How to Register a Sole Proprietorship (የንግድ ግል ባለቤት) in Ethiopia

Ethiopia’s growing economy and expanding services sector make it an attractive place for individuals who want to work for themselves. Registering as a sole proprietor offers a straightforward way to turn a skill or idea into a formal business without going through the more complex steps of forming a company.

While the process is simpler than establishing a corporation, entrepreneurs should be prepared for paperwork with local trade bureaus and the Ethiopian Revenues and Customs Authority. Costs are relatively modest, but the biggest challenge is often navigating procedures that differ slightly between regions.

The benefits include full independence, where you control your business decisions, retain all profits, and can operate with fewer formalities than larger entities. For freelancers, consultants, and small business owners, it’s one of the fastest routes to becoming legally recognized in Ethiopia.

Disclaimer: This article is for informational purposes only and is not a substitute for legal advice. Please always check official sources or seek professional guidance before taking action.

What is a sole proprietorship in Ethiopia?

In Ethiopia, a sole proprietorship is often referred to simply as a sole proprietor (የንግድ ግል ባለቤት). It may also be described using English terms like “independent contractor,” “self-employed worker,” or “sole trader.” These terms all refer to one person operating a business without forming a company with separate legal personality.

How does a sole proprietorship (የንግድ ግል ባለቤት) work in Ethiopia?

የንግድ ግል ባለቤት vs. other business structures in Ethiopia

When choosing how to set up your business in Ethiopia, you’ll need to weigh the advantages of operating as a sole proprietor against the protections and requirements of alternatives such as a private limited company or a partnership. The table below highlights the key differences:

Step-by-Step guide: How to register a sole proprietorship in Ethiopia

Step 1: Check your eligibility

Ethiopian citizens over 18 with legal capacity can register as sole proprietors. Some sectors, such as banking and telecom, are reserved for companies or the state. Foreign nationals generally cannot register as sole proprietors unless they hold an investment permit and residency authorization, and even then, their activities are limited to sectors open to foreign investment.

Step 2: Choose your business name

You can use your personal name or register a trade name. Trade names must be unique, not misleading, and recorded in the commercial register. Checking name availability beforehand will save time and prevent rejection.

Step 3: Gather required documents

Prepare these before applying:

• Valid ID (national ID or passport)
• Proof of address (lease or title deed)
• Trade name registration certificate (if applicable)
• Taxpayer Identification Number (TIN) application form
• Supporting licenses if your business activity is regulated (e.g., health, construction, imports)

Step 4: Register with the commercial registration authority

Submit your documents to the local trade bureau or the Ministry of Trade and Regional Integration. Currently, this process is not online—you must apply in person so officials can verify your ID, lease, and other supporting documents. Once your application is approved, your details will be entered into the commercial register and you’ll receive a commercial registration certificate.

Step 5: Apply for TIN and pay registration fees

After registration, apply for your TIN with the Ethiopian Revenues and Customs Authority. This number is required for all tax filings and invoices. Registration fees vary by business activity and region, but are generally modest compared to company incorporation fees. You should also budget for trade name registration costs and stamp duty.

Step 6: Complete post-registration obligations

Registration is not the end of the journey. As a sole proprietor, you must issue tax-compliant invoices that display your TIN, file annual business income tax returns (and quarterly advance taxes if required), and register for VAT if your turnover exceeds ETB 2,000,000, with monthly or quarterly submissions.

Your business license must be renewed every year at the trade bureau by providing updated records and paying renewal fees. You are also required to keep proper accounting records, including receipts, invoices, and tax returns, for several years in case of an audit. Failure to comply with these obligations can lead to fines, suspension of your license, or even closure of your registration.

Financial and tax obligations for sole proprietors in Ethiopia

You are responsible for:

• Business income tax: Sole proprietors in Ethiopia pay progressive business income tax on their net profit, with rates ranging from 10% to 35% depending on income brackets. Filing is done annually with ERCA, and advance tax payments may be required quarterly.
• Turnover tax: If your annual turnover is below ETB 2,000,000, you fall under the turnover tax regime instead of VAT. The rate is 2% on the supply of goods and certain services (e.g., contractors, grain mills), and 10% on most other services. ToT is calculated on gross receipts, not profit, and declarations are typically due monthly or quarterly.
• VAT: If your turnover is ETB 2,000,000 or more in a 12-month period, you must register for VAT. The standard VAT rate is 15%, and VAT returns must be filed monthly or quarterly, depending on turnover.
• Social security contributions: If you employ workers, you are required to register them with the Public Servants Social Security Agency and make contributions. These payments are due monthly along with payroll filings.
• Record-keeping: You must maintain proper accounting records, including all invoices, receipts, and tax returns, for several years. Authorities may request these during audits.
• Invoicing: Every invoice must display your TIN, business and client details, date, description of goods or services, and applicable VAT (if registered). Invoices must be issued sequentially and retained for your records.

Launch your contracting career and stay compliant with Deel

Registering a sole proprietorship gives you independence, but it also means handling taxes, invoices, and records on your own. Deel’s all-in-one platform helps you manage obligations without the stress. With Deel, you can:

• Automate invoicing and expense tracking with essential Bookkeeping tools
• Create, send, and sign localised work agreements
• Keep accurate records for tax season
• Access expert tax advice and compliance support
• Get paid through multiple payment and withdrawal methods
• Spend your earnings in USD with the Deel Card
• Access funds early with Deel Advance
• Enjoy contractor perks from 150+ partners

Stay independent, without the admin overload. Sign up to Deel for free today.

FAQs

What is the minimum capital required to start a የንግድ ግል ባለቤት in Ethiopia?
None is required.

Do sole proprietors need to register for VAT?
Yes, once turnover exceeds ETB 2,000,000.

How much are the standard monthly or annual contributions?
Your tax liability depends on your business turnover and profit. Sole proprietors may pay turnover tax (2% on goods or certain services, 10% on most other services) if their annual turnover is below the VAT registration threshold of ETB 2,000,000. If turnover is above that, they must register for VAT (15%) instead. In all cases, business income tax is also due on net profit at progressive rates (10%–35%). If you employ staff, you are additionally responsible for making monthly pension contributions through payroll filings.

Can a የንግድ ግል ባለቤት hire employees?
Yes, but you must comply with labor law, payroll deductions, and pension contributions.

How long does it take to register?
Usually 2–5 business days, though licensing in regulated sectors may take longer.

Can foreign nationals register?
Foreign nationals may register but need investment permits or residency/work authorization. Restrictions apply in certain industries.

Do sole proprietors need a separate bank account?
Not mandatory, but highly recommended for tax and accounting clarity.

What happens if I stop working?
You must deregister at the trade bureau, cancel your license, and file final tax returns. Otherwise, you may still be liable for taxes and penalties.

Are there incentives for new sole proprietors?
There are no general nationwide incentives, but simplified turnover tax rules reduce compliance burdens for small businesses.

Can I use Deel as a sole proprietor to get paid by international clients?
Yes — Deel supports payments in multiple currencies, generates compliant invoices, and helps you stay on top of record-keeping.

Does Deel generate compliant invoices?
Yes, Deel invoices are aligned with Ethiopian regulations and international standards.

Can Deel help with taxes?
Deel provides downloadable records and reports that make it easier to file taxes. While it doesn’t replace an accountant, it simplifies compliance.

Does Deel offer contracts?
Yes, Deel provides locally compliant templates for working with clients.

Can I access benefits through Deel?
Yes, Deel offers optional health insurance, retirement plans, and other benefits usually reserved for employees.