The New Income Tax Law (Proclamation 1395/2025), Explained
Proclamation No. 1395/2025 reworked Ethiopia's income tax law, effective 1 July 2025. Two changes matter most if you earn money more than one way: your different income sources are now taxed together as a single aggregate figure, and if you have more than one income source you may now be required to file a return even if you never had to before.
Employment tax brackets
The monthly brackets below apply to employment income, and also form the base rates used across the aggregate calculation.
| Bracket (ETB/month) | Rate |
|---|---|
| 0 – 2,000 | 0% |
| 2,001 – 4,000 | 15% |
| 4,001 – 7,000 | 20% |
| 7,001 – 10,000 | 25% |
| 10,001 – 14,000 | 30% |
| > 14,000 | 35% |
Try it with your own numbers on the Salary / PAYE Calculator.
Aggregate taxation — the big change
If you have employment income plus rental income, business income, or both, all of it is combined into one aggregate taxable figure before the brackets above are applied. The 0–2,000 ETB exempt bracket is used once across all your income — not once per source.
Whatever your employer already withheld through PAYE counts against your aggregate bill; what's left is the balance due when you file. See theMulti-Income Tax Calculator for a full breakdown, or read who actually has to file.
Pension
Employees at private organizations contribute 7% of basic salary to pension; employers contribute 11%. Whether pension is deducted before computing income tax is one detail this site hasn't been able to confirm against the primary gazette text yet — the calculators flag this explicitly rather than guessing.
Other 1395/2025 parameters
| Item | Rate |
|---|---|
| Withholding on dividends | 15% |
| Withholding on interest | 10% |
| Capital gains (shares, bonds, buildings) | 15% unified; private homes held ≥ 2 years exempt |
| Minimum Alternative Tax (MAT) | 2.5% of turnover, if declared tax falls below it |