WELCOME

TO LEGAL TRAINING
 Definition of Law
What is Law?
The set of rules or body of rules enacted by
government in order to govern or conduct
human nature and binding upon human society.
It includes the Constitution, Proclamations,
Regulations or Directives that came into force
upon the approval of the concerned organs.
Organization’s Policies, Procedures, Working
Manuals, and related documents are laws of the
organization and binds the Management &
employees of the organization.
 Definition

“Persons” in law can be defined as human

person or legal person subject to rights and
duties.
Persons Physical /Natural/ Art. 1-
393 Civil Code (C.C.)
Juridical/Legal or Artificial/
Example:- Government, Public
Enterprise, Associations, Business
organizations, Corporate societies,
NGOs etc.
 Legal personality
Definition of Personality:
The legal status of one regarded by the
law as a person; the legal conception by
which the law regards a human being or an
artificial entity as a person.(Black’s Law
Dictionary).
“Legal personality” refers to all the
attributes that have legal protection.
 Beginning of legal Personality
Physical /Natural/ Juridical/Legal/
• In principle by birth By law
Art. 1 C.C.
-Govern’t and its agencies
 Art.1 of the C.C. - Public enterprises ....
says the human
Up on registration
person is the
subject of rights - Associations
from birth to - Business organizations
death. like PLC and SC (Proc.No.
980/2016 Art.7)
-NGOs (Proc. No.1113/2019)
- Pol. parties pr. 1162/19, etc
 Legal personality
Major attributes of legal personality:-
Every physical person is capable of performing all
the acts of civil life unless he is declared incapable
by the law ( Art. 192 of the civil code).
A legal person can:-
 sue or be sued in its own name,
 can own and administer its property,
 can enter into contracts,
 carry out other activities allowed by the law
 But the physical persons should have capacity to
perform such acts.
 Legal Personality cont’d
Capacity
•The power given to a person by law to create, vary
or extinguish a juridical act that has legal effect
and enforceable by law.
•Is a principle
Incapacity
Is an exception
 Incapacity of persons
General incapacity Special Incapacity
• Incapacity due to • Incapacity due to
age, mental not being a citizen of
condition. a country or
• criminal conviction citizenship

10/11/2009 9
bb
 General Incapacity
 Interdiction imposed by
law  Judicial interdicted

• interdiction imposed by • Interdiction imposed

law on minors by courts on an
Attainment of certain age insane and infirm
• 18 years in general persons
• 16 years in case of
marriage  Legal Interdicted
• 14 years upon application
of the guardian and tutor. • Interdiction imposed
by courts on
criminals.
 End of Legal Personality
Physical /Natural/ Juridical/Legal/
 Death  By law
 Absence  Achieving goals of
establishment
 Cancelation from
registration
 Bankruptcy
 Agreement
 Laps of time
Questions for Discussion:-
CONTRACT IN
GENERAL
 WHAT IS CONTRACT?TRACTS

A contract is an agreement whereby two or

more persons as between themselves create,
vary or extinguish obligations of a
proprietary nature. [Article 1675 of the Civil
Code].
 ELEMENT OF THE DEFINITION
1. Contract is an agreement
2. Two or more persons
3. As between themselves
4. Create, vary or extinguish an obligation
5. Proprietary nature/valued in economic or
money terms
CONTRACTS

FORMATION OF CONTRACTS
legal requirement for the formation of valid contract.
I.  Capacity
II. consent
III. object
IV.   Form, if any.

[Article 1678 of the Civil Code]

CONTRACTS

Capacity: General Disabilities

 Contracting parties should be capable of doing

juridical act.
 Contracting parties should not be
 -Children who have not attained the age of 18
(minors);(art.198)
 -Persons pronounced incapable due to the mental
condition senility & insanity (judicially interdicted)
(art.339ff,art.351)
-Persons pronounced incapable due to the sentence
passed on him by a court of law (legally interdicted)
(art.380-388)(Title II)
CONTRACTS

Capacity: Specific Disabilities

   Nationality (art.389-399)
 Foreigners are not allowed to own an
immovable property except for investment
purpose.(art.390)
 Function
 Political parties are not allowed to perform
trading activities; .Procl. 1162/2019 Art. 108
 CONTRACTS

Capacity: Presumption

 Every physical person is assumed to be capable

of performing all the acts of the civil life unless
he/she is declared incapable by the law (Article
192 of the Civil Code).
 Capacity is presumed. Any person who alleges
the disability of a physical person shall prove
that such person is under disability (Article 196
of the Civil Code).
CONTRACTS

II.Consent
It includes the intention of the parties to be bound by the
agreement. Consent is a corner stone for a contract.
It should be free from any defect - such as mistake, fraud &
duress . Defect causes invalidation (art.1696)

Mistake-is a false belief about something.

- is decisive and fundamental ;
- relates to nature of the contract;
-relates to identity /qualification
of a person.(art.1697-1703)
CONTRACTS

Consent (cont’d)
Fraud - It refers to deceitful practices or false statements of the
contracting party. Example –Presenting a false balance sheet to
induce loan from a lender. Where there is a fraud the contract is
susceptible for invalidation.(art.1704&1705)

Duress –is a compelling of a party to consent to a contract by threats

of injury to person or honor of the person. Invalidation could occur
where, the contracting party, one of his ascendants, descendants or
spouse are threatened with a serious and imminent danger to the life
(person), honor or property; also where it is exercised by a party that
does not benefit from the contract.(art.1706&1707)
 CONTRACTS

Consent vis-à-vis Debt Contracted by Spouses

Sale, exchange, rent out, pledge or mortgage or

sale in any other way a common immovable
property to confer a right to third parties on such
property;
Sale, exchange, pledge or mortgage or alienate in
any other way, a common movable property or
securities registered in the name of both spouses,
the value of which exceeds 500 Birr or to stand
surety for a debt of such amount to another
person;
Borrow or lend money exceeding 500 Birr or to
stand surety for a debt of such amount to another
person.(art.68 F.F.Law)
 CONTRACTS

Common Property
• All income derived by personal efforts of the
spouses and from their common or personal
property shall be common property.(art.62
F.F.Law)
• All property shall be deemed to be common
property even if registered in the name of one
spouse unless such spouse proves that he/she is
the sole owner thereof.(art.63(1)F.F.Law)
 CONTRACTS

Absence of Agreement
• The court may at the request of the other spouse
revoke such obligation.(art.69 F.F.Law)

• Where the claimant requests the court within the

time (within six month of awareness or maximum of
two years) specified by the law.(Art.69(2)f.f.law)
CONTRACTS

Exception – Article 18 Commercial Code

Debts contracted by the trading spouse shall be

deemed to be debts of the marriage and may be
recovered on the personal estate of each spouse
and on their common property.
CONTRACTS

III. Object (art.1711-1718)

It is the subject matter of the contract on which the

parties agree on. The objects of a contract are obligation to
perform something.

It is the obligation of the parties to do (positive act) or not

to do (negative act) an act.

It should be expressed in terms of money.(art.1675)

CONTRACTS

Object (cont’d)
The acts/object/ : The parties agree on

Lawful or moral :- for example, exchanging

foreign currency outside Banks is unlawful.
Sufficiently defined :- the rights and
obligations of the parties must be clearly
specified.
Possible :- where the object is absolutely
impossible, the contract has no legal effect.
CONTRACTS

IV. Forms(art.1719-1730)
Contracting parties can conclude their agreement the
way they like – in WRITING or ORALLY
Exceptions (only written form is to be used);
- contract of guarantee;
- contract of insurance;
- contract of mortgage.
 written Form

-signed by all the parties bound by the contract.

-attested by two witnesses
Capacity and duties of witnesses
-be of age(art.1729(1))
-sex or nationality not considered art. 1729(2)
-certify the contact & terms thereof(art. 1730(1)
-not guarantee performance of contract(art.
1730(2)
 CONTRACTS

A contract lawfully formed (by fulfilling the

above stated legal requirement) shall be binding
on the parties as law.(art.1731)
Where a party does not carry out his
obligations under the contract, the
other party may require
- the enforcement of the contract, or
  - the cancellation of the contract, or
 - compensation for damages caused.
(art.1771(1&2)
 CONTRACTS

Extinction of Obligations/contracts
- Performance;(art.1806)
- It is invalidated /cancelled for defects in
consent,incapacity,immorality
etc; (art.1808-18)
- Termination by agreement;(art.1819-24)
- Remission/release of debt; (art.1825)
- Notation/substitution; (art.1826-30)
- Set-off; (art.1831-41)
- Merger; (art.1842-44)_position of creditor & debtor
is merged in the person.
       - Period of limitation-ten years (art. 1845-51)
Questions for Discussion:-
SECURITY DEVICES
 SECURITY DEVICES
Are assurances or protections given by a debtor
or a third party to a creditor, to make sure the
performance of obligation;
Are resources provided by a debtor to creditor to
be used in case of failure in the principal
obligation;
Includes :
 surety ship,(art.1920 ff)
 pledge,(art.2825 ff)
 mortgage,(art.3041 ff)
 SECURITY DEVICES

Surety ship
It is personal guarantee undertaken in favor of the creditor
to discharge the obligation, should the debtor fails to do so.
To be valid the guarantee should be express;(art.1922(2)
the maximum limit of the obligation is specified;
(art.1922(3)
it is not above the amount owed by the debtor; (art.1924)
the guarantor shall be released where the creditors allows
time for payment to the debtor without the authorization of
the guarantor. (art.1928(2)
 SECURITY DEVICES

Types of Guarantee
Joint Guarantee - it exist where a guarantee describes
himself as joint-guarantor, co-debtor, or used equivalent
terms.He does not have benefit of discussion. art.1933
Simple Guarantee - the guarantor may not pay the creditor
unless the principal debtor fails to discharge his obligation.
He does have a benefit of discussion. art.1934(1&2)
   Secondary Guarantee - occurs where a person stands surety
not only of the principal debtor but also for his guarantor;
he is a guarantor for both the principal debtor and the
guarantor. art.1950
 SECURITY DEVICES

Contract of Pledge art.2825-74

It is a contract whereby a debtor undertakes to deliver a
thing called the pledge to his creditor as security for the
performance of an obligation. art.2825
  the maximum amount guaranteed is specified;
art.2828(1)
  made in writing; art.2828(2)
 made in relation to movable chattels capable of being
sold in public auction; and art.2829
  the documents of title (vouchers, B/L or way-bills) are
delivered or endorsed in his favor. art.28 30
 SECURITY DEVICES
Rights and Duties of Pledger and Pledgee
The pledger has the right to:
• retain the pledge (subject to the restrictions in
the contract); art.2834(1)
• dispose freely his right; art.2834(2)
• alienate the pledge or re-pledge it
subsequently art.2834(2)
• demand the pledge by paying the debt secured by
it. art.2837
SECURITY DEVICES
Rights and Duties (Cont)
The pledgee has the right & duty to:
bring action for possession of the pledge; art.2842
return the pledge where the contract is extinguished (fully)
by payment or any other reason; art.2845
claim the compensation paid in respect of the pledge from
the insurer or any other person; art.2848
collect the fruits of the pledge and the value of the fruit
shall be applied to expense, interest,& principal of debt
respectively.(art.2841)
be paid before other creditors - priority of claim.art.2857
 SECURITY DEVICES

Contract of Mortgage
A valid contract of mortgage exist where:
• made in writing;(art.1723 &art.3045(1))
• the maximum amount guaranteed is specified;
• relates to immovable property or special movables
• created by the owner (or his agent);art.3049(2)-(right to
dispose of it)
• the immovable mortgage is specified;art.3048
• Registered(art.3052) - the registration works for 10
years from the date of registration.art.3058(1))
 SECURITY DEVICES

Effects of a Valid Mortgage Contract

Preferential Right / Priority Right (art.3076)

Right to follow immovable (art.3085)
Right to Collect rents, compensation, etc. (art.3068
& 3069)
SECURITY DEVICES

Grounds for Cancellation of Mortgage

Contracts (art.3110(a-d))
 the claim secured by the mortgage is extinguished;
(a)
 the mortgagee has renounced his right ;(b)
 the immovable mortgaged is sold by auction and
its proceeds is distributed among the creditors.(c)
Offer of redemption is distributed among the
creditors.(d)
 SECURITY DEVICES
Security Devices vis – à – vis Foreclosure Law
Power/law of foreclosure is a new phenomenon to the
Ethiopian legal system- Proclamation No. 97/98, 98/98 and
216/00, procln no. 1147/2019 (for movable collaterals) -
applicable only to Banks.
main reason is the long time needed to obtain judgments
from courts and to subsequently have it executed.
Its operation begins only where the borrower/ mortgagor
fails to pay the debt wholly or partly on the date fixed for
payment as per loan contract.
the Bank is expected to observe the mandatory provisions of
Articles 394 - 449 of the Civil Procedure Code and the
foreclosure manual of the Bank.
 SECURITY DEVICES

Security Devices vis – à – vis Foreclosure Law

Salient Features of the Law
• The law authorizes the creditor bank to sell properties
pledged or mortgaged by auction upon giving 30 days
notice.
• The sale of these properties is deemed to have been made on
behalf of the debtor.(legal agent–art.5 of Proc.97/98)
• The creditor bank is liable to the damage it causes during
the sale of the properties.
• The registrar is empowered to take necessary action for
carrying out sale by auction (Art. 8 of proc. 97/98 & Art. 18
of proc. 98/98, Art. 82 of procl. 1147/2019)
CONTRACT OF AGNECY (art.2179-2265)

Is a contract whereby a person (the agent)-

impliedly or expressly- agrees with another
person (the principal) to represent him and to
perform on his behalf one or several legally
binding acts.(art.2199)

But, where the law requires a written formality it

should be made in writing.
 CONTRACT OF AGNECY

Types of Agency

General Agency -expressed in general terms

shall only confer upon the agent authority to
perform acts of management
Acts done for preservation or maintenance of
property, leases for terms not exceeding three
years, the collection of debts & the sale of crops,
or perishable goods/commodities.(considered as
Act of Management )(art.2204)
 CONTRACT OF AGNECY

Types of Agency (cont’d)

Special Agency -special authority is required
by the agent to perform acts other than acts of
management.(art.2205)
For e.g. to alienate or mortgage real estate, invest
capitals, sign bills of exchange, effect a settlement,
consent to arbitration, make donations or bring or
defend an action.
It confers upon the agent authority to conduct only
affairs specified therein(in instrument) & their
natural consequences .
 CONTRACT OF AGNECY

Termination of Agency (art.2230&2232)

A contract of agency shall terminate where
a. the agent/principal dies;art.2232&2230
b. the principal /agent is declared absent;
c. the principal /agent becomes incapable;
d. the principal/agent is adjudicated bankrupt; and
e. where the principal revoked the agent's
power.art.2226
f. The agent may renounce it by giving notice to principal
(art.2229)
CONTRACT OF AGNECY

Effects of Agency
A contract made by an agent in the name of another
person (the principal) within the scope of his power
shall be deemed to have been made directly by the
principal.
The principal may avail himself of any defect in the
consent of the agent at the time of the making of the
contract.
Any fraud committed by the agent may be set up
against the principal by the third party who entered
into the contract with the agent.art.2189(3)
 DEFINITION
What is a Business Organization?
o Business organization is an entity formed the
purpose of carrying on commercial enterprise. Such
on organization is predicated on system of law
governing contract and exchange, property
rights, and incorporation. Britannica of Encyclopedia
o Is group or a unit of people working together with a
common objective of profit maximization.
o The various forms of organization are established by
state law. There are a wide variety of business
organizations recognized by the states.
 Types of Business organization
1. Sole proprietorship: Sole proprietorship is a business
owned by one person for-profit. The owner may operate the
business alone or may employ others. The owner of the
business has unlimited liability for the debts incurred by the
business.

2. Partnership: A partnership is a business owned by two or

more people. In most forms of partnerships, each partner has
unlimited liability for the debts incurred by the business.
They are general partnerships, ordinary partnerships, and
limited partnerships.
3. Corporation: A corporations a limited liability business that
has a separate legal personality from its members.
Corporations can be either government-owned or privately
owned, and corporations can organize either for-profit or
 Cont…
 not-for-profit. A privately owned, for-profit corporation is
owned by shareholders who elect a board of directors to
direct the corporation and hire its managerial staff.
4. Cooperative: Often referred to as a "co-op",
a cooperatives a limited liability business that can
organize for-profit or not-for-profit. A cooperative differs
from a for-profit corporation in that it has members, as
opposed to shareholders, who share decision-making
authority. Cooperatives are typically classified as
either consumer cooperatives or worker cooperative.
Cooperatives are fundamental to the ideology
of economic democracy.
 Business organization under commercial code
of Ethiopia
o Article 172 of the Commercial Code defines a
business organization as “an association established
through memorandum of association by persons who
bring together contributions for the purpose of
undertaking an economic activity in cooperation and
of participating in the profit made.
o A joint venture is established by agreement between
persons which is not disclosed to third parties.
o Joint venture has no legal personality.
 Forms of Business Organizations
Under the amended commercial code, there are seven legal
forms of business organizations provided for in Article 174
of comm.code:-
1. General Partnership;
2. Partnership with two type of liability;
3. Partnership with limited liability;
4. Joint venture;
5. Share company;
6. private Limited company;
7. private limited company having one member;
 Forms of Business Organizations
1. General Partnership (Art. 183) - Members are jointly &
Severally liable with the partnership for the debt of the
partnership.
2. Partnership with two type of liability (Art. 212 ).
– In the old code, it was referred as Limited partnership.
It is partnership whereby certain members are jointly &
severally liable and others liable to the extent of their
contribution for the debt of the partnership.
3. Partnership with limited liability (Art, 221):- partnership
formed by two or more people to give professional or related
services.
4. Joint venture (Art, 234):- has no legal personality.
 Registration is not a requirement
 Is not made known to third parties.
 Business Organizations- Cont’d
5. Share Company
– Provisions dealing with share company encompasses the
major part of business organizations.
– Contains provisions from Article 245 to 495 = 251 Article.
Major Amendments made on the provisions of share
company
A. Organizers:
 New Provisions regarding organizers of a share company
are included in the new code Art, 248:-
 Limitations on organizers
 Liabilities of organizers;
Special benefits of organizers; ; are made part of the
law (Art. 249-251), 253
 Business Organizations- Cont’d
6. Private Limited Company:- Art. 495
 Its capital has to be fully paid in advance;
 Capital – minimum 5,000; Previously, 15,000;
 Par value – 100; Previously, 10;
 If the member is reduced to one & not substituted within six
months, it will dissolve,
 However, it may be converted to one member PLC by
making the necessary amendments to its memorandum of
association;
 Share certificate has to be issued; Art. 506
 Share register has to be available at head office of the PLC,
Art.507
 Business Organizations- Cont’d
Management of the PLC:- Art.513
 May stipulate in the Memorandum of Association
that it shall be governed by board of directors;
 Must have manager who may or may not be
shareholder;
 If the PLC has ten or more members or has greater
than Birr 10 million asset, it has to have external
auditor; Art.
 the external auditor is appointed by the GM,
The PLC has ordinary & extra-ordinary meetings;
Detailed provisions are stipulated regarding the
meetings
 Business Organizations- Cont’d
7. PLC with one member:- Art. 534
Has distinct legal personality from the shareholder;
 The shareholder is not liable for the debts of the
PLC;
 Requires minimum capital of Birr 15,000;
 A trader who is converted to one member PLC will
jointly be liable to the debts he owed before, Art.538
 PLC with one member may not establish another one
member PLC; Art.539(1)
 Business Organizations- Cont’d
Personal Liability of the member:- Art.543
The member is liable if:-
– If he performs acts which prejudice the interests of
the PLC & creditors;
– If he/she merges his property with the property of
the PLC;
– If he/she doesn’t separate himself from the PLC;
– If he transfers properties of the PLC to third party
with unfair/low price;
– If he/she pays dividend above the limit set by law;
etc.
 Characteristics of Partnership
A) Formation
This form of business needs partnership agreement. This
contract is may be as form of memorandum of association.
Comm. Code 284&298 register& get licensed.
B) Capital contribution
Every partner shall make a contribution.
C) Management
Every partner has the right to take active in the
management
D) Legal liability
The liability of the firm is unlimited which means each
partner is personally liable for the obligations of the
business .except, limited partnership
 Characteristics of Company
A) Formation
Share Company formed by memorandum and Article of
association.
Memorandum of association is a document which sets
out the constitution of the business organization and is
really the foundation on which the structure of the
business organization is based.
The articles of association are the rules and regulations
of a company framed for the purpose of internal
management of its affairs
 The documents must be deposited at the office of
registrar that is Ministry of Trade and Industry at
Federal level and Trade and Industry Bureau’s at
regional level.
Characteristics of Company (Cont’d)
• The registration of the company in the books of
Cont…
commercial register. The company require legal
personality from commercial registration.
• After registration of the business organization, the
memorandum becomes a public document
( comm. Code Art 92)
Amendment
A company has a statuary right to amend its
memorandum and articles of association by extra
general meeting of the shareholders. (Art 388-425)
Characteristics of Company (Cont’d)
B) Capital
When a company is formed, an application for issuance of
shares is made by prospective shareholders. A share is the
interest of a shareholder in a definite position of the capital. A
shareholder is proportionate owner of the company but he does
not own the company’s assets which belong to the company as
a separate legal entity.
C)Management
Management of the company is carried on by the shareholders’
meeting and board of directors as well as general manager
D) Legal liability
The company has separate legal entity its debts are its own not
its members. Shareholders are liable to the extent that they
have invested money. Their liability is limited.
Distinction between Private Limited and Share
Company
1.Formation: - only two persons are required to form a
private limited company while a share company requires
a minimum of five members to start with. There is no
limit on the maximum number of members in Share
Company. Whereas a private limited company can have
only 50 members at most. Capital of the share company
not less than 50,000 birr Whereas a Capital of private
limited company not less than 15,000 birr.
2.Directors:- A private limited company is managed by one
or more managers while Share Company is managed by
directors whose minimum number shall be three.
3.Public subscription :- while a share company can invite
public to subscribe to its shares and debentures, a private
limited company can not go to public to raise its capital.
Cont…

4.Prospectus :- A share company which goes to

public to raise its capital is required to file a
prospectus while a private limited company is
exempt from this requirement because it can not
invite public to subscribe to its capital.
5.subscription:- in share company all capital must
be subscribed and 25% of the capital must be
paid-up before registration. Private Limited
Company be registered by fully paid-up capital.
Questions for Discussion:-
Confidentiality of customers
information
 CONFIDENTIALITY
A person may become a customer of a bank by opening
a deposit or current account or by negotiating and
signing an advance or loan account.
Bank secrets-the amount of money deposited in the bank,
the degree of indebtedness, the securities given and
etc.-not to disclose the transaction of any person
(customer)(art. 8 of proc.no.592/2008
CONFIDENTIALITY

Justification

Not to lose the confidence of the Bank's customers which

might affect the existence of the bank,
 
It is mandatory to fulfill the confidentiality sought by the
Bank's customers.
 CONFIDENTIALITY

Exceptional Conditions
 Order from courts,(garnishee order),
 Clear authorization of the customer, and
 Legal obligation to disclose the information.
- Banking Business Proclamation (Art.28)
- Income Tax Law (proc.no.979/16, Art.38)
-The Federal Ethics & Anti-Corruption Commission
Establishment Proclamation
 Banker’s Interest-when customer is debtor of the
bank.
 CONFIDENTIALITY
Liability of the Bankers
A banker who discloses a secret information against the law
will be liable to & fine imprisonment (up to 2 years or 25
years) or fine (ranging from Birr 5,000 to 35,000 Birr or
50,000) [Art. 22 of Anti-Corruption Proclamation
No.881/2015] - Criminal Liability
  Authorized Disclosure - where the disclosure is made
because of the express consent of the person or by the express
order of the court or by the express order of the provisions of
the law the person who made the disclosure will not be liable
to punishment [Art. 400 Criminal Code]
 CONFIDENTIALITY

Liability of the Bankers (cont’d)

Collective agreement (for e.g. of the Awash Bank )states
that whosoever knowingly divulges/discloses
information relating to the Bank's customers, to third
parties will be terminated/dismissed from its
employment without a notice-Civil Liability

It may also incur civil liability for both employer (bank)

and employee. (art. 2126 & 2130 of c.c)
Legal relationship of the bank
with the tax authority
BANK Vs THE TAX AUTHORITY

Like any other economic unit, a government needs

funds to finance its activities-the most important and
common source of public revenue are taxes.

A tax is a compulsory levy and those who are taxed

(taxpayers) have to pay the sum irrespective of any
corresponding return of services or goods by the
government.

A tax is also a liability imposed upon the taxpayer that

can be individuals, groups of individuals or other legal
entities.
BANK Vs THE TAX AUTHORITY

The Base of a Tax

It is the legal description of the object with

reference to which the tax applies.

The base of income tax is the income of the

taxpayer defined and estimated by the
pertinent law.

In case of stamp duty, documents are the

base for the tax.
BANK Vs THE TAX AUTHORITY

Types of Taxes
To mention some of them, depending on its
base, we may have
 Income Tax (proc. No.979/16 (2008)
 Value Added Tax. (No.285/94 (2002)
 Turnover Tax
 Stamp Duty (Proc.no 110/98)
Who is the Tax Authority?
 It is the organ of the government
entrusted with the function of
administering and collecting taxes.
 In our case, the Federal Inland
Revenue and the Finance Bureaus of
the Regional States and City
Administrations are considered as tax
authorities. 
 AWASH BANK Vs THE TAX AUTHORITY

Obligation of Awash Bank

Direct Obligation: Awash Bank(other banks) is
obliged to pay the following major types of
taxes.
. Income Tax
.Value Added Tax
. Stamp Duty
AWASH BANK Vs THE TAX AUTHORITY

Income Tax

As a public financial institution that carries out

commercial business activities for gain, Awash Bank is
obliged to pay income tax from its taxable income.

What is Income?
It is every sort of economic benefit including non-
recurring gains in cash or in kind, from whatever
sources derived and in whatever form paid, credited or
received. (proc. No.979/16 art.2(14))
 
AWASH BANK Vs THE TAX AUTHORITY

Income Tax

What is Taxable Income?

It is the amount of income subject to tax after

deduction of all expenses and other deductible
items allowed by the tax legislation (such as
trading stocks, reserves maintained as per NBE's
directives and depreciation). (proc. No.979/16
art.2(14))
 AWASH BANK Vs THE TAX AUTHORITY

Income Tax
List of Taxable Incomes
 Income from Rental of Buildings - Awash Bank is obliged
to pay income tax of 30% of its earnings from the rental of
its building.
 Income from Business/Profit Tax/ - it is imposed on
taxable business income realized from entrepreneurial
activity-Awash Bank is obliged to pay 30% out of this
income as a profit tax.
 Other Incomes - This includes a number of incomes; such
as income from royalties, dividends, interest income, etc.
(proc. No.286/94 art.31-37)
AWASH BANK Vs THE TAX AUTHORITY

Value Added Tax /VAT/

VAT is a tax on the value added by a business firm,
through its own activity, to the goods and services it
buys from other business firms.
Financial services (i.e. banking and insurance
services) are exempted from the payment of VAT,
where it conducts its professional activities.
AWASH BANK Vs THE TAX AUTHORITY

Stamp Duty

Stamp duty is a form of tax raised from

fixing revenue stamps on documents
/instruments/.
An instrument is a written document by
which any right or obligation is created or
purports to be created, recorded,
transferred, extinguished or by which its
scope is limited or extended.
 AWASH BANK Vs THE TAX AUTHORITY

Stamp Duty (cont)

• Loan Contracts - contracts and agreements and
memoranda thereof (for example term loan and O/D
contracts) are charged flat Birr 5.
• Security Deeds - 1% on the “value”- the value of
obligation executed by means of the instrument or the
value of the property which ever is lower.
• Bond Amount Charge - 1% charge on the value of
bond. In our loan contract the agreement to increase
interest rate in case of default is considered as a
bond-but it is disputable .
 AWASH BANK Vs THE TAX AUTHORITY

Obligation of Awash Bank

Indirect Obligation: Awash Bank is obliged to

withhold the following taxes.
-income tax imposed on the salaries of the Bank
pays to its employees.
-5% income tax charged on the interest the Bank
pays to its depositors.
- income tax of 2% from the supply of goods
involving more than Birr 10,000.
T

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