On January 14, 2025, the Ethiopian Federal Parliament approved the Property Tax Proclamation No. 1365/2025 (“Proclamation”), introducing a new taxation system for urban land, buildings, and land improvements. This Proclamation replaces the long-standing framework established in 1976 under the Urban Land Rent and Urban Houses Tax Proclamation No. 80/1976 and its amendment, Proclamation No. 161/1979 (“Previous Laws”). In this edition of our Insights, we highlight the key features of the Proclamation.
Scope of Application
The Proclamation applies to all immovable properties in urban areas across Ethiopia. While it provides a nationwide legal framework, regional governments are empowered to enact detailed laws based on its provisions. Urban areas are defined as settlements with a population of at least 2,000, where more than 50% of the labour force is engaged in non-agricultural activities. For the purposes of the Proclamation, “property” includes lease rights, old possession rights, buildings, and land improvements on urban lands. “Buildings” refer to any structures on urban land, whether completed or under construction, intended for residential, business, or other uses. “Land improvements” include modifications such as roads, pavements, parking areas, and public service structures, including buildings. Public service structures encompass a broad range of infrastructure, such as roads, railways, dams, power stations, substations, gas or liquid fuel plants, communication towers, airport runways, and rights of way.
A taxpayer subject to the Proclamation may be any individual or entity holding a use right to urban land (under the lease-hold system) or a possession tenure (outside the lease-hold system) or owns buildings or land improvement. Taxpayers include property owners, lessees, and buyers awaiting ownership registration. Agents, executors, and trustees managing properties on behalf of others are also liable for taxes.
The Proclamation imposes property tax on:
- Land use rights acquired on urban land under leasehold tenure,
- Land use rights acquired on urban land through old possessions, and
- Urban land improvements and/or building ownership.
While the Proclamation has largely repealed the Previous Laws, the collection of urban land rent for owners under old possession tenure will, as an exception, continue to be governed by the Previous Laws.
Categories of Property Tax
The Proclamation divides property tax into two categories:
- Taxes on Urban Land Use Rights – determined based on the taxable value of the land, depending on the land classification and purpose.
- Taxes on Buildings and Land Improvements – calculated based on market value, adjusted for factors such as use and location.
Multi-purpose properties are taxed according to their primary use, with valuation determined by the service or purpose to which most of the property is dedicated. If the property is used for equally varied purposes, the valuation will be based on individual services. The Proclamation further stipulates that taxes on urban land use rights and on land improvements, including buildings, are assessed separately using different tax rates but will be charged jointly.
Determination of Taxable Value
Property tax is not levied on the full value of a property but on its taxable value. The taxable value refers to a portion of the property’s market value, set at 25%, or another percentage to be determined by the Ministry of Finance at a later date. This percentage determines the portion of the property’s market value subject to taxation. In determining a property’s market values, factors such as the selling price of comparable properties, the size of the land or building, location, and specific improvements made to the property will be considered. The Proclamation also requires the Ministry of Urban and Infrastructure Development to prepare a list of land improvements and buildings with no market value or those presumed to have none.
Property Tax Rate
The Proclamation empowers the Council of Ministers to determine the minimum and maximum property tax rates based on a study presented by the Ministry of Finance. Until these rates are established, the Proclamation sets the following national minimum and maximum rates:
- Urban land use rights: 0.2% – 1% of the taxable value.
- Buildings and land improvements: 0.1% – 1% of the taxable value.
Annual rate increases are capped at 0.5%, excluding adjustments for inflation.
The property tax rate will be gradually implemented over four years, starting with the lower rate. Regional governments may apply the highest rate on land use rights or building ownership if the land remains undeveloped within the timeframe specified by other legislation or if the building is not utilized after construction is completed. Each city administration is required to prepare annual tax schedules that align with regional and federal guidelines. These schedules must undergo a 60-day public consultation to ensure transparency and public participation. Regional governments retain the discretion to adjust rates within the federal framework.
Exemptions
The Proclamation exempts certain properties from taxation, with exemptions based on factors such as location, size, and property value. Eligible exemptions include residential buildings serving low-income families, land and buildings used by religious institutions, urban land wholly dedicated to agriculture and properties used by organizations providing free community services. Properties owned by federal entities, multilateral organizations, or those designated for public use are also exempt. However, these organizations are required to make a “compensatory goodwill contribution” in lieu of property tax, details of which will be provided in a future directive of the Ministry of Finance. Additionally, charitable organizations supporting vulnerable groups—such as orphans, the elderly, or persons with disabilities—may qualify for exemptions. Regional governments are authorized to define thresholds for exemption eligibility, aiming to balance revenue generation with social equity goals.
Payment Obligations, Methods, Timelines and Consequences for Non-Payment
Property tax obligations for existing properties take effect immediately upon the enactment of the Proclamation. For newly acquired properties, taxes are payable from the date of acquisition. Until regional governments enact property tax laws aligned with the Proclamation (within a maximum of two years), building and land taxes will continue to be collected under the Previous Laws. The Previous Laws will also apply to the collection of outstanding taxes and penalties incurred before the Proclamation’s enforcement.
Taxes can be paid in full or in instalments, with intervals determined by regional legislation. Payments are required annually or quarterly within the Ethiopian fiscal year (July to July). The tax amount may vary due to periodic property price adjustments and annual assessments. Taxpayers without income may defer payment until they transfer the property. In such cases, only the tax for the last five years must be paid, with earlier liabilities waived.
If a taxpayer fails to pay the property tax within the 21 days specified in the tax notice and does not appeal the tax assessment, penalties will apply. An initial penalty of 5% is imposed on the overdue amount starting the first working day after the due date. This penalty increases by 2% each month, up to a maximum of 100% of the unpaid tax.
The Proclamation introduces a new requirement for financial institutions processing loan requests. Loans using properties as collateral can only be granted if the borrower provides a property tax clearance. Failure to obtain this clearance results in the financial institution losing priority rights over the property in the event of borrower default. Consequently, property owners or users who fail to settle their property taxes will be unable to access loan-related financial services.
Establishment of Public Registry:
The Proclamation mandates the establishment of two public registries in every urban area:
- A valuation registry for taxable properties, updated every five years or upon significant property changes; and
- A registry for exemptions and goodwill contributions, updated annually.
Regional governments must ensure public access to these registries, allowing taxpayers to verify records and understand their obligations. Both registries must be available for public scrutiny during office hours and accessible electronically, including online uploads where applicable.
Dispute Resolution
The Proclamation outlines detailed procedures for grievance handling, including the establishment of tax review committees to evaluate and address property tax-related claims. Decisions by these committees can be appealed to a tax appeal tribunal, provided the appellant deposits 50% of the disputed tax amount and files a claim within 30 days of the tax notice or review decision.
A dedicated tax appeal tribunal, separate from existing tax appeal tribunals, is introduced to handle property tax-related disputes. While the tribunal’s decisions on substantive matters are final, errors of law may be appealed to the high court and subsequently to the Supreme Court.
Additional Laws
The Proclamation establishes a general framework for property taxation, leaving the enactment of detailed legislation to regional states and city administrations. It also delegates certain matters to be regulated by directives from the Ministry of Finance, such as determining market value for taxable properties, goodwill contributions, and the list of exempt properties. Additionally, regional tax bureaus are authorized to issue directives on administrative penalty waivers.
Conclusion
The Proclamation introduces a new property taxation system in Ethiopia, replacing a regime in place since the 1970s. While the Proclamation provides clarity and predictability, businesses operating in multiple regions must navigate potential challenges arising from decentralized tax administration. Further, the directives of the Ministry of Finance and regional legislations, on matters such as the determination of market value and requirements for goodwill contribution, will be critical to examine the financial impact on taxpayers. Beyond the taxation introduced by the Proclamation, property tax clearance to access loan services creates another layer of administrative requirements increasing the transactional cost of doing business.
