Market Overview

Mexico

Introduction Mexico stands as one of Latin America’s largest and most dynamic economies, offering a strategic geographical location, abundant natural resources, and a skilled workforce. As the 13th largest economy in the world and the 2nd in Latin America, Mexico offers a strategic location with access to both the Pacific and Atlantic Oceans, making it a crucial hub for international trade. With a population of over 130 million and proximity to the United States, Mexico is a key player in global trade and a gateway to the Americas. The country’s extensive network of free trade agreements, including the United States-Mexico-Canada Agreement (“USMCA”), positions it as a competitive destination for international investment. Furthermore, its diverse economy encompasses strong manufacturing, energy, tourism, and agriculture sectors, making it an attractive landscape for foreign businesses. Despite its potential, doing business in Mexico requires navigating its unique legal, regulatory, and cultural frameworks. Mexico’s legal framework continually evolves to accommodate its growing economy and international partnerships, making it an attractive destination for foreign investors. This article highlights essential aspects for investors, including corporate structures, investment protections, and the impact of recent legal reforms.   Most Common Companies and Foreign Investments Mexico’s corporate landscape offers various legal entities for conducting business, the most common being the Sociedad Anónima (S.A.) and the Sociedad de Responsabilidad Limitada (S. de R.L.). The S.A. is akin to a corporation, while the S. de R.L. resembles a limited liability company. The choice between an S.A. and an S. de R.L. depends on the specific goals and needs of the business. An S.A. might be better suited for larger enterprises seeking to attract significant investment. At the same time, an S. de R.L. could be more appropriate for smaller, closely-held businesses prioritizing operational flexibility and control. Both structures offer the benefit of limited liability, protecting shareholders’ assets from business liabilities. Mexico has implemented a robust legal framework to promote and protect foreign investments. This framework ensures compliance with international standards while fostering a competitive economic environment. This regime balances investor rights with the state’s authority to regulate its economy. (i) Investment Protection and Foreign Direct Investment (FDI) Regime Investment protection in Mexico is primarily derived from its extensive international treaties, such as the Bilateral Investment Treaties (BITs), and free trade frameworks, such as the already mentioned United States-Mexico-Canada Agreement (USMCA). These agreements typically include provisions for non-discrimination, fair and equitable treatment, protection from expropriation without compensation, and access to investor-state dispute settlement mechanisms. At the domestic level, the Foreign Investment Law (Ley de Inversión Extranjera) ensures that foreign investors enjoy equal treatment as nationals in most sectors, with specific exceptions outlined under the law. In this regard, even though Mexico welcomes FDI across various sectors, there are certain industries that remain restricted or regulated for national security or strategic interests. Foreign ownership limitations exist in areas such as energy, telecommunications, and aviation. For instance, specific sectors, such as oil exploration or radio broadcasting, have historically been reserved for the state or limited to a capped percentage of foreign ownership. Mexico’s FDI regime provides that transactions in certain industries and those resulting in foreign capital acquiring over 49% of Mexican entities with high asset value require the authorization of the National Commission of Foreign Investments, which looks into the transactions’s labor, environmental, economic and scientific impact. Further, Mexico has established mechanisms, including, under the National Registry of Foreign Investments (Registro Nacional de Inversiones Extranjeras, RNIE) to facilitate and track FDI, which oversees compliance and reporting requirements for foreign investors. Additionally, reforms in the energy and infrastructure sectors have attracted significant FDI, opening previously restricted areas to private and foreign participation. These efforts have contributed to Mexico’s position as a leading recipient of FDI in Latin America. (ii) Antitrust Regulations Currently, the Federal Economic Competition Law governs Mexico’s antitrust framework (Ley Federal de Competencia Económica), enforced by the Federal Economic Competition Commission (COFECE) and the Federal Teñecommjnicayions Institute (IFT). COFECE and the IFT are autonomous authorities that promote free competition and prevents monopolistic practices. The law prohibits abuse of market dominance, cartels, and other anti-competitive behavior. Companies considering mergers or acquisitions that meet certain thresholds must also notify COFECE (or the IFT, if the transaction involves the telecommunications or broadcasting industries) for approval to ensure they do not harm market competition. In December 2024, Mexico enacted a significant constitutional amendment aimed at streamlining government agencies, which directly impacts the country’s antitrust regulatory framework. This reform involves the dissolution of COFECE and the IFT, with their responsibilities being consolidated into a single economic competition authority under the Ministry of Economy (Secretaría de Economía). This new body will possess its own assets, and operate with technical and operational independence. However, this new period also brings certain level of uncertainty and some transition challenges, since there is also a risk that increased political oversight under the Ministry of Economy might introduce delays or affect transparency. Therefore, it will be important to monitor how effectively this consolidated authority addresses antitrust approval procedures. The reform mandates the Mexican congress to develop secondary laws on competition, free market access, telecommunications, and broadcasting and to define the structure and powers of the new authority, but fails to set a deadline for this to happen. COFECE and the IFT will disappear 180 after the enacting of the new antitrust statute. During this transitional period, COFECE and IFT will continue their operations until the new framework enters into force.   Investment Opportunities: Main Sectors and Key Investors Mexico presents vast opportunities for investment across several sectors: Energy. Despite recent reforms to strengthen state control, private investment in renewable energy and oil and gas remains significant. In particular, Mexico’s solar and wind energy potential has attracted global players seeking to develop sustainable projects. Manufacturing. As a hub for automotive and aerospace industries, Mexico benefits from nearshoring trends and advanced industrial parks. The USMCA has further boosted the competitiveness of Mexican manufacturing by ensuring stable trade conditions with the United States and Canada. Technology. The country’s growing digital economy and startup ecosystem attract venture capital and innovation-focused investors. Initiatives such as fintech regulations and support for tech incubators highlight Mexico’s commitment to fostering technological growth. Key investors in Mexico include the United States, Canada, and Spain, driven by proximity, trade agreements, and historical ties. China has also emerged as a significant player in infrastructure and technology projects.   Trends in Capital: Mexico-Spain Interconnection The historical, cultural, and economic ties between Mexico and Spain have fostered a robust bilateral relationship, making Spain one of Mexico’s most significant foreign investors. Spain consistently ranks among the top foreign direct investors in Mexico. According to recent data, Spanish companies account for over 12% of total FDI inflows to Mexico, positioning Spain as the second-largest European investor after the Netherlands. This relationship is particularly evident in the energy, telecommunications, and infrastructure sectors, where Spanish companies like Iberdrola, Telefónica, and Acciona have a strong presence. Likewise, Mexican multinationals are expanding into Spain, particularly in the food and beverage, cement, and telecommunications sectors (e.g. Grupo Bimbo, Cemex, and Grupo Carso). Below are a few examples of the role of Spanish companies in Mexico: As for the energy sector, Spanish companies have played a significant role in Mexico’s renewable energy sector. Firms like Iberdrola, Acciona, and Naturgy have been instrumental in developing wind and solar energy projects nationwide. The 2013 Energy Reform opened opportunities for Spanish energy companies to participate in electricity generation and transmission projects. However, the recent policy shifts under Mexico’s current administration, prioritizing state-owned companies like CFE and PEMEX, have raised concerns about regulatory changes and contract uncertainty among these investors. In this regard, if the new administration is willing to adopt greener policies, this would benefit the Spanish companies in Mexico. As for banking and financial services, Spanish banks such as BBVA and Santander dominate Mexico’s financial services landscape. In fact, BBVA Mexico is the largest bank in Mexico, controlling a significant market share. These institutions have been critical in financing infrastructure projects and providing financial services to Mexican consumers and businesses. As for the infrastructure sector, Spanish companies have also actively participated in large-scale infrastructure projects in Mexico. ACS Group, Ferrovial, and FCC have been involved in highway construction, airport development, and other critical projects.   Energy Reform and Trends in the Energy Sector Mexico’s energy sector has undergone significant transformations in recent years, primarily driven by legal reforms to reshape the industry’s regulatory framework. These reforms, initiated under the 2013 Energy Reform and further influenced by recent administrations, have profoundly impacted domestic and foreign investment in the sector. The 2013 Energy Reform opened the oil, gas, and electricity markets to private investment for the first time in decades, ending a 75-year monopoly held by state-owned companies Pemex (Petróleos Mexicanos) and CFE (Comisión Federal de Electricidad). This reform encouraged FDI and introduced mechanisms such as production-sharing contracts, joint ventures, and competitive electricity markets. It aimed to boost efficiency, foster competition, and attract cutting-edge technology to enhance exploration, production, and distribution capabilities. However, the legal landscape shifted significantly under President Lopez Obrador’s administration and will continue to change during President Sheinbaum’s term. The government has pursued an agenda focused on energy sovereignty, rolling back some key aspects of the previous reforms. The most notable proposal, colloquially called the “Energy Counter-Reform,” seeks to strengthen PEMEX and CFE by prioritizing their roles in the energy market and limiting private-sector participation. On February 26, 2025, the Mexican Senate approved an energy reform that strengthens the dominant role of Pemex and CFE while allowing limited private sector participation. The goal is to achieve energy self-sufficiency in Mexico. The reform passed with 85 votes in favor, 39 against, and one abstention, and will now move to the Chamber of Deputies for final approval. (i) Pemex’s increased role Pemex gains more autonomy and preferential conditions to collaborate with private companies in investment projects while maintaining control over them. (ii) CFE’s market dominance The CFE must generate at least 54% of Mexico's electricity, prioritizing its supply in the power grid. The system must operate under reliability and continuity principles, promoting a transition to renewable energy. (iii) State-controlled energy sector This reform is part of President Sheinbaum’s broader energy policy, aligning secondary laws with constitutional changes made in October 2024. Pemex and CFE will be reclassified as public state-owned companies rather than productive state enterprises, shifting the focus from profitability to social benefit. (iv) Dissolution of independent regulators The Energy Regulatory Commission (CRE) and the National Hydrocarbons Commission (CNH) will be eliminated. Their responsibilities will be transferred to the newly created National Energy Commission (CNE), which will be under the direct control of the Ministry of Energy. (v) Private sector participation Private companies will still be allowed in power generation but under stricter regulations, ensuring the CFE maintains a majority stake in the sector. Specific models for distributed generation and self-supply will be introduced, with capacity limits and simplified permitting processes.   Other Recent Legal Reforms in Mexico (i) Judicial The judicial reform in Mexico has introduced a controversial proposal related to the concept of “voto popular” (popular vote), which aims to increase democratic participation in the judiciary. Under this approach, certain high-level judicial positions, including Supreme Court justices and electoral tribunal judges, would be elected directly by citizens rather than appointed through the current process, which involves nominations by the president and approval by the Senate. The reform is intended to make the judiciary more accountable to the public and reduce perceived elitism or political bias in judicial appointments. Proponents argue that it democratizes the justice system, giving citizens a direct role in shaping it. In fact, part of the justification for the reform is to grant legitimacy to judges through popular vote. However, critics warn that “voto popular” could politicize the judiciary, undermining its independence and impartiality, as judicial candidates might feel pressured to campaign and make decisions based on public opinion or political interests rather than the rule of law. This aspect of the reform has sparked significant debate, with concerns about its long-term implications for judicial autonomy in Mexico. Lastly, this judicial reform has already changed the way the “jurisdiction” clause is negotiated in M&A deals and, more generally, in legal contracts. Arbitration or a jurisdiction outside of Mexico will generally prevail as the dispute resolution mechanism for transactions with a nexus to Mexico, primarily due to the legal uncertainty introduced by this reform. (ii) Labor Mexico’s labor reform introduced significant changes, including the implementation of independent labor courts and a shift toward collective bargaining. Unlike the United States, employment in Mexico is not “at will,” offering workers greater job security and limiting unjustified dismissals. Employers must also navigate stricter compliance requirements related to outsourcing and workplace equality, reflecting the government’s focus on improving labor standards. (iii) Tax Mexico’s tax regime includes corporate income tax at 30% and a value-added tax (VAT) of 16%. Recent measures focus on combating tax evasion and implementing stricter reporting obligations for multinational enterprises under OECD guidelines. Additionally, tax incentives are available for companies investing in priority sectors such as renewable energy and technology, further encouraging economic growth.   Potential U.S. Tariffs ​In February 2025, President Donald Trump announced a 25% tariff on all imports from Mexico, citing concerns over illegal immigration and drug trafficking, particularly fentanyl. These tariffs were initially set to take effect on February 4 but were postponed to March 4 following negotiations with Mexican President Claudia Sheinbaum, who agreed to deploy 10,000 National Guard troops to the northern border and extradite cartel leaders to the U.S. Despite these efforts, the tariffs were implemented on March 4, prompting Mexico to prepare retaliatory measures. Subsequently, the U.S. granted a one-month reprieve for goods compliant with the United States-Mexico-Canada Agreement (USMCA), delaying tariffs on these products until April 2. This ongoing trade tension has raised concerns about potential economic impacts on both countries, including disruptions to supply chains and increased consumer prices.   Final Remarks and Challenges Ahead Mexico’s strategic advantages and economic potential make it a compelling destination for foreign investors. However, challenges remain, including regulatory uncertainty, corruption, and security concerns. Investors must stay informed about legal developments and engage local experts to navigate these complexities effectively. As Mexico continues to adapt to global economic trends and implement structural reforms, opportunities abound for those prepared to embrace its dynamic business environment. The country’s resilience and adaptability ensure its place as a key player in the international investment landscape. Addressing issues such as infrastructure gaps, environmental sustainability, and workforce development will be crucial for maintaining Mexico’s competitive edge. Businesses can thrive in this vibrant and evolving market with the right strategies and partnerships.

Ethiopia

Country overview Name - Federal Democratic Republic of Ethiopia Capital city - Addis Ababa Population (2021) - 120,283 million (World Bank) Languages spoken (three most widely spoken) - Amharic, Afan Oromo, Somali Neighbouring countries - Somalia, Kenya, South Sudan, Sudan, Eritrea, Djibouti Economy GDP – USD111.27 billion (2022) (World Bank) Net inflow of FDI (2021) – USD 4.26 billion (World Investment Report) Top three exports by value (2022) – gold, coffee, live animals, oil seeds, flowers. (Trading Economics) Top three import sources (2022) – China, Saudi Arabia and United States. (Trading Economics) Top three export destinations (2022) – Switzerland, Somalia and China. (Trading Economics) Currency - Ethiopian Birr (ETB) – 1 USD = 545.8 ETB as at August 2, 2023   1. Current Economic Conditions 1 Recent legislation reforms Since 2018, Ethiopia has undergone several holistic policy and legislative reforms. In light of this, several laws that have aimed at easing doing business have been enacted. The enactment of the new Commercial Code; Movable Property Security Rights Proclamation; Public-Private-Partnership Proclamation; Capital Market Proclamation; the revision of different investment regulations and the Ethiopian Civil Societies Proclamation, as well as the ratification of the New York Convention are among many others.   1.1 New Capital Market Law The Ethiopian Government passed the Capital Markets Proclamation No. 1248/2021 to set up a local capital market with a clear set aim of developing the national economy through mobilizing capital, promoting financial innovation, and sharing investment risks. The Government has also set up a project team that has been working to draft proper directives for approval by the Board of Directors of the Capital Market Authority to supply detailed guidance and requirements to enable the effective implementation of the Capital Market Proclamation. Last January, the Ethiopia Capital Market Authority (ECMA) disclosed that it has finalized preparations to start operation within the coming two years.   1.2 Public Enterprises Privatization Law According to this 2020 Proclamation, privatization is a transaction that results in either the sale of assets or share capital of a public enterprise in full or in part to private ownership and control. The Proclamation considers extensively pre-privatization activities, public enterprise restructuring, and other activities before privatization. Essentially, the Proclamation provides for the procedure of conversion of a public enterprise to a share company, valuation of public enterprises, and issues relating to post-privatization   1.3 Telecom and Mobile Money Liberalization Under the new investment law, the telecom sector has been liberalized for foreign participation. Following such liberalization, the Ethiopian Communications Authority issued a bid for a license to engage in the telecom sector. Safaricom Consortium has won the bid and successfully launched in the Ethiopian market. Further, a second bid for a license to enter into the Ethiopian telecom market has been issued. The government has also decided to sell 49% of its stake in its ownership of Ethio- telecom, a government-owned telecom   1.4 New Investment Law On 30 January 2020, Ethiopia enacted a New Investment Proclamation. The major development in this new investment law is the shift from the positive listing of areas allowed for foreign investors to a negative listing which is broader. The government has also opened up previously closed sectors to foreign investment. In addition to this, these legislations lay down procedures for handling investors’ grievances and for resolving investor–state disputes, principally through domestic institutions.   1.5 Revision of the 1960 Commercial Code Revising the old Commercial Code that has been in effect since 1960 has brought one of the major legislative changes.  In this new Code liability limited partnership (LLP) has been recognized as one form of business organization.   1.6 Ratification of the 1958 New York Convention Ethiopia ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2020. The Convention applies to arbitration agreements and arbitral awards made only after Ethiopia acceded to the Convention.   2. Business vehicles/structures for doing business Introduction Business can be set up in the form of sole proprietorship, business organisations incorporated in Ethiopia (a one member private limited company, a private limited company, a share company or partnerships), branch of a foreign company, public enterprises, and cooperative societies. Partnerships are associations of persons whose liability is unlimited (except limited partners in limited partnerships and partners of limited liability partnership). Limited liability companies could take the form of a one member private limited company, a share company or a private limited company.   Presence of Foreign Entities Incorporating a subsidiary company and opening a branch of a foreign company are the main vehicles for foreign entities to trade in Ethiopia. Foreign companies may also promote their business in Ethiopia by opening a commercial representative office. A branch of a foreign company is treated as an extension of its parent foreign company. In contrast, a subsidiary of a foreign company is treated as separate from its parent company. Foreign investors that come to operate in Ethiopia by winning international bids can also set up a project office to perform a specific contract.   Registration requirements and level of protection offered to share-holders of the various business vehicles Companies A one member private limited company is a limited liability business organisation incorporated by a unilateral declaration of a single shareholder. This form of legal entity was recognized for the first in 2021 by the Revised Commercial Code of Ethiopia. A share company and a private limited company are associations of capital formally established by the signing of a memorandum of association and articles of association. A private limited company and a share company require a minimum of two and five shareholders respectively. The maximum number of shareholders in a private limited company cannot exceed 50. Once shareholders have signed the memorandum and articles of association before a public notary and the same are deposited in the commercial register, the company becomes a legal person. After registration, obtaining a business license is necessary to start business operations. Companies are legal persons whose liabilities are met by their assets only. Shareholders of companies are liable only to the extent of their contributions. Private limited companies are not subject to detailed regulations when compared to a share company, which the law regulates strictly. A private limited company is more of a family company while a share company is a public company. A share company is required to have a board of directors and auditor/s and it should also conduct a general meeting of shareholders at least once a year. A private limited company is not required to have an auditor unless the number of its shareholders exceeds 10 or its total assets exceeds 10 million Ethiopian Birr. A private limited company cannot issue transferable securities like bonds, debentures, while a share company can issue transferable securities.   Branch of Foreign Entities Foreign incorporated companies can register a branch in Ethiopia to undertake business activities. The requirements for registering a branch of a foreign company include the submission of: notarised and authenticated minutes of a resolution passed by an authorised organ of a foreign business organisation authorising the opening of a branch in Ethiopia Certificate of incorporation of a foreign parent company Copies of memorandum and articles of association or similar documents of the business organisation. There are four types of partnership recognised under Ethiopian law. These are limited liability partnership, general partnership, limited partnership and joint venture. Partnerships should be formed by a partnership agreement and registration is a prerequisite for a partnership to obtain legal personality. However, these requirements do not apply to joint ventures, which have no legal personality.   Sole Proprietor A sole proprietor is a person who conducts a business in his/her own name with unlimited liability. For a sole proprietor to operate a business, he/she has to obtain a commercial registration certificate and a business license.   Trade Representative Office (TRO) Foreign investors who are not interested in trading activities can register a commercial representative (liaison) office and appoint a commercial representative to undertake pro - motional activities in Ethiopia. Before starting its operation, the commercial representative should be registered with the Ministry of Trade and Regional Integration and get a certificate of commercial representative. To secure the certificate, among other things, a minimum of USD100,000 has to be brought into Ethiopia, which is expected to cover salaries and operational expenditures of the office for a year. After the issuance of a valid certificate, a commercial representative can promote the products and services of the principal foreign company, study projects that will enable the principal to make investments in Ethiopia and to promote export products of Ethiopia in the country of origin of the principal company.   Registration requirements Registration is a requirement for companies to do businesses in Ethiopia. Operating a business without obtaining a business license entails administrative and criminal liabilities.   Business rights and regulatory environment Licenses and regulatory Requirements to trade Various kinds of permits, registrations and licenses are required to operate business in Ethiopia. These include investment permit, business license, commercial and tax registrations. No person may carry out a commercial activity without obtaining a valid business license.   Anti-money laundering, anti-bribery and corruption The Prevention and Suppression of Money-Laundering and Financing of Terrorism Proclamation No. 780/2013, the Criminal Code of 2004, Prevention and Suppression of Terrorism Crimes Proclamation No.1176/2020, Corruption Crimes Proclamation No. 881/2015, Revised Anti-Corruption Special Procedure and Rules of Evidence (Amendment) Proclamation No. 882/2015, Financial Intelligence Centre Establishment Council of Ministers Regulation No. 171/2009, Revised Federal Ethics and Anti-Corruption Commission Establishment (Amendment) Proclamation No. 883/2015 and the National Payment System Proclamation No. 718/2011 are major laws that regulate crimes related to money laundering, bribery and corruption in Ethiopia.   Competition The Trade Competition and Consumers' Protection Proclamation No. 813/2013 aims to promote competitive practices in the local market, and eliminate or prevent anti-competitive and unfair trade practices. It also regulates anti-competitive practices such as price-fixing, collusive tendering, market and consumer segregation, refusals to deal to sell or render services, practices intended to eliminate competitors, and practices regarded as abuse of dominance.  The threshold for a merger notification is 30 million ETB. Regarding mergers, the law requires the consent of shareholders and the amendment of memorandum and articles of associations for mergers to take place. Two or more firms may merge, either by taking over or by the formation of a new firm. A decision to merge shall be taken by each of the firms concerned. Special meetings of shareholders of different classes or meetings of debenture holders shall approve the taking over or being taken over. The claims and liabilities of the firms that have been merged shall pass to the firm taking over as a result of the merger.   Consumer protection The Trade Competition and Consumers' Protection Proclamation No. 813/2013 established the Trade Competition and Consumer Protection Authority. However, Trade Competition and Consumer Protection Authority was dissolved and its mandates has been transferred to the Ministry of Trade and Regional Integration since September 2021. Under this Proclamation, consumers have the right to be provided with accurate information on the quality and type of goods or services, and to claim for remedies in relation to problems associated with such transactions.   Data protection and privacy Ethiopia does not have a comprehensive law, which is specifically designed to regulate privacy and data protection issues. However, there are a set of rules contained in various pieces of legislation that guarantee the right to privacy in an indirect fashion.   Environmental law The law provides that all investors have an obligation to observe social and environmental sustainability values including environmental protection standards and social inclusion objectives in carrying out their investment projects. The specific laws on environmental protection in Ethiopia are the Environmental Pollution Control Proclamation No. 300/2002 and the Environmental Impact Assessment Proclamation No. 299/2002. Proclamation No.300/2002 imposes obligations on companies to prevent environmental pollution in the course of their operations and penalizes failure to do so.   Intellectual property (IP) Ethiopia acceded to the Convention establishing the World Intellectual Property Organisation (WIPO) in 1998. The Ethiopian Constitution of 1995 provides the foundation for protection of intellectual property rights. Additionally, the Inventions, Minor Inventions and Industrial Designs Proclamation No. 123/1995, the Copyright and Neighbouring Rights Proclamation No. 410/2004 (as amended by Proclamation No. 872/2014) and Trademark Registration and Protection Proclamation No. 501/2006 are in place to protect intellectual property rights.   Land rights The Constitution of Ethiopia provides that ownership of land belongs to the state and the nations, nationalities and peoples of Ethiopia. The Constitution similarly provides that the Government will ensure the right of private investors to use land on a lease holding basis. The Urban Land Lease Proclamation of 2011 gives investors the right to use of land on leasehold for periods of 15 years up to 99 years. The land cannot be mortgaged or sold, but the lease value of the land and the fixed assets thereon may be mortgaged or transferred to third parties. Regional governments and municipal administrations are authorised to allocate rural and urban land on rent lease in accordance with their respective laws.   Employment and labour relations Currently, the principal legislations that regulate private employment relationships in Ethiopia include the Labour Proclamation (Proc. No. 1156/2019), the 1960 Ethiopian Civil Code) and the Private Enterprise Employees Social Security Proclamation (Proc. No. 715/2011), as amended. These sets of law are complemented by different decisions of the Cassation Division of the Federal Supreme Court. Ethiopian labour law classifies employment relationships into managerial and non-managerial employment. The Labour Proclamation No. 1156/2019 governs non-managerial employees, and the Ethiopian Civil Code applies to managerial employees. The Proclamation defines ‘Managerial Employee’ as an employee who, by law or delegation, of the employer, is vested with powers to lay down and execute management policies, and depending on the type of activities of the undertaking, with or without the aforementioned powers, an employee who is vested with power to hire, transfer, suspend, layoff, dismiss, or assign employees, and includes a legal service head who recommend measures to be taken by the employer regarding such managerial issues, using his independent judgement, in the interest of employer.   Employment of foreign nationals Under Ethiopian law, employers can employ expatriates only for positions that could not be filled by Ethiopian nationals. Foreign employers may, however, employ expatriates for top management positions without any restriction.   Corporate governance Laws governing corporate governance The Ethiopian Commercial Code of 2021, the Banking Business Proclamation No. 592/2009, Bank Corporate Governance Directives No. SBB/62/2015, the Insurance Business Proclamation No. 746/2012 and the Commercial Registration and Business Licensing Proclamation No. 980/2016 are the principal sources on corporate governance.   Banking and finance The Commercial Code of 1960 (Book IV), the National Bank of Ethiopia Establishment Proclamation No. 591/2008, the Banking Business Proclamation No. 592/2008 (as amended), the Insurance Business Proclamation No. 746/2012, the Capital Goods Leasing Business Proclamation No. 103/1998 (as amended), the Registration and Supervision of Capital Goods and Capital Goods Leasing Agreement Regulation No. 309/2014, the Micro-Financing Business Proclamation No. 626/2009, and different directives of the National Bank of Ethiopia regulate the financial services sector in Ethiopia. Financial services are reserved for Ethiopian nationals and foreign nationals of Ethiopian origin. Foreign financial institutions are not allowed to operate in Ethiopia and foreign nationals and companies are prohibited from owning shares of local financial institutions. A foreign company may open a local bank account through its subsidiary or branch or representative offices duly registered in Ethiopia.   Foreign exchange regulations Ethiopia has a number of exchange control directives issued by the national bank of Ethiopia at various times. All capital brought in and invested in Ethiopia should be registered by the Ethiopian Investment Commission and the National Bank of Ethiopia. Technology transfer agreements should also be registered with the Ethiopian Investment Commission to avoid difficulties during repatriation. It is very important to comply with the requirements set forth above as subsequent requests for repatriation of profits and dividends and other payments depend in large part upon compliance with this requirement. Foreign investors having business in Ethiopia have the right to repatriation of profits and dividends accruing from their investments, principal and interest due on foreign loans, payments related to technology transfer, payments related to collaboration agreements, capital gains proceeds from transfer of shares or transfer of partial ownership to a domestic investor, proceeds from the sale or liquidation of the business and compensation paid to an investor under the investment laws.   Private equity The law requires that foreign investors should obtain approval from the Ethiopian Investment Commission in order to acquire shares of existing companies. The approval of the Ministry of Trade and Regional Integration (the successor of Trade Competition and Consumers Protection Authority on merger related issues) is also a requirement.   Tax, duties and tariffs The principal taxes currently in place are corporate income tax, value added tax (VAT), customs duties and excise taxes.  A number of final withholding taxes are imposed on income such as income from employment, dividend, and royalties. Ethiopia follows a classical corporate income taxation system in which tax is imposed both at corporate and shareholder level. Corporate income tax rate is 30% and dividend tax rate is 10%. All entities (except those currently enjoying income tax holidays) that carry on business or trade are subject to corporate tax. A business or a trade is defined as any industrial, commercial, professional or vocational activity or any other activity recognised as trade by the Commercial Code of Ethiopia and carried on by any person for profit. Partnerships are treated as entities for tax purposes and are therefore subject to corporate income tax. Distribution of dividends is subject to 10% withholding tax at the time of declaration of dividends by companies. Companies are liable for withholding of dividend tax regardless of whether they distribute dividends or not unless they transfer the dividends declared to increase their capital within the time limit set down in directives issued by the Tax Authorities. Interest on bank deposits is subject to 5% withholding tax, which is final. Interest paid on loan from foreign lender recognised as a financial institution by the National Bank of Ethiopia is subject to a 10% withholding tax, which again is final. The borrower in Ethiopia must withhold the 10% tax on a foreign loan in order to obtain deduction of the interest in Ethiopia. The withholding tax rates may be reduced by the provisions of an applicable double taxation treaty for non-resident shareholders but these reductions are subject to taxpayers meeting beneficial ownership limitations. Ethiopia has ratified double taxation treaties with countries like UK, France, Israel, Romania, Russia, Turkey, South Africa, Tunisia, Algeria, Yemen and Czech Republic. Capital gains tax applies to transfers of shares, bonds and buildings held for business purposes. The capital gains tax rate on transfer of shares or bonds is 30% of the gain. The capital gains tax on transfer of buildings held for businesses is 15% of the gain. VAT is chargeable on the supply of goods or services by registered suppliers. Suppliers are normally required to register for VAT if their annual turnover of supply exceeds one Million Ethiopian Birr. Some supplies are exempted from the VAT. These include financial services, educational, health and transportation services. Some supplies, most notably exports and international transport services, are zero-rated under the VAT regime of Ethiopia. Import duties are payable on imports by all persons and entities which have no duty-free privileges. The rate of customs duties ranges from 0% to 35%. Other taxes may also be imposed on imports: Excise duties on selected goods (e.g., tobacco); surtax on many imports; value added tax (15%) and an advance payment of corporate tax (3%). Most export products and services from Ethiopia are free from export tariffs. However, some exports from Ethiopia such as raw hides and skins are subject to export duties. Ethiopian investment and tax laws grant tax incentives in the form of duty free privileges for imports, income tax holidays, and in some cases income tax deductions. The tax incentives depend on the type, size and location of investments.    Charities and societies The major law that governs civil society organizations (CSOs) in Ethiopia is the Civil Society Organisations Proclamation No. 1113/2019 (the ‘Proclamation’). There are major aspects and significant developments of this law as compared to the previous law and regime which placed excessive restrictions.   Mining and energy Ethiopian Constitution Provides for State form of land and resource tenure. The fast-growing mining sector, primarily as a result of the foreign direct investment, in Ethiopia, has necessitated the revision of antiquated mining laws that were in place. Currently, there are a number of laws that govern mining operations, petroleum operations, and transaction in precious minerals. The laws that currently regulate the industry include: Mining Operations Proclamation No. 678/2010; Mining Operation (Amendment) Proclamation No. 816/2013; Petroleum Operations Proclamation No. 295/1996; Mining Operations Regulation No. 423/2018 and Transaction of Precious Minerals Proclamation No. 651/2009. The laws regulate the requirements and procedures for acquiring the different licenses (Reconnaissance, Exploration and Mining) that are required to undertake various activities associated with mining and minerals. The rights and duties that these licenses carry are also dealt with under these laws. These laws task, among others, the FDRE Ministry of Mines and Petroleum and the respective regional bodies to license and supervise entities that are involved in the mining industry. Investments in the Ethiopian energy sector are regulated principally by the Energy Proclamation No. 810/2013 (as amended by Proclamation No 1085/2018), the Energy Regulation No. 447/ 2019, Geothermal Resources Development Proclamation No. 981/2016 (as amended by Proclamation No. 1204/2020) and Regulations No. 453/2019, EEA Directive No. 418/2020 and Ethiopian Energy Authority Establishment Regulation No. 308/2013. Pursuant to the Investment Proclamation No. 1180/2020, the business of generation of electricity as well as off- grid transmission and distribution are open to foreign investors either to carry out the investment in a solely foreign- owned entity or through a joint venture with a local company or the government.   Real estate and conveyancing Ethiopia's current investment policy not only encourages foreign investment in the real estate sector but it is 100% free and suitable for foreigners to enter into the sector. Nonetheless, there are no duty free privileges or any other incentives provided by the government to the sector.   Legal framework The 1960 Civil Code of Ethiopia, Urban Land Lease Holding Proclamation No. 721/2011, Investment Proclamation No. 1180/2020, Ethiopian Building Proclamation No. 624/2009, Building Regulation No. 243/2011 and the Building Directive, are the principal laws that govern land and real estate matters in Ethiopia. However, Real estate is one of the under regulated sectors in Ethiopia. Since there is no single law that specifically applies to the sector, there exists a huge gap in laws that govern the area. A draft proclamation that provides for Real Estate Development, marketing and valuation has been in the in the pipeline for quite some time now. The Urban Land Lease Holding Proclamation of 2011 gives investors the right to use of land on leasehold for periods of 15 years up to 99 years. The period of urban land lease is currently 99 years for residential purposes and 60 years for land acquired for commercial purposes. The land cannot be mortgaged or sold, but the lease value of the land and the fixed assets thereon may be mortgaged or transferred to third parties. Regional governments and municipal administrations are authorised to allocate rural and urban land to investors on lease in accordance with their respective laws.   Requirements An investor who wants to develop real estate in Ethiopia must first secure an investment permit from the Ethiopian Investment Commission provided that it fulfils all requirements such as proof of a minimum capital of USD200,000 for a wholly foreign owned investment and USD150,000 for a joint investment of foreign and domestic investors, and payment of registration and permit fees. Any foreign real estate developer may acquire land in Ethiopia through lease from the government or a private contract. An investor who acquires land under a lease has to enter into a land lease agreement with the Government. Once the necessary permits and certificates have been acquired, an investor must then apply for and be issued with a construction permit from the competent office, on presentation of documents such as the proposed building plan and a land lease certificate.   Exiting an investment Disposal of investment Shareholders can dispose their shares in companies through direct sale to willing third party purchasers. There is also a possibility under the Ethiopian Commercial Code for companies to redeem their own shares. Shareholders may also agree to contractually provide for call options in company bylaws or shareholders/investment agreement in accordance with which the sale or purchase of shares can be enforced under specified conditions.   Listing There is no stock exchange market in Ethiopia.  The Capital Market Proclamation No. 1248/2021 was came in to force in July 2021. This Proclamation established Ethiopian Capital Market Authority with a mandate to regulate secondary market in Ethiopia. There are ongoing activities to establish securities exchange in Ethiopia.   Stock acquisition, asset acquisition and business acquisition The Ethiopian Investment Commission must approve the acquisition of shares of existing companies by foreign investors and the Ethiopian Trade Competition, and Consumer Protection Authority should approve an acquisition of share interests in existing companies in Ethiopia.  Ministry of Revenue should issue tax clearance to the existing company before the acquisition of shares.   Investment protection In Ethiopia, no investment can be expropriated or nationalised by the government except for public interest and then, only in conformity with the requirements of the law. The Constitution of Ethiopia protects private property. The Investment Proclamation also provides investment guarantees against measures of expropriation and nationalisation. In the event of expropriation or nationalisation, adequate compensation has to be paid in advance. Ethiopia is a member of the World Bank affiliated Multilateral Investment Guarantee Agency (MIGA), which issues guarantees to investors against non-commercial risks such as expropriation. Moreover, Ethiopia has also concluded bilateral investment promotion and protection agreements with various countries. Ethiopia has also signed (but not ratified yet) the Convention on Settlement of Investment Disputes between States and nationals of other states. Ethiopia acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the New York Convention entered into force in Ethiopia as of 22 November 2020.   Firm overview Mehrteab & Getu Advocates LLP (“MLA) is a leading full-service law firm in Addis Ababa. MLA is staffed with high-calibre lawyers who are accomplished in their fields of expertise as well as support staff which include legal assistants and other office personnel.   Practice areas Arbitration and litigation Aviation Banking and finance Charities and societies Contract negotiation and drafting Corporate and commercial Employment and immigration Hospitality and leisure Intellectual property Investment Mergers and acquisitions Mining and energy Private equity Real estate and conveyancing Sovereign debt Tax Website www.mehrteableul.com