The National Bank of Ethiopia (NBE) has tightened rules for foreign investors seeking to repatriate profits, dividends, earnings from sale of company shares and proceeds of liquidation, as part of the ongoing forex market reforms aimed at protecting the forex reserves and the fragile local currency.

 

This comes as Prime Minister Abiy Ahmed’s administration works to open up the economy to foreign investments after decades of state control leading to rising inflation, mounting debt and foreign currency shortage, which are impacting foreign investments in Africa’s second-most populous economy.

The latest regulations contained in the regulator’s Foreign Exchange Directive No. FXD/01/2024 dated July 2024 also bar Ethiopian nationals from owning and operating foreign currency accounts abroad.

Foreign investors are eligible to acquire external loans when the debt-to-equity ratio does not exceed 60:40 of the foreign capital.“Unless explicitly authorised by NBE, no Ethiopian national, natural or juridical person, residing in Ethiopia is permitted to own, possess or operate a foreign currency account abroad,” the regulations say.

The new rules provide that foreign investors who earn profits or dividends from their recognised and registered investments in Ethiopia will be required to produce tax receipts evidencing the payment of all taxes due to the government before sending their cash back home.

Foreign investors will also be required to provide authenticated minutes of the board of directors or an equivalent body distributing the profit or declaring dividend duly signed by the chairman or secretary of the board and a copy of the usual closing financial documents duly audited by an independent third-party auditing institution permitted to operate in Ethiopia.

Other requirements include valid business licence, application letter, capital registration letter issued by National Bank or Investment Authority, memorandum & articles of association and any other document of evidence that the NBE may require.

Branch offices of foreign companies operating in Ethiopia keen on repatriating money are also required to fulfil these requirements, save for authenticated minutes of the board.

The rules also prohibit investors operating foreign currency accounts from overdrawing their accounts.

The regulator allows foreign investors to repatriate proceeds from the sale or liquidation of an enterprise, proceeds from the transfer of shares or ownership of an enterprise, return of investment if unable to start operation and profits from portfolio investment in equity securities or debt securities.

A foreign investor who shuts down its operations in Ethiopia will require approval from NBE to repatriate capital.

This is after producing minutes of the decisions of shareholders/partners, if organised in the form of a legal entity letter of declaration by the owner, in case of sole proprietorship, liquidation report authenticated by the competent authority court and letter from ministry of trade confirming the revoke/strike out of the licence.

Read: Ethiopia opens up more sectors as exchange readies for launchOther requirements include audited balance sheet and income statement, foreign capital registration letter, tax clearance from a pertinent government authority and any other document that may be required by the Bank.

The NBE also sets maximum ownership shares of any given security (equity or bond) that may be owned by foreign portfolio investors and also prescribe minimum mandatory periods for which a given foreign portfolio investor needs to be invested before seeking to exit and/or unwind its portfolio position.

A person who enters Ethiopia carrying foreign currency shall convert it into an equivalent sum in birr or deposit to his/her foreign currency account within 30 days from date of entry stamped on the travel document by the Immigration and Citizenship Service, the regulations say.

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