Tax Rules for Foreign Tax Credit in Ethiopia
The business income tax payable under Schedule C in respect of the foreign income shall be computed by applying the average rate of business income tax applicable to the resident taxpayer for the year against the net foreign income of the resident for the year.
A foreign tax credit shall be allowed if the resident taxpayer has a receipt for the tax from the foreign tax authority based on this rule solve the following:-
Binda Company, an Ethiopian resident, derived Br.100,000 in net foreign income from a foreign country in a given tax year. Such income is chargeable to tax under ‘schedule C’ of the Proclamation. No any other foreign income was derived by Binda Co. during the tax year in question.
Case 1:
The income tax rate in the foreign country where the income derived is a flat rate of 20%.
Case 2:
The income tax rate in the foreign country where the income derived is a flat rate of 45%.
