Sales Tax (VAT) in Eritrea

Eritrea operates a sales tax system administered by the Ministry of Finance. While not a full VAT system, the sales tax applies to most goods and services supplied in Eritrea. This guide covers the key aspects of sales tax compliance.

Sales Tax Rate

The standard sales tax rate in Eritrea is 5%. There is no reduced rate or higher rate currently in effect. Certain essential goods and services may be exempt.

Registration

Mandatory Registration

Businesses must register for sales tax if:

• Annual taxable turnover exceeds the threshold set by the Ministry of Finance
• They import goods into Eritrea (tax collected at customs)

Voluntary Registration

Businesses with turnover below the threshold may voluntarily register for sales tax. This may be beneficial if the business deals mainly with registered suppliers and wishes to recover input tax on purchases.

Taxable Supplies

Sales tax applies to the following:

• Supply of goods and services in Eritrea in the course of business
• Importation of goods into Eritrea

Exempt Supplies

The following are exempt from sales tax:

• Basic foodstuffs (bread, milk, rice, cooking oil, sugar)
• Medical services and pharmaceutical products
• Educational services
• Financial services (banking, insurance, lending)
• Residential property sales
• Public transport services
• Postal services
• Export of goods (zero-rated)

Input Tax Recovery

Registered businesses can recover input tax on purchases directly related to their taxable activities. Input tax on the following is generally recoverable:

• Inventory and raw materials
• Capital equipment and machinery
• Operating expenses (rent, utilities, professional fees)

Filing and Payment

• Filing Frequency: Monthly
• Due Date: 15th day of the following month
• Method: File with the Ministry of Finance
• Payment: Net tax (output minus input) payable by the due date

Penalties

• Late registration: Fine imposed by Ministry of Finance
• Late filing: Monthly penalty
• Late payment: 1% interest per month
• Incorrect return: 25% of underpaid tax
• Fraud: 100% of tax evaded

Import Tax

Sales tax on imports is collected at customs at the time of importation. The taxable value includes the customs value plus customs duties and other import taxes. Import tax is recoverable as input tax by registered businesses.