Business and Personal Bank Account

Ethiopia's income tax system categorizes taxpayers into two main groups: residents and non-residents. Residents are subject to tax on their worldwide income, while non-residents are only taxed on income sourced from Ethiopia. The tax rate for businesses is a flat 35%, while individual income tax rates are progressive, ranging from 0% to 35%.

Having separate personal and business bank accounts is important for this system because it helps to distinguish between business and personal income. This distinction is crucial for accurate tax filing, as only business income is subject to business income tax.

Personal Bank Account

  • Used for managing personal finances, like salary deposits, bill payments, and everyday purchases.
  • Income from a personal bank account is generally not subject to business income tax.
  • However, it may be subject to individual income tax depending on the source of the income. For instance, if you freelance and receive payments into your personal account, that income might be taxable.

Business Bank Account

  • Used for managing business finances, including revenue from sales, vendor payments, and payroll.
  • Income deposited into a business bank account is subject to business income tax in Ethiopia.
  • Keeping business and personal finances separate helps with bookkeeping and tax filing. This makes it easier to track business income and expenses accurately, simplifying tax calculations.