How to calculate the capital gain on immovable property like a building according to Ethiopia tax proclamation?
capital gains tax (የካፒታል ሀብቶችን በማስተላለፍ የሚከፈል ግብር)-የካፒታል ሀብት ሽያጭ በመፈጸም እና በማስተላለፍ ከተገኘ ጥቅም ላይ የሚከፈል ግብር
According to Ethiopian Tax Law capital gains tax is imposed on the income from the disposal of certain investment areas.
The income tax proclamation No. 979/2016 imposes a certain amount of tax on income from a disposal of certain investment areas. Article 59 (1) of the Proclamation, states that a person who derives a gain on the disposal of immovable property, a share, or bond (referred to as a “taxable asset’) is liable to pay an income tax.
For the purpose of determining capital gains tax there are two types of taxable assets;
Class ‘A’ are immovable assets which includes a mining or petroleum right, or mining or petroleum information.
However, if the building is held and wholly used as a private residence for 2 years prior to the disposal of the asset, it is not considered an immovable asset and hence not subject to capital gains tax .
If the commercial building is considered an immovable asset, then it falls under Class 'A' taxable assets. The capital gains tax rate for Class 'A' taxable assets is 15% . Class ‘B’ taxable asset Means shares and bonds. The capital gains tax rate for Class 'A' taxable assets is 30%.
Calculate the capital gain on immovable property in Ethiopia can be done using the following steps, based on the Ethiopian tax proclamation:
Capital Gain = Net Sale Price - Adjusted Cost
Net Sale Price (ሀብቱ የተሸጠበት ዋጋ) = Sales Price - Selling Expenses
Adjusted Cost =(Asset Book Value) x (Current Inflation Index / Base Year Inflation Index)
capital Tax= capital gain*Tax Rate
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