An importer with an import license/investment permit has to follow certain procedures for importing goods. (See the article Import and Export Regulations in Ethiopia to learn about the procedures for obtaining import and export licenses)
Goods imported are not required to be inspected prior to shipment EXCEPT when:
- they are imported from China (but goods that will be used as inputs for manufacturing will be exempt from this requirement). The certificate obtained for pre shipment inspections of goods from China is called CIQ certificate.
- the goods imported have compulsory Ethiopian standard. In this case, the goods have to be inspected by an internationally recognised inpsection company prior to shipment and certficate issued.
- the importer and the supplier have an agreement for pre-shipment inspections.
Arrangement and Mode of Payment
An importer has to fulfill two major requirements to settle payment. The first is that the importer must apply for an approval of foreign currency to a commercial bank which is authorized by the National Bank of Ethiopia. As part of the request, the importer must present his/her valid business and import license or investment permit, and a pro-forma invoice from the supplier. The pro-forma invoice should describe the imported goods, state the unit price, quantity and total price, as well as list additional charges that may be applied on the transaction.
(See the article Foreign Exchange Regulation and Directives in Ethiopia for further information)
After an approval of foreign currency, the importer must obtain a bank permit in order to arrange the mode of payment. The bank permit is obtained from the NBE. However, an importation of exceptional goods is allowed on a franco-vaulta basis. Importation of goods on the basis of franco-valuta means the importer is allowed to use his/her own hard currency for the payment of the goods instead of applying for it and getting it from the government. The goods which may be imported on a franco-vaulta basis include:
- imported good by diplomatic personnel for diplomatic purposes;
- specific personal goods;
- goods imported for investment activities including capital goods and raw materials adequate to commissioning stage and for their personal use by investors having license from the appropriate government office.
(See article 2(9) of the Revised Regulations on the Importation of Goods on Franco-Valuta Basis Regulation No. 88/2003)
|Revised Regulations on the Importation of Goods on Franco-Valuta Basis Regulation No. 88/2003||DOWNLOAD|
As such, in most circumstances importers should arrange the payment of the imported goods through banks. After the bank permit has been issued by the NBE, the importer then chooses the mode of payment in accordance with his/her agreement with the seller. There are three methods of payment for imports (and also exports) in Ethiopia;
- Letter of Credit, in which the bank undertakes to pay the supplier a stated sum of money within a prescribed time limit and against the hand-over of the documents needed for the release of goods from customs. A letter of credit normally includes, a commercial invoice, manufacturer’s invoice, packing list, country of the goods origin, original sets of bill of lading, airway bill, truck way bill, railway Manifest (depending on the mode of transportation), and a certificate of quality.
- Cash against Document, where the importer’s bank hands over to the importer the documents needed for the release of goods from customs against full payment.
- Advance Payment, i.e. the importer orders the bank to pay the seller via SWIFT transfer prior to shipping or rendering the service.
An application for the above mode of payments is usually accompanied with the following documents;
- Import license/investment permit
- Tax Identification Number (TIN)
- Other documents required for the foreign currency approval;
- The foreign currency approval;
- Insurance certificate,
- Regulatory permit (for products requiring pre-import permit), and ownership certificate from country of purchase (for used vehicles),
- An original price confirmation (for used commodities),
- A written waiver (in case of shipment by a foreign vessel),
- An undertaking letter for the entry of goods (in case of advance payment).
(An application form, used by the Ethiopian Commercial Bank, for a letter of credit is available HERE)
For all methods of payment, the importer is required to have an account with the bank, a TIN and he/she must not be listed on the National Bank of Ethiopia delinquent list which is a register that includes account holders whose cheques have been dishonored repeatedly; and whose accounts are closed by banks.
Once payment has been effected, the importer should be sure to collect his documents from the bank in case of letter of credit or cash against person and from the supplier in case of advance payment.
Customs Proceedings for Imported Goods
(See the article Customs Procedures in Ethiopia for more information)
i. Customs Declaration
An importer should first prepare a customs declaration (goods declaration) and submit such declaration to the Customs Commission (the former ERCA). The custom declaration must include the contract of sale; goods description; tariff classification, valuation and payment of duties and taxes, and other supporting data (such as the name and address of the trade operator and, the mode of transportation to be used).
After the submission, the Customs Commission will examine the declaration by verifying the correctness of data information, tariff classification, valuation and payment of duties and taxes registered and supporting documents attached to declaration. The verification process may also include the fulfillment of legislative requirements administered by other regulatory agencies, such as veterinary, health and/or phytosanitary issues.
ii. Payment of Customs Duty and Taxes
The importer is required to pay duties and taxes on the imported goods which include customs duty at 0-35% based on the type of good imported, VAT at 15%, withholding tax at 3% on the CIF (Cost+Insurance+Freight), Surtax at 10% and excise tax for few selected goods at 10%-100%.
There is also a physical examination that will be conducted on the goods in order to ensure that the imported goods are not harmful to the public. Further, the imported goods will be examined so that their origin, country of export, nature, condition, quality, quantity, tariff classification and value of the goods are in accordance with the information furnished in the goods declaration.
iv. Clearance and Goods Release
In addition to the Customs Commission’s (ERCA’s) clearance activities (based on the physical examination conducted above), other regulatory bodies will also be involved in the clearance of certain imported goods. This applies to all goods for which pre-import permits are issued, as well as the ones for which an import permit is issued only at the time of clearance. The importer or his/her agent is responsible for obtaining the necessary permits from the regulatory agencies at the time of clearance. For instance, a person importing medicine is required to obtain a pre-license, before the starting of the import procedure and an import permit at the time of entry in order to obtain clearance.
After the physical examination and obtaining the necessary license, the importer will obtain a goods release charges upon the payment of services charges. The goods will then be released and the importer takes possession of them. In addition, the Customs Commission (ERCA) will issue a final declaration for the importer as a certificate of completing the import procedures and importation of goods.
Any importer who obtained a foreign currency permit should present the final import customs declaration to the NBE. This is a requirement for importing (or exporting) goods in the future.
Note that an importer should keep all records and documents related to the import for five years from the date of Customs Commission (ERCA’s) acceptance of the goods declaration. During this period, Customs Commission (ERCA) may perform a post clearance audit of the import. The purpose of such audits, which may cover traders’ commercial data, business systems, records and books, is to verify the accuracy and authenticity of declarations and information provided by the importer.
Application to the NBE/Authorized Commercial Bank
An application must be submitted to the NBE that is accompanied with the export contract, seller’s invoice, export license of seller, TIN, export permit application, letter of seller stating that consignment will be settled within 90 days maximum and any other relevant document.
Note that the exporter must notify the Ministry of Trade that a contract deal has been made with a buyer within 15 days of the conclusion of the contract for export.
Further, the buyer must, first, open an irrevocable L/C/documentary credit in favour of the seller. The exporter should go through the text of the L/C opened in their favour and make sure that compliance can be met without doubt.
(Also see the article Customs Procedures in Ethiopia)
i. Customs Declaration
The Custom declaration should include the type of export regime, detailed information about the exported goods, and also tariff classification and customs valuation, which is relevant to determine the correct export duties and taxes. The exporter, then, submits the customs declaration to the Customs Commission which may accept or reject the declaration.
Upon acceptance of the customs declaration, the exporter pays the due export duties and taxes which is almost at 0%. The customs duty on exported goods is 0% except for selected hides, skins and leathers. VAT is also calculated at 0% for exported goods. But there is an excise tax imposed on the exportation of selected goods.
ii. Obtain Certificates
After the customs declaration the exporter then must obtain the necessary certificates. When export product is ready, the exporter must obtain certification from the Inspection Centre that the commodity is prepared in accordance with the characteristics of the agro-ecology of its production area and meets the required grade.
The exporter also must obtain a certificate of origin from Chambers of Commerce and special movement forms or certificates issued by the Customs Authority.
iii. Obtain export customs clearance and ship goods
The customs commission (ERCA) should physically examine the export goods in particular whether they confirm to the customs declaration and depending on the risk assessment. Further exported goods are subjected to pre-shipment mandatory inspections. For instance coffee, must be examined by the Ethiopian Coffee and Tea Development (which is under the Ministry of Agriculture, and Natural Resources), while live animals and meat products, oilseeds and pulses are inspected by the Ministry of Livestock and Fisheries.
The exporter may also inspect and insures the export cargo.
After the examination, the exporter is granted a release note upon the payment of warehouse fees and any other service charge.
iv. Arrange Payment Issue
An arrangement for payment may be through the franco-valuta basis or bank permit. A bank permit allows for three types of payment modalities; letters of credit, cash against payment, and advance payment. To obtain a permit for any of these, the exporter is required to present a completed bank permit form, which is available from the banks, along with the following documents to his/ her bank.
- An original sales contract agreement;
- The exporter’s business license;
- The exporter’s TIN certificate;
- For L/C: Advice and shipping documents (commercial invoice, packing list, bill of lading or air way bill, certificate of origin and regulatory permit, if required);
- For advance payments: original credit advice, and advance payment receipt advice (incoming telegraphic transfer) or customs declaration along with a bank advice for the sale of the cash notes to the bank.
- Commercial invoice including one copy duly certified by the Customs;
- Packing List;
- Foreign exchange declaration forms;
- Customs Declaration Annex form (CDAF) in duplicate;
- Certificate of Origin; and
- Insurance Policy in duplicate.
For all methods of payment, the exporter needs to have an account with the bank and must not be listed on the NBE delinquent list. Additionally, the exporter should collect his documents from the bank or the buyer when payment has been effected.
In case of a documentary credit, the commercial bank negotiates these documents to the importer’s bank in the manner as specified in the letter of credit. Before negotiating documents, the exporter’s bank scrutinizes them in order to ensure that all formalities have been complied with and all documents are in order. The bank then sends the bank certificate and attested copies commercial invoice of the exporter.
Next, the exporter can get immediate payment from his/her respective bank on the submission of documents by signing a Letter of Indemnity. By signing the Letter of Indemnity the exporter undertakes to indemnity the bank in the event of non receipt of payment from the importer along with accrued interests.
Further, where payment should be effected via a documentary credit (L/C) banks have the obligation to verify documents in a way that the documents strictly conform to the instruction contained in the credit (Article 965 of the commercial code). The bank is, however, not liable where the documents are on their face value in conformity with the instructions received (Article 966 of the commercial code). When the bank refuses the documents, it will notify the presenter with the error’s found for rectification (Article 965 of the Commercial Code).
(See also the article Foreign Exchange Regulation and Directives in Ethiopia on retention and utilization of foreign exchange by exporters)
v. Pay service charges and receive final export customs declaration
This is the last stage of the export procedure. After fulfilling all obligations for customs clearance and the release of goods, ERCA will issue the final declaration to the exporter as a certificate that all customs procedures related to the export of the goods have been accomplished.
Any exporter who obtained an export bank permit is expected to present the final export customs declaration to the NBE. This is a requirement for importing or exporting goods in the future. As in the case of imports, an exporter must keep all records and documents related to the export for five years from the date of ERCA’s acceptance of the goods declaration. During this period, the Customs Commission (ERCA) may perform a post clearance audit of the export.