Does a private company withhold VAT?

No. Only a government body that the Ministry of Revenue requires to withhold VAT does so, and it withholds 50% of the VAT. A private company or an individual pays the full VAT to the seller; it may still withhold the 3% income tax.

Can an individual withhold 3%?

Yes, if they are a registered taxpayer: any person registered for VAT, including an individual trader with a TIN, is a withholding agent. A private consumer without a TIN is not.

Which e-invoice type should I issue to a customer who withholds?

B2B for companies and traders, B2G for government bodies. On a B2C invoice the buyer's TIN is not sent to the Ministry of Revenue, so their withholding receipt cannot be matched to the invoice.

Does ETEIMS handle withholding tax?

Yes. You mark on each customer whether they withhold income tax, VAT or both, and every e-invoice applies it within the law: 3% only above the threshold and never from a consumer without a TIN, VAT withholding only on B2G sales, with the reason printed when less is withheld.

Withholding tax in Ethiopia: who withholds 3% and who withholds VAT

Updated October 2026

Ethiopia has two kinds of withholding on sales: 3% income tax, which many buyers keep back and pay to the tax authority, and VAT withholding, which only government bodies apply. Getting either wrong puts a wrong e-invoice on record at the Ministry of Revenue. This guide explains who must withhold, when, how much, and which e-invoice type to use.

The rules in short

3% income tax: withheld by companies, NGOs, government bodies and any person registered for VAT, including an individual trader with a TIN
Not withheld by a consumer without a TIN: they are not a withholding agent
The 3% applies only above the threshold: goods over ETB 20,000 in one transaction, services over ETB 10,000 in one contract
VAT withholding: only government bodies, and only half (50%) of the VAT
A private company or an individual never withholds VAT

3% income withholding: who must withhold

Under Income Tax Proclamation No. 979/2016, Article 92, the withholding agents are companies and other bodies, government agencies, non-profit organisations and NGOs, and any person registered for VAT. That last group includes individual traders: a sole trader with a TIN who is registered for VAT must withhold just like a company.

A private consumer without a TIN is not a withholding agent. When you sell to one, nothing can be withheld, and your invoice simply carries the full amount.

How much, and above what amount

Rate: 3% of the amount before VAT, raised from 2% by Income Tax (Amendment) Proclamation No. 1395/2025
Goods: only when one transaction or contract is more than ETB 20,000
Services: only when one contract is more than ETB 10,000
An amount exactly on the threshold does not count: the law says more than
If the seller gives no TIN, the buyer withholds 30% of the payment instead, as a final tax

Some published summaries of the 2025 amendment still quote the older thresholds of ETB 10,000 for goods and ETB 3,000 for services; if an amount falls between the two, confirm with the Ministry of Revenue.

Withholding Tax Calculator Ethiopia: 3% and VAT by Buyer

VAT withholding: government bodies only

Under VAT Proclamation No. 1341/2024, Article 62, a government entity that the Ministry requires to withhold VAT keeps back 50% of the VAT on a taxable supply, pays it to the tax authority, and pays the other 50% to the seller. The withheld VAT counts as paid by the seller, who takes a credit for it in the same accounting period. There is no minimum amount.

Private companies, NGOs and individuals never withhold VAT, even when they withhold the 3% income tax. A customer record that says otherwise declares VAT withholding to the Ministry of Revenue that the law does not allow.

Worked examples: services of ETB 100,000 + 15% VAT

Consumer without a TIN: nothing withheld; pays ETB 115,000
Individual trader or company with a TIN: 3% (ETB 3,000) withheld; pays ETB 112,000
Government body: ETB 3,000 income tax and ETB 7,500 VAT (half of 15,000) withheld; pays ETB 104,500
Goods of ETB 18,000 sold to a company: below the ETB 20,000 threshold, nothing withheld; pays ETB 20,700

Which e-invoice type to issue

B2B for companies and traders who withhold: their TIN is on the e-invoice, so their withholding receipt matches it
B2G for government bodies: the VAT withholding is recorded with the Ministry of Revenue
B2C for consumers: the buyer's TIN is not sent to the Ministry, so never use B2C for a customer who withholds

Common mistakes

Marking a private company as a VAT withholder: its invoices then declare VAT withholding the law does not allow, and fixing them means cancelling and re-issuing them with the Ministry of Revenue
Withholding from a consumer who has no TIN
Withholding on invoices at or below the threshold
Selling to a withholding customer as B2C, so their receipt cannot be matched
Mixing goods and services on one invoice: the Ministry rejects mixed invoices, and the threshold depends on which one it is

How ELIF's billing software handles it

In ETEIMS you mark on each customer whether they withhold income tax, VAT or both. Every invoice then applies those settings within the legal limits above: it skips withholding below the threshold, never withholds from a consumer without a TIN, applies VAT withholding only on B2G sales, and prints the reason on the invoice whenever less is withheld than the customer's settings suggest.

Electronic Billing & Invoicing Software in Ethiopia (MoR)

Based on Income Tax Proclamation No. 979/2016 (Article 92) as amended by Proclamation No. 1395/2025, and VAT Proclamation No. 1341/2024 (Article 62). This guide is not tax or legal advice; confirm special cases with the Ministry of Revenue or your tax adviser.