The National Bank of Ethiopia Updates Retention of Foreign Currency Management Rules

The National Bank of Ethiopia Updates Retention of Foreign Currency Management Rules

In a directive (FXD/70/2021) issued on 8 March 2021, the National Bank of Ethiopia (NBE) significantly amended the retention of foreign currency management rules. 

We summarise the changes into 12 main points for you below:

1. The Directive can be cited as “The Retention and Utilisation of Export Earnings and Inward Remittance Directive”.

2. The Directive provides for some important definitions:

“Delinquent list” is a list containing names of exporters who have not settled their foreign exchange commitments with the NBE.

“Eligible Customer” is a regular recipient of foreign exchange remittances from abroad and/or an exporter of goods and services whose name does not appear on the delinquent list.

“Receipt of inward remittances” means a resident company, institution or individual, government organisation, other than a diplomatic mission, who received foreign exchange transfers from abroad.

“Eligible Exporter of Goods and Services” means an exporter who has fully settled his foreign exchange commitments with the NBE and whose name does not appear on the delinquent list.

3. Only eligible exporters of good and services can apply to the bank to open a foreign exchange retention account. 

4. Exporters have to deduct 30% of their total earnings as a surrender requirement.

5. Exporters of good and services have the right to retain only 45% of their export earnings and remittance in foreign currency. And this after deducting the 30% as surrender requirement.

6. The remainder 55% (after the 30% per cent has been deducted) of the export of goods and services as well as recipients of inward remittances shall be surrendered to the respective bank at the prevailing buying exchange rate immediately on the day of the receipt.

7. The bank will effect payment of 55% in the equivalent amount in Birr to an eligible customer.

8. The bank can credit funds in retention accounts only when the beneficiary has given written authority. 

9. The bank can credit funds in retention accounts for merchants and/or entities licenced by the NBE to collect credit card/debit card/prepaid card/payment of goods and service they sell. 

10. The 45% foreign currency held in a retention account can be used for the import of goods and services payment without restriction provided that the account holder has the required business license to do so.

11. The retention account holder can freely sell to their bank all or part of the foreign currency held in the retention account at any time at a freely negotiating rate not exceeding the selling exchange rate of the day. 

12. Banks are required to send to the NBE the aggregate balances of foreign exchange held under the retention account every month. Should they fail to do so, they may be subject to a penalty of USD 5000 for each violation. 

Our Comments:

1. It seems that if an exporter has several retention accounts, these will have to be replaced by a single account. 

2. Note on point 4: It is assumed that the surrender of 30% will be as a contribution to the NBE reserves.

3. Note on point 5: 45% after deducting 30% means it will be equivalent to 31.5% total inflow.

4. Note on point 6: 55% after deducting 30% means that the amount automatically converted into Birr is 38.5% of the total inflow. 

5. Point 8 suggest that there may be additional compliance requirements for exporters as they will have to explicitly inform their bank that they wish to retain the foreign currency. 

6. Point 10 suggests that an exporter will be able to import all types of goods or services, subject to holding a valid licence.

7. It is apposite to note that while the previous directive gave the right to exporters to use the foreign currency within 28 days for related business exports. The New Directive does not mention any time limit and we can assume that the 31.5% can be retained “indefinitely”.

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