ARBA MINCH UNIVERSITY
Department of accounting and Finance
Investment individual assignment
Name -Debasu Fetene ID NO - SSHR/408/13
Submission Date: 04/06/2016
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Tabel content page
1.7 Definition and nature of regulation.............................................................3
1.8 prenciple of good regulation in investment.................................................5
1.9 The need to regulate investment...................................................................6
1.9.1 regulations of investment in Ethiopia.................................................7
1.9.2.constitutional frame work invetment in Ethiopia................................8
1.9.3.Economic police of Ethiopia.................................................................9
1.9.4.Area of investment reserved for domestic investor............................10
1.9.5.Sector open to Ethopian nationals......................................................11
1.9.6.Sector open to the state.....................................................................11
1.9.7.Investment procedure........................................................................12
1.9.8.Business license................................................................................13
1.9.9.Restriction of foreign direct investment..........................................14
1.1.0.Accounting entries and implication on reporting
(general purpose and for tax purposes)...........................................15
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### Definition of Regulation
Regulation can be broadly defined as the imposition of rules, laws, or directives by a
governing authority to guide, control, or standardize behavior, activities, or industries. Its
primary objectives are to promote public interest, ensure fair competition, protect
consumers, and maintain order within a society or industry.
### Nature of Regulation
Understanding the nature of regulation involves recognizing its key characteristics and
impact on different spheres of society:
1. Public Policy and Governance: Regulation is a fundamental aspect of public policy, serving
as a mechanism for governments to articulate and enforce societal norms and values. It
influences how resources are allocated and how public and private activities are conducted.
2. Industry Oversight: In economic contexts, regulation provides oversight of various
industries such as finance, healthcare, energy, telecommunications, and transportation. It
aims to ensure market stability, consumer protection, and fair competition.
3. Risk Management and Safety: Regulations often address risks and safety concerns, such as
workplace safety regulations, environmental protection laws, and product safety standards.
4. Compliance and Enforcement: Governments and regulatory bodies enforce compliance
with regulations through inspections, reporting requirements, and the imposition of
penalties for non-compliance.
5. Balancing Interests: Regulation often seeks to balance competing interests, such as
promoting innovation while safeguarding public safety, or encouraging economic growth
while preventing monopolistic behavior.
6. Evolution and Adaptation: Regulations are not static; they evolve in response to societal
changes, technological advancements, and new challenges. This adaptability is essential for
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addressing emerging issues and maintaining relevance over time.
7. Global Influences: In an increasingly interconnected world, regulations can be influenced
by international standards and agreements, impacting global trade, environmental
protection, and financial stability.
### Impact of Regulation
The impact of regulation is multifaceted and can be both positive and challenging:
- Positive Impacts: Regulations can protect public health, ensure fair competition, promote
environmental sustainability, and establish trust in financial systems.
- Challenges: Over-regulation may lead to inefficiencies, stifled innovation, or barriers to
market entry, while under-regulation can pose risks to public safety, consumer rights, and
economic stability.
### Conclusion
Regulation is a dynamic and influential force that shapes the behavior of individuals,
businesses, and societies. Its scope is vast, addressing issues ranging from safety and fairness
to economic stability and environmental sustainability.By understanding the nature of
regulation, we can appreciate its role in shaping our world and its potential to advance public
welfare, promote responsible business conduct, and ensure a level playing field for all.
Is there a specific area of regulation or a particular aspect you're curious about, or do you
have any specific questions related to the nature of regulation? Feel free to let me know!
1.8 Principles of good regulation in investment
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1. Efficiency and economy We are committed to using our resources in the most efficient and
economical way. As part of this the Treasury can commission value-for-money reviews of our
operations.
2. Proportionality We must ensure that any burden or restriction that we impose on a person,
firm or activity is proportionate to the benefits we expect as a result. To judge this, we take into
account the costs to firms and consumers.
3. Sustainable growth We must ensure there is a desire for sustainable growth in the economy of
the UK in the medium or long term.
4. Consumer responsibility Consumers should take responsibility for their decisions.
5. Senior management responsibility A firm’s senior management is responsible for the firm’s
activities and for ensuring that its business complies with regulatory requirements. This secures an
adequate but proportionate level of regulatory intervention by holding senior management
responsible for the risk management and controls within firms. Firms must make it clear who has
what responsibility and ensure that its business can be adequately monitored and controlled.
6. Recognising the differences in the businesses carried on by different regulated persons
Where appropriate, we exercise our functions in a way that recognises differences in the
nature of, and objectives of, businesses carried on by different persons subject to requirements
imposed by or under the Financial Services and Markets Act 2000 (FSMA).
7. Openness and disclosure We should publish relevant market information about regulated
persons or require them to publish it (with appropriate safeguards). This reinforces market
discipline and improves consumers’ knowledge about their financial matters.
8. Transparency: Regulations should require investment firms to provide clear and
comprehensive information to clients about the risks, costs, and potential returns associated with
their investments.
9. Investor Protection: Regulations should aim to protect investors from fraudulent or unethical
practices by requiring investment firms to act in the best interests of their clients and disclose any
conflicts of interest.
10.Market Integrity: Regulations should promote fair and efficient markets by preventing market
manipulation, insider trading, and other activities that can undermine the integrity of the
investment market.
ln addition prenciple of good regulation important for
A..Risk Management: Regulations should require investment firms to have robust risk
management processes in place to identify, assess, and mitigate potential risks to their clients'
investments.
B. Compliance and Enforcement: Regulations should establish clear rules and standards for
investment firms to follow, and effective enforcement mechanisms to ensure compliance with
these rules.
C.Innovation and Competition: Regulations should strike a balance between promoting
innovation and competition in the investment industry while ensuring that new products and
services do not pose undue risks to investors.
D. Proportionality: Regulations should be proportionate to the size and complexity of the
investment firm, taking into account the potential impact of the regulations on smaller firms and
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investors.
E. International Cooperation: Given the global nature of investment markets, regulations should
encourage cooperation and coordination between regulatory authorities across different
jurisdictions to address cross-border issues and ensure consistent standards.
The Basis for Recognition
Having the correct properties and relationships is the traditional basis for recognition, with the
differences between approaches lying in the types of evidence used, the modeling of objects, the
assumptions about what constitutes adequate recognition and the algorithms for performing the
recognition.Here, surface and structure properties are the key types of evidence, and they were
chosen to characterize a large class of everyday objects. As three dimensional input data is used, a
full three dimensional description of the object can be constructed and directly compared with the
object model. All model feature properties and relationships should be held by the observed data
features, with geometric consistency as the strongest constraint. The difficulty then arises in the
construction of the three dimensional description. Fortunately, various constraints exist to help
solve this problem.This research investigates recognizing "human scale" rigidly and non-rigidly
connected solids with uniform, large surfaces including: classroom chairs, most of a PUMA robot
and a trash can. The types of scenes in which these objects appear are normal indoor somewhat
cluttered work areas, with objects at various depths obscuring portions of other objects.
1.9 The need to regulate investment
Regulating investment is necessary for several reasons:
1. Investor Protection: Regulations are essential to safeguard investors from fraudulent
activities, conflicts of interest, and other unethical practices that could jeopardize their
investments.
2. Market Stability: Regulations help maintain the stability and integrity of financial markets by
preventing market manipulation, insider trading, and other activities that could disrupt the
functioning of the market.
3. Transparency and Disclosure: Regulations ensure that investment firms provide clear and
comprehensive information to clients about the risks, costs, and potential returns associated with
their investments, promoting transparency in the investment process.
4. Systemic Risk Mitigation: Regulations can help mitigate systemic risks by imposing rules on
capital requirements, leverage limits, and risk management practices to prevent the excessive
build-up of risk within the financial system.
5. Fair Competition: Regulations promote fair competition by ensuring that all market
participants adhere to the same set of rules and standards, preventing unfair advantages for certain
players.
6. Investor Confidence: Well-designed regulations can enhance investor confidence in the
financial markets, which is crucial for attracting investment and maintaining a healthy economy.
7. Economic Stability: Effective regulation can contribute to overall economic stability by
reducing the likelihood of financial crises and their negative impact on the broader economy.
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8. International Coordination: Given the global nature of investment markets, regulations are
necessary to facilitate international coordination and cooperation among regulatory authorities to
address cross-border issues and ensure consistent standards.
In summary, regulating investment is essential to protect investors, maintain market stability,
promote transparency, mitigate systemic risks, ensure fair competition, bolster investor
confidence, contribute to economic stability, and facilitate international coordination.
1.9.1 Regulation of investment in Ethiopia
In Ethiopia, the regulation of investment is overseen by various government bodies and laws
aimed at promoting and regulating investment activities in the country. The key regulatory
framework for investment in Ethiopia includes the following:
1. Investment Proclamation: The main legal instrument governing investment in Ethiopia is the
Investment Proclamation. The current Investment Proclamation is Proclamation No. 769/2012,
which provides the legal framework for domestic and foreign investment in Ethiopia. It outlines
the rights, obligations, and incentives for investors, as well as the sectors open for investment.
2. Ethiopian Investment Commission (EIC): The EIC is the primary government agency
responsible for promoting and regulating investment in Ethiopia. It facilitates the establishment of
new investments, provides information to investors, and oversees the implementation of
investment laws and regulations.
3. Investment Incentives: The Ethiopian government offers various investment incentives to
attract both domestic and foreign investors. These incentives may include tax holidays, duty-free
import of capital goods, access to land, and other benefits aimed at encouraging investment in
priority sectors.
4. Sectoral Regulations: In addition to general investment laws, there are specific regulations and
guidelines for different sectors such as agriculture, manufacturing, energy, mining, and services.
These sector-specific regulations outline the requirements and conditions for investment in each
sector.
5. Licensing and Registration: The process of obtaining investment licenses and registrations is
governed by specific regulations and procedures. Investors are required to comply with these
regulations to establish and operate their businesses legally in Ethiopia.
6. Foreign Exchange Regulations: Ethiopia has foreign exchange regulations that govern
currency conversion, repatriation of profits, and foreign exchange transactions related to
investment activities.
7. Dispute Resolution Mechanisms: The legal framework also includes provisions for dispute
resolution mechanisms related to investment, including arbitration and legal recourse in case of
investment disputes.It's important to note that the regulatory environment for investment in
Ethiopia is subject to change, and investors are advised to seek professional legal and financial
advice to ensure compliance with the latest regulations and requirements.
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1.9.2.Constitutional frame work investment in
Ethiopia
The constitutional framework for investment in Ethiopia is primarily based on the country's
Constitution, which provides the fundamental principles and legal foundation for investment
activities. The Constitution of the Federal Democratic Republic of Ethiopia, adopted in 1995, sets
out the basic framework for investment and economic activities in the country.
Key provisions of the Ethiopian Constitution related to investment include:
1. Property Rights: The Constitution guarantees the right to property and provides for the
protection of property rights, including the right to own, use, and transfer property. This protection
extends to both domestic and foreign investors.
2. Economic Rights: The Constitution recognizes the right to engage in economic activities and to
establish and operate businesses. It also emphasizes the promotion of private sector development
and investment as essential components of economic growth and development.
3. Non-Discrimination: The Constitution prohibits discrimination on grounds of nationality, race,
ethnicity, religion, or gender. This principle of non-discrimination applies to investment activities,
ensuring that both domestic and foreign investors are treated equally under the law.
4. Regional Investment Framework: Ethiopia's Constitution also recognizes the rights of
regional states to establish their own investment laws and regulations within the framework of the
federal constitution. This allows for some level of regional autonomy in regulating investment
activities.While the Constitution provides the broad legal framework for investment in Ethiopia,
specific laws, regulations, and policies enacted by the government further define the operational
aspects of investment activities. These include the Investment Proclamation, sector-specific
regulations, and guidelines issued by the Ethiopian Investment Commission and other relevant
government bodies.
It's important to note that Ethiopia's legal and regulatory framework for investment is subject to
amendments and updates, and investors should seek professional legal advice to ensure
compliance with the latest constitutional and legislative requirements.
Economic Police of Ethiopia to regulations and administration of investment
In Ethiopia, the Ethiopian Investment Commission (EIC) is the primary government agency
responsible for the regulation and administration of investment activities. The EIC plays a central
role in promoting and facilitating both domestic and foreign investment in various sectors of the
economy.
Key functions of the Ethiopian Investment Commission include:
1. Investment Promotion: The EIC is tasked with promoting Ethiopia as an attractive investment
destination by showcasing investment opportunities, providing information on investment policies
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and incentives, and facilitating investment-related events and forums.
2. Investment Facilitation: The EIC assists investors in obtaining investment permits, licenses,
and approvals from relevant government authorities. It also provides support in navigating
administrative procedures and facilitating necessary clearances for investment projects.
3. Policy Development: The EIC contributes to the formulation of investment-related policies,
laws, and regulations. It works closely with other government bodies to create an enabling
environment for investment and to address regulatory barriers that may affect investment
activities.
4. Aftercare Services: The EIC offers aftercare services to existing investors, providing support in
addressing operational challenges, accessing government services, and resolving investment-
related issues.
In addition to the Ethiopian Investment Commission, other government agencies may also be
involved in the regulation and administration of specific sectors or industries. For instance, sector-
specific regulatory bodies and ministries oversee investments in areas such as energy, mining,
agriculture, telecommunications, and manufacturing.Overall, the Ethiopian Investment
Commission serves as a central point of contact for investors and plays a crucial role in the
regulation and administration of investment activities in Ethiopia. Its efforts are aimed at creating
a conducive environment for investment, streamlining administrative processes, and providing
support to investors throughout their engagement in the Ethiopian market.
1.9.3 Economic Police of Ethiopia
The Economic Police of Ethiopia, also known as the Ethiopian Federal Police Commission, is a
law enforcement agency responsible for enforcing economic laws and regulations in Ethiopia. The
Economic Police plays a crucial role in ensuring compliance with economic and financial
regulations, investigating economic crimes, and maintaining economic stability within the country.
Key functions of the Economic Police of Ethiopia include:
1. Economic Crime Investigation: The Economic Police is tasked with investigating various
forms of economic crime, including fraud, embezzlement, money laundering, corruption, and
other financial offenses. They work to identify and prosecute individuals or entities involved in
illegal economic activities.
2. Regulatory Compliance: The Economic Police ensures that businesses and individuals comply
with economic regulations, tax laws, and other financial requirements. They may conduct
inspections, audits, and enforcement actions to verify compliance and address any violations.
3. Financial Security: The Economic Police takes measures to safeguard the financial system and
prevent illicit financial activities that could undermine the stability of the economy. This includes
efforts to combat counterfeiting, illegal currency trading, and other threats to monetary security.
4. Public Awareness and Education: The Economic Police may engage in public outreach and
educational campaigns to raise awareness about economic laws and regulations, promote financial
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literacy, and prevent economic crimes.
The Economic Police of Ethiopia operates within the framework of the Ethiopian Federal Police
Commission, which is responsible for maintaining law and order across various domains,
including economic and financial matters.Overall, the Economic Police plays a critical role in
upholding economic laws and regulations, combating economic crimes, and contributing to the
overall integrity and stability of Ethiopia's economy.
1.9.4 Areas of investment reserved for domestic investor
In Ethiopia, there are certain areas of investment that are reserved exclusively for domestic
investors. These reserved sectors are defined by the Ethiopian Investment Commission and are
intended to promote local participation and economic development. As of my last knowledge
update, the following sectors are typically reserved for domestic investors:
1. Retail Trade: Small-scale retail businesses, such as grocery stores, kiosks, and other retail
outlets, are often reserved for Ethiopian citizens.
2. Supply of Certain Goods and Services to Government Institutions: Some procurement contracts
and supply services to government institutions may be reserved for domestic investors.
3. Banking, Insurance, and Microfinance Services: In some cases, certain aspects of financial
services may have restrictions on foreign ownership or participation, allowing domestic investors
to have a dominant role.It's important to note that these regulations can change over time, and it's
advisable for potential investors to consult with the Ethiopian Investment Commission or legal
advisors to get the most up-to-date information on investment regulations and reserved sectors.
1.9.5 Sector Open to Ethiopian Nationals
Ethiopia has several sectors that are open to Ethiopian nationals for investment and business
ownership. These sectors include:
1. Agriculture: Ethiopia's agricultural sector offers opportunities for investment in crop
production, livestock farming, agro-processing, and export-oriented agriculture.
2. Manufacturing: The manufacturing sector in Ethiopia presents opportunities for investment in
various industries such as textiles and garments, leather and leather products, food and beverage
processing, pharmaceuticals, and construction materials.
3. Real Estate: There are opportunities for Ethiopian nationals to invest in real estate development,
construction, property management, and related services.
4. Tourism: Ethiopia's tourism sector is open to investment in hospitality, ecotourism, travel
agencies, tour operations, and related services.
5. Education: There are opportunities for investment in private schools, vocational training
centers, higher education institutions, and educational support services.
6. Healthcare: The healthcare sector offers opportunities for investment in hospitals, clinics,
medical equipment and supplies, pharmaceuticals, and healthcare services.
7. Information Technology (IT) and Software Development: Ethiopian nationals can invest in IT
services, software development, digital solutions, and related technology businesses.It's important
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to note that the Ethiopian government has been implementing reforms to encourage private
investment and entrepreneurship across various sectors. However, it's advisable for potential
investors to conduct thorough research and seek professional advice before making investment
decisions. Additionally, regulations and investment opportunities may change over time, so it's
essential to stay informed about the latest developments.
1.9.6 Sector Open to The State
In Ethiopia, there are certain sectors that are reserved for state-owned enterprises or government
participation. These sectors are typically strategic in nature and are considered vital for national
development and security. As of my last knowledge update, the following sectors are often open to
the state:
1. Telecommunications: The telecommunications sector in Ethiopia has historically been
dominated by state-owned enterprises. However, recent reforms have opened up the market to
private participation while still maintaining a significant state presence.
2. Energy: The development and management of large-scale energy projects, such as
hydroelectric power plants, are often areas where the state has a significant role.
3. Transport and Infrastructure: Major infrastructure projects, including roads, railways, and
airports, may involve state-owned enterprises or government participation.
It's important to note that Ethiopia has been undergoing economic reforms, and there have been
efforts to liberalize certain sectors to allow for private investment and competition. As a result, the
level of state involvement in specific sectors may change over time. Therefore, it's advisable for
potential investors to seek the most up-to-date information from relevant authorities or legal
advisors before making investment decisions.
1.9.7 Investment Procedure
1. Commissions and Fees
As compensation for the services provided by UFP, LLC (or UFP, which is the owner and operator
of uFundingPortal.com), an issuer shall pay to UFP a commission that is equivalent to 5 percent of
funds raised through the offering upon the offering is closed successfully, prior to disbursing the
funds from the escrow account to the issuer. In addition, an issuer may pay fees to UFP to
reimburse certain expenses related to the offering. The commission should be paid in cash. If the
issuer's securities are paid to UFP, the securities will be of the same class and have the same terms,
conditions and rights as the securities being offered and sold by the Issuer on uFundingPortal.com.
2. Cancellation and Reconfirmation of Investment Commitments Cancellation of investment
commitment. Investors may cancel an investment commitment until 48
hours prior to the deadline identified in the offering materials. However, investors cannot cancel
investment commitments for any reason, once the offering period is within 48 hours to the
deadline, even if they can make investment commitments in that time period.
Material changes. An issuer may make material changes to an offering tlhat include, but are not
limited to, changes in minimum or target offering amount, changes in price of security, or other
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changes. Reconfirmation of investment commitment. If an issuer makes a material change to the
offering, investors will be given five business days to reconfirm their investment commitment. If
investors do not reconfirm, their investment will be canceled and the funds will be returned.
3. Met or Not Met the Target Offering
Target offering is met. Investors will be notified by email when investment commitments reach the
target offering. If investment commitments reach the target offering early, and the offering is
released to the public for minimum of 21 days, the issuer may create a new target deadline at least
5 business days out. Investors will be notified of the new target deadline via email and can then
cancel up to 48 hours before the new deadline. If issuers require oversubscriptions in their
offerings, investors may continue to make investment commitments before reaching the deadline,
even though the target offering is met. Target offering is not met. If the sum of the investment
commitments does not equal or exceed the target offering at the deadline, no securities will be sold
in the offering, investment commitments will be canceled and committed funds will be returned.
4. Open Account, Investment Limits and Receiving Securities Open account. Prior to investing,
making investment commitments, or communicating on the
communication channel on the platform, investors (as well as issuers) must open account on
uFundingPortal.com. Investors must provide information related to income, net worth, and
investmentsmade on other equity funding portals.
Investment limits. The limitation on how much an investor can invest depends on his or her net
worth (excluding house) and annual income. If an investor's annual income or net worth is less
than $100,000,
the investor can invest up to the greater of either $2,000 or 5 percent of the lesser of his annual
income or net worth within a 12-month period. If both an investor's annual income and net worth
are equal to or more than $100,000, the investor can invest up to 10 percent of annual income or
net worth, whichever is less, within a 12-month period. For any investor, the maximum investment
he can make within a 12-month period is $1 00,000. Receiving securities. If an investor does not
cancel an investment commitment before the 48-bour period prior to the deadline, the funds will
be released to the issuer upon closing of the offering as well as the investment commitments made
by investors reach the target offering, and the investor will receive securities in exchange for
investment he or she made. If an investor does not reconfirm his/her investment commitment after
a material change is made to the offering, the investor's investment commitment will be canceled
and the committed funds will be returned.
1.9.8 Business license
What Is a Business License?
A business license is a legal document that permits a business to operate within a specific
jurisdiction. Obtaining a business license typically involves filling out an application and paying a
fee to the local government. The process can vary depending on the type of business you
operate and the location, as there may be different types of business licenses required for different
industries or municipalities.
Since licenses are primarily regulated at both the state and local levels, some states may require all
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businesses that meet certain criteria to hold a license. In other states, businesses may only be
required to have a license if they are located within certain cities or if they perform certain
regulated activities (such as selling insurance). In some areas, businesses may even be required to
hold a general business license and an industry-specific license. It is important to research and
understand the specific requirements for your business to ensure you are operating legally and in
compliance with regulations.Obtaining a business license is a crucial step in legally operating a
business. The specific requirements for obtaining a business license can vary depending on your
location and the type of business you are running. Here are some general steps to help you
understand the process of obtaining a business license:
1. Determine the type of business license you need: Different types of businesses may require
different licenses or permits. Research the specific requirements for your industry and location.
2. Choose a business structure: Depending on your business structure (sole proprietorship,
partnership, corporation, etc.), the requirements for obtaining a business license may vary.
3. Register your business: Before applying for a business license, you may need to register your
business name with the appropriate government agency.
4. Obtain an EIN (Employer Identification Number): If your business has employees or
operates as a corporation or partnership, you will need to obtain an EIN from the IRS.
5. Apply for a business license: Contact your local city or county government office to inquire
about the specific requirements and application process for obtaining a business license. You may
need to provide information about your business, such as its location, ownership, and type of
activity.
6. Pay the necessary fees: There may be fees associated with obtaining a business license. Make
sure to budget for these costs.
7. Renew your license: Business licenses are typically valid for a specific period and may need to
be renewed annually or periodically. Be sure to keep track of renewal deadlines to avoid any
penalties.
It's important to comply with all legal requirements related to operating a business, including
obtaining the necessary licenses and permits. Failure to do so could result in fines or other legal
consequences. Consider consulting with a legal advisor or business consultant for guidance on the
specific requirements for obtaining a business license in your area.
1.9.9 Restrictions on foreign direct investment in ethiopia
Ethiopia has been gradually opening up its economy to foreign direct investment (FDI) in recent
years, but there are still some restrictions and regulations in place that foreign investors need to be
aware of. Some of the key restrictions on foreign direct investment in Ethiopia include:
1. Restricted Sectors: Certain sectors of the Ethiopian economy are restricted or partially closed
to foreign investment. These include banking, insurance, telecommunications, and retail trade.
Foreign investors may need to partner with local Ethiopian companies or meet specific
requirements to invest in these sectors.
2. Ownership Limits: In some sectors, there are limits on the percentage of foreign ownership
allowed in a company. For example, in the banking sector, foreign investors are limited to a
maximum ownership stake of 25%.
3. Investment Permit: Foreign investors are required to obtain an investment permit from the
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Ethiopian Investment Commission (EIC) or the relevant regional investment office before starting
their business activities in Ethiopia. The permit is necessary for registering the business and
obtaining other licenses.
4. Land Ownership: Foreign individuals and companies are generally not allowed to own land in
Ethiopia. They can lease land for a specified period, typically up to 99 years, but ownership
remains with the government.
5. Employment Restrictions: Foreign companies operating in Ethiopia are required to prioritize
the employment of Ethiopian nationals. There are also regulations governing the employment of
expatriates, including work permit requirements.
6. Sector-Specific Regulations: Different sectors may have specific regulations and requirements
that foreign investors need to comply with. For example, the telecommunications sector has its
own regulatory framework and licensing requirements.
7. Exchange Control Regulations: Ethiopia has exchange control regulations that govern the
repatriation of profits and capital by foreign investors. Investors may face restrictions on
converting and transferring funds out of the country.It is important for foreign investors to
carefully review and understand the regulations and restrictions related to foreign direct
investment in Ethiopia before making any investment decisions. Working with legal advisors,
business consultants, or local authorities can help navigate the complexities of investing in
Ethiopia and ensure compliance with all relevant laws and regulations.
1.10 Accounting entries and implications on report (general purpose
and for tax purpose) investment in ethiopia
When making an investment in Ethiopia, there are accounting entries that need to be recorded to
reflect the transaction accurately on financial statements. The accounting treatment of investments
in Ethiopia can have implications for both general-purpose financial reporting and tax reporting.
Here are some key accounting entries and implications for investments in Ethiopia:
1. Initial Investment Entry:- When making the initial investment, the entry would typically
involve debiting the investment account (e.g., equity method investment or available-for-sale
securities) and crediting the cash account.
- For tax purposes, the initial investment may not be deductible immediately, depending on the tax
regulations in Ethiopia.
2. Equity Method Investment:- If the investment in Ethiopia involves significant influence over
the investee, the equity method of accounting is used. Under this method, the investor's share of
the investee's profits or losses is recorded on the investor's income statement.
- The equity method requires adjustments to the investment account based on the investor's share
of the investee's net income or loss.
- For tax purposes, the investor may need to report its share of the investee's income or loss for tax
calculation.
3. Available-for-Sale Securities:- If the investment in Ethiopia is classified as available-for-sale
securities, any changes in fair value are recorded in other comprehensive income (OCI) until the
security is sold.
- For tax purposes, the unrealized gains or losses on available-for-sale securities may not be
recognized until realized.
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4. Impairment Losses:- If there is an indication of impairment in the value of the investment in
Ethiopia,impairment losses should be recognized in the investor's financial statements.
- Impairment losses may impact both general-purpose financial reporting and tax reporting, as
they reduce the carrying amount of the investment.
5. Dividends Received:- Dividends received from the investee in Ethiopia are typically recorded
as income in the investor's financial statements.
- The treatment of dividends for tax purposes may vary based on Ethiopian tax regulations.
6. Foreign Exchange Gains/Losses:- Fluctuations in foreign exchange rates can impact the
carrying value of investments denominated in a foreign currency. Any foreign exchange gains or
losses should be recorded accordingly.
- For tax purposes, foreign exchange gains or losses may need to be considered when calculating
taxable income.
7. Reporting and Disclosure:- Proper disclosure of investments in Ethiopia is essential in both
general-purpose financial statements and tax returns. Additional disclosures may be required to
provide information about the nature and risks associated with the investments.It is crucial for
companies investing in Ethiopia to work closely with their accounting and tax advisors to ensure
proper accounting treatment and compliance with Ethiopian regulations. Understanding the
implications of accounting entries on financial reporting and tax reporting is essential for
accurately reflecting the investment's impact on the company's financial position and performance.
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