cyprus.
Judicial Assistance Treaty in Civil and Commercial Matters between Ethiopia and China Ratification Proclamation No. 1007/2017
A judicial assistance treaty signed between the governments of Ethiopia and China on the 4th of May 2014 was ratified by the HOPR on 4th of June 2017. (“Treaty”). The Treaty guarantees that the nationals of the two countries shall be provided with equal access to courts in each other’s jurisdictions. The Treaty provides that foreign judgment and arbitral awards of the one country will be recognized and executed by the court of the other country. This Treaty is relevant in the context of enforcement of foreign judgments and arbitral awards as currently without a judicial assistance treaty, the enforcement of foreign judgments and foreign arbitral awards is subject to the rules of the Ethiopian Civil Procedure Code. The Civil Procedure Code provides that a reciprocal recognition and execution of judgment must be proven to exist for any foreign judgments or arbitral awards to be enforced in Ethiopia. This Treaty, provides proof of reciprocity of recognition of court decisions and arbitral awards with regard to civil and commercial matters.
Federal Income Tax Regulation No. 410/2017 (FITR)
The FITR was enacted to provide detailed guidelines on the implementation of the Income Tax Proclamation 979/2016 (ITP), issued in 2016. One of the new features that the FITR introduces is the mode of establishing tax residency of a person earning income in Ethiopia. The FITR provides that a permanent establishment (PE) will be presumed when the aggregated number of days in a year that the person/service provider and its related person performs work in Ethiopia on the same or a connected project for a period more than 183 days. The implication of being considered a PE is that the taxpayer will be subject to business income tax as opposed to withholding tax on technical service fee.
The FITR further extends the imposition of the 30% capital gains tax on a share or bond transfer to apply also on the transfer of any interests on a share or bond including the right or option to acquire shares. Additionally, the FITR states that if transfer of share executed by a non-resident is directly or indirectly related with an asset in Ethiopia; such share is considered as though it was transferred in Ethiopia.
The FITR also provides that expenses incurred by the taxpayer in the management of his own charitable activities shall be treated as a charitable donation. Charitable donations were not deductible expenses in the previous tax law. The FITR defined charitable donation as donation incurred in support of for education, health, environmental protection or provided in the form of humanitarian aid other than for the tax payer’s own employees.
Federal Tax Administration Regulation No. 407/2017 (FTAR)
This regulation implements the Federal Tax Administration Proclamation No. 983/2016 and specifically deals with the administrative aspect of the tax collection. One of the new provisions that has been introduced under the FTAR is the documentary requirement that has to be fulfilled when an individual taxpayer applies to register for TIN. In connection with the representation of a non-resident conducting business through an employee or any other person engaged by him, the FTAR provides that the person in Ethiopia will be considered as the tax representative of the non-resident. This will make the representative responsible for accounting for the receipt or payment of moneys or funds in Ethiopia on behalf of the non-resident person. Further, the FTAR provides details on the power and decision of the Tax Appeal Commission in relation to an appeal to tax notification of the Tax Authority.
Construction Industry Council Establishment Council of Ministers Regulation No. 419/2017
The Council of Ministers established the Construction Industry Council (“CIC”) by Regulation No 419/2017 (“CIC Regulation”). The CIC Regulation preamble acknowledges the pivotal role construction industry plays for the development of the country and aims to enhance the sector by creating a stakeholder forum that formulates and deliberates on policy ideas. The CIC is mandated to evaluate the implementation legislations in the construction sector, engage in capacity building, facilitate and create conducive environment for domestic construction companies to be internationally competitive. The CIC will further monitor and evaluate that development projects and programs undertaken by the construction industry are consistent with Ethiopia’s green development strategy. Members of the council are designated by the Prime Minister and the Prime Minister shall preside the council. CIC is accountable to the Prime Minister.
Ethiopian Commodity Exchange Establishment (Amendment) Proclamation No. 1050/2017
The Ethiopian Commodity Exchange (“ECX”) was established with the aim of achieving an efficient and cost effective commodities market that is characterized by better supply chains, high quality standards and a reliable commodities trade a reliable. The Ethiopian Commodity Exchange Establishment (amendment) Proclamation No. 1050/2017 (“New Proclamation”), amends Ethiopian Commodity Exchange Proclamation No. 550/2007 (“Existing Proclamation”). The objective of the amending the New Proclamation is to satisfy the customers demand and increase the small-scale farmers participation in the Exchange by developing procedures and enhancing the accessibility of the ECX. It is also necessitated by the need to receive agricultural products in their type, quality, amount and in a cost effective manner and to make them competitive to a foreign market thereby enhancing the country’s foreign trade.
Some of the key amendments and novelties of the New Proclamation are:
- Definition of Contract: The New Proclamation expanded the definition of contracts. Under the Article 2(6) of the Existing Proclamation a contract was defined as a standardized agreement prepared to buy or to sell a specified commodity detailing the amount, grade and price of the commodity and the date on which the contract will mature and become deliverable for the purpose of trading on the Exchange. This definition does not make any indication as to the origin of the commodity. The New Proclamation, however, defined contract (under Article 2(6)) as a standardized agreement prepared to buy or to sell a specified commodity detailing the amount, grade, price and origin of the commodity and the date on which the contract will mature and become deliverable for the purpose of trading on the Exchange. The inclusion of origin is to comply with the food regulations in other jurisdictions such as the US and Europe where traceability and the movement of the commodities across the supply chain is required to be disclosed. The definition mentioned above is, therefore, expanded to include and satisfy rules-of-origin requirements of trading partners.
The New Proclamation, also, introduces forward contracts (sell at a future date based on private agreement) in addition to the already existing spot contracts (offer immediate delivery of the traded commodity) and futures (sell at a future date based on standardized exchange trade contracts) in agricultural commodities. The conditions under which futures and forwards in agricultural commodities can be traded is to be provided in the directive to be issued by the Authority and rules of the Exchange. The new law also foresees a possibility of trade in other contracts other than agricultural commodities based on further study by the Exchange and upon the prior approval of the Ministry.
- Accountability of ECX - The New Proclamation also brought a change in the mandate of a government body in charge of supervising ECX. Originally the Ethiopian Commodity Exchange was under the Ministry of Agriculture and Rural Development. The New Proclamation transferred accountability of ECX to the Ministry of Trade.
- Increased Capital - The authorized capital of ECX which was Two Hundred Fifty Million was increased to One Billion Two Hundred Fifty Million birr.
- Trading between members & non-members - The New Proclamation provides that trading in the Exchange can be between members and issue of non-members was not addressed. Under the amendment it is provided that non-members may also participate in the ECX trading in accordance with the internal regulations of the Exchange.
- Prohibitions: trade in commodity Exchange without the issuance of an Exchange product certificate as to the product quality or grade and of an Exchange warehouse receipt as to the product origin, quantity, condition, and location of warehouse or bonded yard is prohibited. The new addition this provision has brought is an indication of the product origin as a mandatory requirement to trade in the Exchange.
- Traceability: by introducing an identity preserved and traceable commodities, enables participants to trade their agricultural commodities by its origin and in their names. This is required, as discussed above, to satisfy the rules-of-origin requirement of trading partners. It is also important for the producers as they are able to sell their products in their name and by its origin. The staking of the commodities is also required to be done in a condition that will show the identity of the commodity and the owner/supplier.
Federal Civil Servants Proclamation, Proc. No. 1064/2017
The Federal Civil Servants Proclamation No. 1064/2017 (“FCS Proclamation”) replaced the preceding Federal Civil Servants Proclamation No. 515/2007. The objective of the FCS Proclamation is to change the system of recruitment and selection of civil servants and introduce a national system for the certification of professional and occupational competence. This FCS Proclamation empowers the Public Service and Human Resource Development Ministry (“Ministry”) to implement the proclamation. The Ministry is mandated to carry out key civil service reform program including adopting and enforcing job evaluation methods, and prepare salary scale. In addition, The Ministry is responsible for preparing national criteria and parameters to establish eligibility and competency certification system where by candidates for vacant positions shall be recruited and prompted on the bases of competition.
The FCS Proclamation provides that a person who is not an Ethiopian national may not be eligible to be a civil servant except where the vacant position cannot be filled by Ethiopian or by foreigner whose Ethiopian Origin pursuant to Proc. No. 270/2002. Generally, among other things, the new proclamation has introduced the following key amendments:
- A Civil Servants Competency Certification System. A person who has no Certificate of Competency is not eligible to be a civil servant. The proclamation, under article 12(3) also mentions the possibility of the establishment of new institution for implementation of the eligibility and competency certification system.
- The FCS has increased post-delivery leave days from 60 consecutive days after confinement to 90 days; while prenatal leave remain to be 30. Therefore, in total maternity leave has increased from 90 to 120 days. In addition, any civil servant who encounters a miscarriage of not less than three and above a month’s pregnancy prior to her prenatal leave shall be entitled to 30-60 days post confinement maternity leave if the miscarriage is confirmed by medical certificate.
- Paternity leave is increased from 5 days to 10 working days.
- Government institutions are required to establish a nursery where female civil servants could breastfeed and take care of their babies.
- Placement of civil servants in government institutions should be in fair representation of nations, nationalities and peoples. Minority groups of the country will enjoy affirmative action during recruitment, promotion, transfer, redeployment education and training.
For the full list of legislations that were passed by the HoPR and COM in the period August 2016 – 2017, please download from here.