Accounting Entries and Reporting Implications of Investments in Ethiopia

Accounting Treatment of Investments

• For general-purpose reporting, investments are accounted for using International Financial Reporting Standards (IFRS)
• IFRS requires investments to be classified into three categories: held-to-maturity, available-for-sale, and fair value through profit or loss
• Classification determines the specific accounting treatment, such as whether to recognize gains/losses in income statement or equity

Tax Implication of Investments in Ethiopia

• Ethiopia has a specific tax regime for investments, with different tax rates applying to various categories of investments
• Investments in Ethiopia are subject to a withholding tax of 10% for interest and dividends
• Capital gains tax applies to disposals of investments, with a 30% tax rate for resident taxpayers and 20% for non-resident taxpayers

Difference in Treatment between General Purpose Reporting and Tax Reporting

• General-purpose reporting focuses on the economic substance of the investment, whereas tax reporting is driven by tax laws and regulations
• IFRS and tax laws may have different definitions and classifications of investments, resulting in differences in accounting treatment and tax implications