How to Import Goods

into Ethiopia
INCOTERMS, Documents, and other
IMPEX-related terms and their
Applications
Chapter 2
 Chapter Contents

8. Pay
service
7. Obtain charges,
4. Collect
1. Obtain an import exit goods
commercial 9. Submit
import 2. Obtain a 3. Arrange 5. Prepare 6. Submit customs from
documents clearance
license/ pre-import payment the customs the customs clearance customs
required for declaration
investment permit issues declaration declaration and goods warehouse,
customs to NBE
license release and receive
declaration
note final import
customs
declaration
 1. Obtain an import license/ investment license

• Business Establishment Steps

• https://www.motin.gov.et/en/services

• https://etrade.gov.et/
 1. Obtain an import license/ investment license
• Licenses are issued by the concerned government offices against the submission of a completed
application form5 along with the

• following documents:
• A copy of the Tax Identification Number (TIN);
• A copy of the Memorandum of Association and Articles of Association for private limited and share companies;
• A contractual agreement of office rent or office building plan;
• A document evidencing the capital allocated for the commercial activity;
• Two passport size photographs taken within the last six months;
• If the applicant is a foreign investor, the investment and residence permits; and
• A valid business registration certificate.
• Currently, import licenses are issued through a manual process which requires the applicant to visit the
government offices in person.
 2. Obtain a pre-import permit
• Obtain a pre-import permit for certain restricted goods in Ethiopia
• Prohibited & Restricted Imports
• Prohibited Imports
• The following goods are prohibited imports to Ethiopia:
• Used clothing.
• Other items may also require a specific license to import. Examples
• arms and ammunitions which are subject to an import prohibition,
• except where permission is granted by the Ministry of Defense;
• particular telecommunication equipment
• requires authorization by EthioTelecom prior to importing

• Imports of refurbished medical equipment for sale in the country is not permitted.
• Imports are permitted only in the case of use by the importer, and not resale.

• Goods of a commercial nature and quantity that are not imported through formal bank payment mechanisms.
 2. Obtain a pre-import permit
• Obtain a pre-import permit for certain restricted goods in Ethiopia
• Prohibited & Restricted Imports
• Restricted Imports
• The following goods are Restricted imports to Ethiopia:
Restricted goods Regulatory agency
Pharmaceuticals and medicines, medical supplies or Food, Medicine, and Health Care Administration and Control
instruments, baby food, food supplements, cosmetics Authority (FMHACA)
http://www.fmhaca.gov.et/e-service/
Veterinary drug and animal feed Veterinary Drug and Feed Administration and Control Authority
(VDFACA)

Communication equipment Information Network Security Agency (INSA)

Telecommunication and network equipment Ethiopian Communications Authority ??

Radiation emitting equipment and radioactive sources. Ethiopian Communications Authority ??

Vehicles Ethiopian Transport Authority

 2. Obtain a pre-import permit
• obtain a pre-import permit for certain restricted goods in
Ethiopia
• Prohibited & Restricted Imports
• Restricted Imports
• Permissions are granted in a two-stage process:
• pre-import permit
• first, a pre-import permit by the relevant regulatory agency must be obtained
before the import procedure starts
• import permit
• At a later stage, an import permit must be obtained
 Step 3. Arrange payment issues
• after the pre-import permit is secured, if required

• might be through
• a bank or

• franco-valuta

• Payment through a bank requires two tasks

1. a foreign currency approval
• necessary due to the foreign exchange controls in place

2. the payment arrangements have to be agreed with the importer's bank

 Step 3: Arrange payment issues
• Foreign currency approvals
• must be requested through the bank at which the importer has the account which is to be used for
the import
• to request, the importer must present
• his/her valid business license and
• a pro-forma invoice from the supplier

• pro-forma invoice should

• describe the imported goods,
• state the unit price, quantity and total price,
• list additional charges that may be applied on the transaction

• issued by Commercial banks

• is not required if the goods are being imported on a franco-valuta basis
• possible only in exceptional cases and where no foreign exchange is payable
 Step 3: Arrange payment issues
• Foreign currency approval/Foreign Exchange (FOREX) Permit
• Importer who would like to import cargo to Ethiopia would first secure an approval for FOREX
permit from the respective Issuing Bank where he/she would like to process the L/C.
• The steps to be followed include:
1. An importer fills the prescribed form "Foreign Exchange Application for Import" in five copies and submit it with
the following documents to the authorized Officer in the FOREX Permit Division or branches:
2. Clearance from the NBE which indicates the importer does not have unreasonably outstanding FOREX (i.e.,
unsettled FOREX).
• the Foreign Bank Clerk/Officer after receiving all these documents will proceeds the internal banking
procedure such as
• ascertain that the importer’s name is not listed in the NBE'S delinquent list,
• verify that import application and relevant documents are in order, and
• assign a unique number to the foreign exchange application
3. Issues the approved FOREX permit and the customs copy original and duplicate as per the customer’s request to the
importer
 Step 3: Arrange payment issues
• Foreign currency approval/Foreign Exchange (FOREX) Permit
• Importer who would like to import cargo to Ethiopia would first secure an approval for FOREX
permit from the respective Issuing Bank where he/she would like to process the L/C.
• The steps to be followed include:
1. An importer fills the prescribed form "Foreign Exchange Application for Import" in five copies and submit required
documents to the authorized Officer in the FOREX Permit Division or branches
2. Clearance from the NBE which indicates the importer does not have unreasonably outstanding FOREX (i.e.,
unsettled FOREX).
• the Foreign Bank Clerk/Officer after receiving all these documents will proceeds the internal banking
procedure such as
• ascertain that the importer’s name is not listed in the NBE'S delinquent list,
• verify that import application and relevant documents are in order, and
• assign a unique number to the foreign exchange application
3. Issues the approved FOREX permit and the customs copy original and duplicate as per the customer’s request to the
importer
 Step 3: Arrange payment issues
• Foreign currency approval/Foreign Exchange (FOREX) Permit
• required documents for FOREX
1. Three copies of proforma invoices,
• showing clearly full description of goods, including
• quantity, grade, quality, volume, measurement, weight, mode of shipment, terms of payment,
unit and total price of the goods at named place of delivery & HS CODE
• HS code
• is short for Harmonized Commodity Description and Coding System
• It's a list of numbers used by customs to classify a product
2. Insurance certificate with one original and two copies with 110% sum insured amount.
3. Photocopy of a valid license for import, industry, or investment as the case may be.
4. Copies of VAT and of Tax Identification Number (TIN) certificates
5. Letter of approval or certificate (import permit) for those restricted imports
 Harmonized System (HS)
• The Harmonized Commodity Description and
Coding System (HS) is an internationally
standardized nomenclature system for
classifying goods (not services) that are traded
internationally, maintained by the World
Customs Organization (WCO).

• It is used globally, including the Ethiopia, United

States, Canada and Mexico.
• The United Nations uses its own system, UNSPSC

14
 HS

Harmonized
System (HS)

Global

15
 Harmonized System (HS) was created for International Trade

• The HS is a top-down, hierarchical system.

• Goods must first be classified according to their 4-digit heading,
• then 6-digit subheading,
• then 8-digit tariff rate subheading,
• then 10-digit statistical subheading

• The idea behind HS was to have a common set of descriptive categories for goods traded internationally.

• The system organizes goods into categories, down to the 6-digit level, are the same for all WCO member
countries (internationally harmonized).

• Countries may add

• two digits to break the six digit subheadings into discrete subsets for tariff purposes, and
• an additional two digits may be used for statistical purposes

• These 8- and 10-digit subheadings can differ country by country.

16
HS organization

Harmonized
System (HS)
Comprises 21 Sections Sections
covering 96 chapters.
Each Section consists Chapter (First 2 digits of the heading)
of Section Notes,
which define the scope
of the Chapters and Each Chapter consists Heading (4-digit Code)
headings within the of Chapter Notes, and
Organized in: Section. It is a grouping the codes and
Subheading (6-digit Code)
descriptions of The first two digits of
of a number of
commodities which the HS Code indicate
Chapters which
are generally related the Chapter while the Country-specific breakdown
codifies a particular Each Heading can be (8 or 10-digit Code)
to the title of the latter two digits
class of commodities. subdivided into further
Chapter. indicate the position of
subheadings where
the Heading in the
necessary.
SECTIONS Chapter. Countries often set
their customs duties at
the 8-digit level.
CHAPTERS Statistical suffixes are
often added to the 8-
digit tariff code for a
HEADINGS total of 10 digits.

SUB HEADINGS
COUNTRY SPECIFIC
BREAKDOWN

INTERNATIONAL LEVEL DOMESTIC LEVEL

17
HS product distribution

Goods are organized according to additional value-added features. Raw

materials and unprocessed goods can be found in the earlier chapters. Finished
goods can be found in the later chapters.

The same principle applies within each of the chapters.

18
 HS code structure: International vs National level

An HS code has at least 6 digits. HS codes are globally harmonized and are
accepted by country members of the World Customs Organization.

INTERNATIONAL NATIONAL

If desired, individual countries can also use additional digits (8 or 10) to detail the classification even
further. It is important to remember this point since HS codes at the 8 or 10 digits levels can differ from
country to country.
NOTE: In different countries, the same code at the 8 or 10 digit level might be for slightly different
products.
For Marine Tech products, that subtle difference might be significant for the companies selling those
products.
19
 HS – Where is it used?

EXPORTER IMPORTER
International Local
Seller transportation transportation

Domestic transportation Buyer

Exporting Importing

INTERNATIONAL BORDER
country country
customs customs

ORIGIN DESTINATION

20
 HS – Uses

Importers need to know their product’s HS numbers for the

following reasons:
1.To determine applicable import tariff rates and whether a
product qualifies for a preferential tariff under a Free Trade
Agreement (FTA)
2.To file in the online systems.
3.To complete custom clearing.
HS Code
HS Code
 Step 3: Arrange payment issues
• Foreign currency approval/Foreign Exchange (FOREX) Permit
• required documents for FOREX
• Letter of approval or certificate (import permit) for those restricted imports from the:
• Ministry of Health Certificate on vested power given to Ethiopian Food and Drug Authority (EFDA)

• if the imports of goods are medicines and other related medical equipment’s.
http://www.fmhaca.gov.et/e-service/
• Ministry of Agriculture

• if the import is related to agricultural chemical and veterinary medicines

• Quality and Standard Authority of Ethiopia Certificate (QSAE)

• for import of goods such as food, matches, nails, galvanized corrugated sheets, electric appliances,
computer accessories, machine and car parts etc., which require standardization.

• Transport Authority approval

• if the import is vehicle

 Step 3: Arrange payment issues
• Foreign currency approval/Foreign Exchange (FOREX) Permit
• required documents for FOREX
• Letter of approval or certificate (import permit) for those restricted imports from the:
• A copy of a loan or grant agreement concluded between Governmental Agencies and foreign
financing organizations.

• However, a letter of NBE is required in the case of private sector.

• Ethiopian Telecommunication Authority:

• if the import is satellite dish, radio communication equipment, telephone, fax and related item

• A wavier letter from Ethiopian Shipping Lines

• if shipment is to be made by other shipping lines

• Pre-shipment Inspection and Quarantine Bureau (CIQ) certificate for imports from Peoples Republic
of China (PRC) with value above the limit set by NBE.
 Step 3: Arrange payment issues
• Foreign currency approval/Foreign Exchange (FOREX) Permit
• Import permit is valid for 90 days from the date of issue.
• It could be extended up to and above 150 days for good reasons.
• The importer shall present a request letter along with the Customs copies of the
permit and exporter's/supplier’s request letter via fax or e-mail if the required
extension is for more than 150 days.

• The FXD/07/98 and IBOD/034/99 of the NBE call for an International

Competitive Bidding (ICB) for foreign currency requests of USD1, 000,000
and above.
• Upon the approval of the FOREX permit, the importer will open L/C.
 Franco-Valuta
• Foreign Exchange Permit

• franco-valuta
• refers to the importation of goods without the use of bank method of
payment

• can only be applied under certain conditions

• Council of Ministers Regulation No 88/2003

• The revised Regulation on the importation of goods on franco- Valuta basis Council
of Ministers

• Ethiopian Revenue and Customs Authority Directive No. 66/2012

 Franco-Valuta
• Goods are allowed to be imported on franco-valuta when goods imported
1. for official use of diplomatic and consular missions, international organizations and donor
agencies
2. for personal and household uses of officers and employees of diplomatic and consular
missions, international organizations and donor agencies
3. by budgeted Ethiopian Government institutions and civic associations related to and
supporting their function that are received from abroad as gift, aid and donation;
4. from abroad as gift or donation that are intended solely and exclusively for religious,
education, medical or Professional organizations and institutions not to be offered for sale;
5. from abroad as gift and donation for family relatives and friend;
• personal and household goods excluding motor vehicles

6. as gift or donation to a researcher in any field related to his research activity and who can
provide evidence from the appropriate organization;
 Franco-Valuta
• Goods are allowed to be imported on franco-valuta when goods imported
7. by persons upon first arrival to take up residence in Ethiopia
• personal and household effects, excluding motor vehicles

8. by Ethiopians and foreign nationals of Ethiopian organizations who have stayed abroad for various
reasons
• personal and household effects as well as goods and equipment necessary for their livelihood

9. for investment activities including

• capital goods and raw material adequate up to commissioning stage and
• for their personal use by Ethiopian and foreign nationals of Ethiopian origin investors who are permanently residing
abroad and having license from the appropriate government office;

10. following awards obtained by and sent to individuals and organizations for outstanding achievement
and cups, medal and other trophies imported for presentation only and not to be offered for sale;
11. for using used as inputs such as labels, seeds, packages and the like for goods to be exported
12. as gifts, trade samples and advertising materials not imported as merchandise;
 Franco-Valuta
• Goods are allowed to be imported on franco-valuta when goods imported
13. repeatedly used containers, boxes, tins, bottles, jars and other packages imported full of
any articles liable to a specific rate of duty and being ordinary packages for the goods
contained therein;
14. by or sent to individual specialized for use by disabled and handicapped not to offered for
sale;
15. for the replacement of short landing or defects accorded by the supplier to the importer
under the terms of warranty;
16. goods that are extremely vital and urgently’ needed for the normal operation of an
institution or health of a person with out which its function would be obstructed and his
survival may be imperiled;
17. personal effects imported by travelers;
18. goods introduced into the country temporarily and subject to reexport.
 Step 3: Arrange payment issues
• arrange with the bank for the method of payment and obtain a bank permit
• for all methods of payment, the importer needs to have
• an account with the bank,
• the required approved foreign currency (as obtained in the previous task), and
• he/she must not be listed on the NBE delinquent list
• The delinquent list is a register held by the NBE of account holders whose cheques have been dishonored repeatedly
and whose accounts are closed by banks.

• Currently, bank permits are issued through a manual process.

• Application forms are available from the bank, which will also provide details about the
documents to be submitted.
• the methods of payment for imports used in Ethiopia are the following:
• Letter of credit (L/C)
• Cash against document (CAD)
• Advance payment
 Step 3: Arrange payment issues
• arrange with the bank for the method of payment and obtain a bank permit
• Application for a bank permit
• forms are available from the bank
• documents required for the foreign currency application as well as the foreign currency approval,
• an insurance certificate,
• the regulatory permit (for products requiring pre-import permit),
• ownership certificate from country of purchase (for used vehicles),
• an original price confirmation (for used commodities),
• a written waiver (in case of shipment by a foreign vessel), and
• an undertaking letter for the entry of goods (in case of advance payment)

• Application for Bank import permit….. Etrade - Ethiopian Electronic Single Window
https://www.youtube.com/watch?v=urxL42spSLU
 Step 3: Arrange payment issues
• arrange with the bank for the method of payment and obtain a bank permit
• Application for a bank permit
• forms are available from the bank
• documents required for the foreign currency application as well as the foreign currency approval,
•  Insurance Certificate
• Ministry of Justice Letter
•  Pro-forma Invoice
• Regulatory Permit
• Shipment by a foreign vessel
• Used commodities
• Used vehicles
• Other documents
https://esw.et/esw-trd/info/form/infoFormAttchDocList?menuId=T04060000
 Step 3: Arrange payment issues
• arrange with the bank for the method of payment & obtain a bank
permit
• the methods of payment for imports used in Ethiopia are the following:
• Letter of credit (L/C),
• in which the bank undertakes to pay the supplier a stated sum of money within a prescribed time
limit and against the hand-over of the documents needed for the release of goods from customs;

• Cash against document (CAD),

• where the importer’s bank hands over to the importer the documents needed for the release of
goods from customs against full payment;

• Advance payment,
• i.e. the importer orders the bank to pay the seller via SWIFT transfer prior to shipment or rendering
the service.
 Types of Payment

• Cash in Advance

• Open Account

• Consignment

• Letter of Credit …. LC
Bank and Customs Clearing Operations
Bank and Customs Clearing Operations
 Cash In Advance

• require a buyer to make payment prior to receipt of purchased

goods

• can be associated with any sales transaction in which goods or

services are not provided immediately

• is the best payment option for sellers but is not always used
because of industry standards or competition

Bank and Customs Clearing Operations

 Cash In Advance

• buyer pays before shipment

• used in new relationship

• transactions are small

• buyer has no choice

• maximum security to sellers

• no guarantee that goods are shipped

Addis Ababa University School of Commerce 39

 Cash In Advance
• When to Use Cash-In-Advance
• The importer is a new customer and/or has a less-
established operating history.
• The importer's creditworthiness is doubtful,
unsatisfactory or unverifiable.
• The political and commercial risks of the importer's
home county are very high.
• The exporter's product is unique, not available
elsewhere, or in heavy demand.
• The exporter operates an internet-based business
where the acceptance of credit card payments is a
standard way of conducting business transactions.

Bank and Customs Clearing Operations

 Letter of Credit ..LC
• L/C is the written promise of a bank , undertaken on behalf of
a buyer, to pay a seller the amount specified in the credit
provided the seller complies with the terms and conditions set
forth in the credit.

• The characteristics of a L/C

• bank credit
• independent of the sales contract
• exclusively dealing with documents
 Procedures of L/C
• Parties:
• Exporter, Seller, beneficiary,
• Importer, Buyer, applicant,
• Importer bank, issuing bank,
• Exporter Bank, advising bank , Negotiating Bank
Seller/ Buyer/
• Useful words: beneficiary applicant
• apply ,
• forward,
Advising bank
• advise, Issuing bank
Negotiating bank
• payment etc
Letter of Credit
 Procedures of L/C
Seller/ Step 0: Contract
Buyer/
Beneficiary Applicant
Step 4: Shipping Step 9: Take delivery of the goods
Step 4: Examine & prepare documents

Company

Step 1: Application & cash deposits

Step 8: Ask the buyer to redeem

Step 7: Forward payment

Step 3: Advise LC

Step 2: Open and forward LC

Advising bank
Negotiating bank Step 5: Forwards documents & claiming reimbursement Issuing bank
Step 6: Examine documents & payment (or acceptance)
Three-party Contractual Arrangement

Sales Contract
Applicant Beneficiary

Application LC

Issuing Bank
 Parties and Their Obligations
• Basic parties
• Applicant/buyer
• Issuing bank/the buyer’s bank
• Beneficiary/seller
• Advising bank
• Negotiating bank

• Other parties:
• Confirming bank
• Accepting bank
• Paying bank
• Reimbursement bank
 Basic Parties 1

• Importer/Applicant
• In international trade, the applicant Of L/C usually is the importer
(buyer).

• Liable for payment to the issuing bank provided no discrepancy

between documents and the credit;

• Right to examine the documents and refuse payment;

• Any requirement of the applicant should be satisfied by certain

documents and clearly indicated when making credit application
 Basic Parties

• Issuing Bank
• The bank accepting the commission of applicant and setting up Letter
of Credit.

• According to the applicant ,sets up and modifies the letter of credit.

• Issuing bank has no right to recourse after payment.

• By issuing a credit the issuing bank undertakes full responsibility for

payment
 Basic Parties 3

• Beneficiary
• The beneficiary is drawer of bill of exchange .

• The beneficiary has a trade contract with the applicant and a letter
of credit with the issuing bank .

• The right to examine a credit upon receipt of it according to the sales

contract;

• Whether be paid or not solely depends on the fulfillment of terms

and conditions of the credit.
 Basic Parties
• Advising bank
• The advising bank is the deputy/representative of the issuing bank in
exporter’s country.
• Accurately transmit the terms of credit and
• Check the apparent authenticity of the credit
• An 'advising bank (also known as a notifying bank) advises a beneficiary
(exporter) that a letter of credit (L/C) opened by an issuing bank for an
applicant (importer) is available.
• An advising bank's responsibility is to authenticate the letter of credit issued
by the issuer to avoid fraud.
 Basic Parties 5
• Negotiating bank
• In a negotiation credit, purchases the drafts and documents; (maybe)
• When dishonored by the issuing bank,
• It has the right of recourse to the beneficiary;
• Obtain the reimbursement from the issuing bank
• is the one who negotiates documents delivered to bank by beneficiary of LC.
• is the bank that verifies documents and confirms the terms and conditions
under LC on behalf of beneficiary to avoid discrepancies.
 Other Parties 1
• Confirming bank
• The confirming bank is the bank adding confirmation on the
irrevocable L/C .
• Undertake the same obligations assumed by the issuing bank;
• Responsible for a credit independently and pay without recourse.
• confirms and guarantees to undertake the responsibility of
payment or negotiation acceptance under the credit
• The bank adds its confirmation to a credit upon the issuing bank's
authorization or request.
 Part 3 Other Parties 2
• Paying bank
• The issuing bank specify another bank for payment of the bill of
exchange.
• This bank is paying bank .
• Designated by issuing bank to effect payment or acceptance;
• Once it has made payment to the beneficiary, it will lose the right
of recourse to the beneficiary;
• Entitled to obtain reimbursement from the issuing bank.
 Other Parties 3

•Accepting bank
•The bank accepting the bill of
exchange is the accepting bank.
 Other Parties 4

• Reimbursing bank
• A bank named in credit from which the paying bank,
accepting bank or negotiating bank may request
cover after paying or negotiating the documents.
• The reimbursing bank shall not examine the
documents.
 Cont’d

• The relationship between the parties

Sale
contract
Applicant Beneficiary
(importer) (exporter)
 Cont’d
The relationship between the parties

Application of L/C
Issuing Applicant
Bank (importer)
 Cont’d

• The relationship between the parties

Agency
Issuing agreement Advising
Bank Bank
 part 4

• The relationship between the parties

Indirect
relationship
Issuing Beneficiary
Bank (exporter)
 part 4

• The relationship between the parties

Agency
Issuing agreement Confirming
Bank Bank
 part 4

• The relationship between the parties

Indirect
Issuing relationship Negotiating
Bank Bank
 part 4

• The relationship between the parties

Financing
Negotiating relationship
Beneficiary
Bank
 part 4

• The relationship between the parties

Indirect
Confirming relationship Beneficiary
Bank
• The relationship between the parties

Agency
Issuing relationship Paying
Bank Bank
Letter of Credit
 Letter of Credit
• An order is sent to the exporter.
• It is agreed that payment will be by letter of credit (L/C)

• Importer sends L/C application to his bank, the issuing bank

• Issuing bank (after doing a credit check to determine if importer is

creditworthy) opens L/C and requests that a bank in exporter’s country (called
the advising bank) advise the exporter of the L/C

• Advising bank advises exporter of L/C in the exporter’s favour

• The exporter delivers the goods to the point of departure.

• The freight-forwarder prepares the necessary documentation.
• These documents represent title to the goods, including the bill of lading
 Cont’d
• Export documents of title (invoices, bill of lading, insurance certificate etc.) are sent by the
exporter to the advising bank.
• If the exporter has agreed a credit period with the importer then a time draft is attached to the documents.
• If no credit period is agreed, this document is a sight draft, i.e. a draft payable immediately

• Advising bank sends documents to the issuing bank

• Either the importer pays immediately and is given the documents of title by the issuing bank
(‘documents against payment’) or if there is a credit period involved, the issuing bank accepts the
draft for payment at maturity

• Importer obtains documents of title

• Importer presents the documents to customs to obtain release of the goods

• Issuing bank sends payment to the negotiating bank (usually the same bank as the advising
bank) that is authorised to make payment to the exporter on behalf of the issuing bank.
Documentary Collection
 Types of LC
• Revocable Letter of Credit

• Irrevocable Letter of Credit

• Confirmed Letter of Credit

• Unconfirmed Letter of Credit

• LC at Sight

• Usance LC or Deferred Payment LC

• Back to Back LC

• Transferable Letter of Credit

• Un-transferable Letter of Credit

• Standby Letter of Credit

• Freely Negotiable Letter of Credit

• Revolving Letter of Credit

• Red Clause LC

• Green Clause LC
 Types of LC

• Revocable Letter of Credit

• can be modified or revoked independently by the
issuing bank or the buyer without any notice.
• This type of LC works entirely in favor of the buyer.
• It is rarely practiced in modern-day international
trade as it does not provide any protection to the
beneficiary or the seller.
 Types of LC
• Irrevocable Letter of Credit
• Irrevocable LC is more commonly used as compared to a revocable LC.
• Irrevocable LC cannot be revoked or modified without the consent of the
issuing bank, the beneficiary, and the confirming bank.
• It is a safer option for the seller or exporter as it assures that the amount
mentioned in the LC will be paid if the submitted papers fulfill the terms
and conditions of the agreement.
• Irrevocable LC further has 2 types –
• Confirmed LC and
• Unconfirmed LC
 Types of LC
• Irrevocable Letter of Credit
• Confirmed Letter of Credit
• Confirmed LC is an arrangement where another bank or financial institution adds its
guarantee to the LC.
• It is used when the seller does not trust the buyer’s bank or the issuing bank.
• It gives added assurance to the seller, but the cost of the LC also escalates.

• Unconfirmed Letter of Credit

• Here, there is no added guarantee from another bank or financial institution.
• An unconfirmed letter of credit only involves the buyer, the seller and the issuing
bank or buyer’s bank.
• Mostly all letters of credit that are commonly used are unconfirmed letters of credit.
 Types of LC

• LC at Sight
• Sight Credit LC requires the advising bank or seller’s
bank to make the payment at sight, on-demand, or
upon presentation of documents.
• The seller submits documents as per terms and
conditions of the sight LC.
• Upon verification, the advising bank immediately
releases the due payment to the supplier.
 Types of LC
• Usance Letter of Credit or Deferred Payment LC
• Usance LC or Deferred Payment LC is where the draft is drawn on
the issuing or corresponding bank at the end of the agreed usance
period.
• The bank may receive the documents early upon completion of
shipment of goods, but the payment is processed only after the
usance period is over.
• This gives a grace period to the buyer who can make the payment
after a certain period of time from when he receives the goods.
 Types of LC

• Back to Back LC
• Back-to-back Letter of Credit is where a second LC
is opened with another LC as security.
• This second LC finances both sides of a transaction
through credit and counter-credit.
• A middleman buying from one party and selling to
another is a typical case of back-to-back LC.
 Types of LC
• Transferable Letter of Credit
• Transferable LC is used when there is a middleman involved
or where a company sells the product of another
company/producer.
• The first beneficiary requests the bank to transfer the entire
payment or part thereof to the second beneficiary.
• In this arrangement, the first beneficiary is generally the
middlemen or a company who sells another’s products.
 Types of LC
• Un-transferable Letter of Credit
• An un-transferable letter of credit cannot be transferred to another
beneficiary.
• The beneficiary as per the original letter of credit is the sole beneficiary and
the document cannot be further used to pay any other party.

• Standby Letter of Credit

• Standby Letter of credit also known as SBLC is similar to a bank guarantee
and is more popular in the US.
• The seller can obtain payment from the bank even in the case of the buyer’s
failure to perform as per the agreement.
 Types of LC
• Freely Negotiable Letter of Credit
• Freely Negotiable LC allows any bank to become a nominated bank as long as it is
willing to pay, accept, incur deferred payment undertaking, or negotiate the LC.
• The LC has to indicate that it is not restricted to any bank for negotiation or that it
can be negotiated in any bank.

• Revolving Letter of Credit

• Revolving LC is one where the amount mentioned gets reinstated after payment,
reducing the need to create a new LC.
• It is used in case of shipments with a diverse set of goods or a repeated set of the
same goods, which are traded within a specific period.
 Types of LC
• Red Clause LC
• In a Red Clause LC the seller or beneficiary is partly paid or is paid an advance
before the goods are shipped and after receipt of documents and a written
confirmation from the seller to the bank.
• This type of LC acts as an aid to the seller for his working capital requirements for
purchase of raw materials, packaging and processing of goods.

• Green Clause LC
• Green Clause LC is another type of Red Clause LC with some additional features.
• In a green clause LC the seller receives advance payment not only for purchasing
raw material, packaging and processing of goods but also for the cost incurred for
pre-shipment warehousing and insurance.
 LC practice in Ethiopia

• Upon the approval of the FOREX permit, the importer

will open L/C.
• There are two types of L/C:
• Sight L/C and
• Acceptance L/C.

• We shall discuss the Opening, Extension and

Settlement L/C procedures in the subsequent sections.
 LC practice in Ethiopia
• Sight L/C Opening Procedure
• The importer or his/her representative submits a prescribed "L/C
Application for import " duly filled, signed and sealed form to the
respective foreign bank officer of client Issuing Bank along with
• Approved FOREX Permit,
• Pro-forma invoice, and
• Insurance policies endorsed in favor of the bank
• Once the above documents are submitted by the importer, the L/C
processing unit will proceed the respective procedure to open the L/C such
as
 LC practice in Ethiopia
• Sight L/C Opening Procedure
• Once the above documents are submitted by the importer, the L/C processing unit will proceed
the respective procedure to open the L/C such as
• checks for clarity and compliance of the L/C application form with the accepted practices regarding:
• type of L/C (confirmed/irrevocable), transferable,
• correct amount and currency,

• shipping documents required, merchandise description, shipment instructions, and other additional conditions,
• the validity date of the L/C is within the approved limit of the FOREX permit,
• calculates for allowed margin and related charges,
• prepares the SWIFT L/C instrument,
• forwards the original copy to the SWIFT Section for transmission, and
• finally delivers a copy of the SWIFT message to the applicant along with the Customer's Debit Advice for advance
payments and margin held; and the Customs copy of the FOREX Permit
 LC practice in Ethiopia
• Extension of the Sight L/C Validity
• In case of extending the L/C, the importer is expected to present good
reason(s).
• The importer in this regard shall submit a written application requesting the
extension of L/C validity to the respective L/C opening unit of the client
bank where L/C was opened.
• Meanwhile the importer should also extend the validity date of the FOREX
Permit, the validity of insurance policy and extension of shipment date.
• The importer will pay amendment service charges as per the respective
client bank service tariff.
 LC practice in Ethiopia
• Settlement of Sight L/C
• The arrival of the shipment documents at the Issuing Bank is advised to the importer either over the phone or
will be told in case he/she has been following up its arrival.
• However, prior to advising the applicant, the L/C settlement unit will:
• Thoroughly check the received documents for any discrepancy and compliance with the original L/C terms and conditions.
• Acknowledge receipt of documents to the Advising/Confirming/Negotiating Bank preferably via SWIFT.
• In the case of discrepancy, the concerned Bank Clerk notes the discrepancies occurred and determine whether the
discrepancy is minor or major.
• Ensure that the discrepancies have been notified to the Negotiating bank (via SWIFT) in no less than 7 working days (as per
the rule of UCP 600) from the date of receipt of documents.
• Seeks importer acceptance of the discrepancies in writing in case the discrepancy(ies) found to be minor and the importer
is willing to accept it.
• If the importer rejects the discrepancy(ies) as it is major one and in case the correspondent bank account has been debited,
the value of the documents should be immediately claimed from the Advising/Negotiating Bank by SWIFT.
 LC practice in Ethiopia
• Bank Charges & Interest Computation on L/C - Sight

• Illustration:
• ZEKARIAS B. General Trading foreign procurement officer opened L/C-Sight for 90 days at Theodros SQ. Branch
of CBE on the 1st June 2022. The FOREX Permit was obtained for USD 150,000.00 to import generator for
business use. The exchange rate while the L/C opened was Br. 51. The bank after reviewing the business status
approved 20% margin. The branch charged the company foreign exchange commission @ 1.5%, bank service
charge @ 0.5%, opening commission @ 0.5%, and confirmation commission @ 0.5% on L/C amount. In
addition, the bank accounted other fixed charges SWIFT and postage for Br. 140.00 and Br. 8.50 respectively.
The Advising Bank received the shipping document on 4th July 2022 and effected 100% payment to the
beneficiary. The L/C, however, was settled on 19th July 2022.
• Required:
1. Compute the amount of margin held by the bank to be debited from company's A/C at the time of opening the L/C.
2. Compute all the bank charges to be debited from company's A/C at the time of L/C opening.
3. Compute the amount of advance extended by the bank and the interest charge @ 9% if the exchange rate happened to
be Br.52 and a year consider to be consists of 360 days.
 LC practice in Ethiopia

• Bank Charges & Interest Computation on L/C - Sight

1. First convert the hard currency to its equivalent Birr amount as per
the stipulated exchange rate at the time of L/C opening.

USD150,000 x 51 = Br. 7,650,000.00 then compute the margin held as

per the margin percentage i.e., 20% x 7,650,000.00 = Br. 1,530,000.00
 LC practice in Ethiopia

• Bank Charges & Interest Computation on L/C - Sight

 LC practice in Ethiopia
• Bank Charges & Interest Computation on L/C - Sight
• The amount of advance extended to the client will be calculated based on the exchange
rate at the time of L/C settlement less the amount of margin held when the L/C was
opened. Thus,

* the amount on which interest is calculated b/c it is the amount that the bank paid in advance to the
Advising/Confirming/Negotiating Bank at the time of shipping documents presented by the respective exporter
 LC practice in Ethiopia
• Letter of Credit - Acceptance
• Acceptance L/C is an L/C issued by an Issuing Bank with deferred payment terms i.e. payment
within a certain period after shipment or B/L date is applicable.
• Unlike a normal L/C, this type of documentary credit does not promise to pay the beneficiary
immediately upon presentation of the shipping documents, but has the additional requirement of
a time or term draft drawn on a named bank.
• The importer would honor payment after disposal of the merchandise on the agreed upon date of
payment.
• It is considered as a supplier’s credit.
• Acceptance L/C requires an approval from the NBE shall be obtained prior to establishing import
L/C on acceptance basis.
• Once the FOREX permit is approved, the importer will proceed with the following sub-procedures.
 LC practice in Ethiopia
• Letter of Credit - Acceptance
• Opening L/C Procedure: Acceptance
• When Acceptance L/C is opened, the Opening Unit:
• Receives applicant’s request letter along with the L/C application form.

• Checks that opening of Acceptance L/C has been approved by the NBE for the requested period and
terms.

• Ensures that term ‘Acceptance’ and the acceptance period have been indicated in the FOREX permit,
proforma invoice, and L/C application form.

• Registers the L/C on acceptance L/C register book and assign L/C reference number.

• Computes charges per the existing terms and tariff, compute the margin limit. and debit applicants
account.

• Prepare the L/C instrument indicating the acceptance terms and forward through SWIFT to Advising
Bank.
 LC practice in Ethiopia
• Letter of Credit - Acceptance
• Settlement of Acceptance L/C - on receiving the shipping documents
• When documents are received under Acceptance L/C, the Opening Unit:
• Checks the documents presented are in compliance to the terms and conditions of the L/C.

• Advices the importer the arrival of shipping documents along with the draft.

• Receives applicants undertaking letter (Promissory Note) dully signed and sealed for payment of documents value and charges (if any) at
maturity.
• The undertaking letter shall include L/C No., draft No., amount and due date for payment.

• Upon receipt of applicants undertaking letter for payment at maturity and due verification of the signature, sign and stamp at the back of
the Advising/Negotiating Bank’s draft for acceptance of payment at maturity and mail one copy to the Advising/Negotiating Bank per the
address provided in their covering letter.

• Delivers the shipping documents to the drawee/importer against signature on the covering letter.

• Retains copy of all shipping documents and one original draft drawn by the Advising/Negotiating Bank.

• Maintains appropriate diary showing maturity dates of acceptance drafts and make proper follow-up on daily basis to check the maturity
date.

• Reminds Customer to avail funds a week earlier from the due date in settlement of the accepted drafts.
 LC practice in Ethiopia
• Letter of Credit - Acceptance
• Settlement of Acceptance L/C - on maturity date
• On maturity date, the L/C Opening Unit will:
• Debit the account of the importer for the bill amount plus charges, and credit Correspondent Bank and income
accounts.
• In the event the importer fails to avail sufficient funds in his/her account on the due date, a separate loan account
called "Acceptance L/Cs Under Legal Hands" should be debited immediately and the draft be transferred for legal
action i.e. protest within 48 hours after due date and other legal matters should be processed.
• Upon payment, close the loan account by debiting the margin paid and importer’s account for the paid and unpaid
margin respectively plus all related charges and credit the correspondent Bank and relevant income accounts.
• Ensure the L/C is cancelled only after obtaining beneficiary's consent through the Advising Bank or 45 days after
expiry of the credit.
• In case of cancellation, sufficient time will be given to ensure that documents are not in transit and the Issuing Bank
will settle its account for any debit in respect of the L/C to be cancelled.
• Default under Acceptance L/C will be notified to the NBE
 Irrevocable LC

• An irrevocable letter of credit is an agreement between a

buyer (often an importer) and the buyer's bank.

• The bank agrees to pay the seller (the exporter) as soon as

certain conditions are met.

• Because it is irrevocable, the terms of the letter cannot be

changed without the agreement of everyone involved.

Bank and Customs Clearing Operations

 Revocable LC

• A revocable LC is a credit, the terms and conditions of which

can be amended/ cancelled by the Issuing Bank.

• This cancellation can be done without prior notice to the

beneficiaries.

Bank and Customs Clearing Operations

 Sight draft
• A sight draft is a type of bill of exchange, in which the exporter
holds the title to the transported goods until the importer receives
and pays for them.

• Sight drafts are used with both air shipments and ocean shipments
for financing transactions on goods in international trade.

• Unlike a time draft, which allows for a short-term delay in payment

after the importer receives the goods, a sight draft is payable
immediately.
Bank and Customs Clearing Operations
 Sight draft
• A sight draft is a payment document used in international trade
whereby a buyer accepts shipped goods and agrees to pay the
seller immediately upon delivery.
• As a type of bill of exchange, sight drafts are utilized in
international trade to facilitate short-term financing between
importers and exporters.
• Because there is no time delay or waiting period with a sight draft,
these usually must be accompanied by an official letter of credit
issued by a commercial bank.
Bank and Customs Clearing Operations
 Time Draft
• A time draft is a type of payment document whereby a buyer accepts shipped
goods and agrees to pay the seller at a specified future date.

• A time draft is also a guaranteed payment to the seller by an issuing bank.

• A time draft allows the importer (or buyer) time to pay for the goods received
from the exporter (or seller).

• Time drafts are a type of short-term credit used for financing transactions of
goods in international trade.

• sight drafts require an immediate payment while time drafts allow the importer
to pay at a later date

Bank and Customs Clearing Operations

 Consignment sales
• Consignment sale is an arrangement in trade in which a seller or the
consignor sends goods to a buyer or consignee without getting payment
for the goods then itself.
• The consignee or the buyer pays the amount only when the goods are
sold.
• The seller retains the ownership of the goods until the payment is made
in full by the buyer.
• The unsold goods will be taken back after some period.
• It is also referred to as ‘sale or return’.

Bank and Customs Clearing Operations

 Open account
• An open account transaction is a sale where the goods are shipped and delivered before payment
is due.

• Obviously, this option is the most advantageous for the importer in terms of cash flow and cost,
but it is consequently the highest risk option for an exporter.

• Because of intense competition in export markets, foreign buyers often press exporters for open
account terms, since the extension of credit by the seller to the buyer is more common abroad.

• Therefore, exporters who are reluctant to extend credit may lose a sale to their competitors.

• However, the exporter can offer competitive open account terms while substantially mitigating
the risk of non-payment by using of one or more of the appropriate trade finance techniques,
such as export credit insurance.

Bank and Customs Clearing Operations

Methods of Payment Risk Protection

Buyer
Min Max

Confirmed

Unconfirmed Sight
Draft
Time
Draft
Max Min
Seller
Cash in Letter of Documentary Open
Advance Credit Collection Account
 Method
International Methods of Payment
Risk Advantage Disadvantage
Cash in advance Low • No credit extension required • Can limit sales potential, disturb some
potential customers.
Sight draft Medium /Low • Retains control and title; • If customer does not or cannot accept goods,
• Ensures payment before goods are delivered goods remain at port of entry and no payment
is due
Letters of credit • Banks accept responsibility pay; • If revocable, terms can change during contract
➢ Irrevocable Medium • Payment upon presentation of paper; work.
➢
• Costs go to buyer
Revocable Medium /High

Time draft Medium /High • Lowers customer resistance by allowing • Same as sight draft, plus goods delivered
extended payment after receipt of goods before payment is due or received

Consignment sales Medium /High • Facilitates delivery; • Capital tied up until sales;
• Lowers customer resistance • Must establish distributor's creditworthiness
need political rish insurance in some
countries;
• Increased risk from currency controls
Open account High • Simplified procedure; • High risk;
• No customer resistance • Seller must finance production;
• Increased risk from currency controls

Bank and Customs Clearing Operations

 Questions

1. What are the definition and characteristics of L/C ?

2. Can you explain the basic procedures of L/C ?

3. What are the main parties to a L/C ?

4. Can you introduce the relationship between the parties?

 4. Collect commercial documents required for
customs declaration

• Once the payment issues have been completed and the supplier
has been informed, the goods will be shipped to Ethiopia.

• Upon arrival of the goods at the port of entry in Ethiopia, they will
be placed in a customs warehouse, and the importer must
accomplish the necessary customs formalities.

• For this, the first step is to collect the necessary commercial

documents from his/her bank (in case of L/C or CAD) or directly
from the supplier (in case of advance payment).
 4. Collect commercial documents required for customs declaration
• The following documents are necessary for the preparation of a customs declaration:
• Transportation document
• such as bill of lading, air way bill or truck way bill;

• Invoice
• which describes the value of imported goods;

• Bank document,
• i.e. L/C, CAD, confirmation of advance payment/TT;

• Packing list
• which describes how the goods are packed during transport;

• Certificate of origin
• which describes where the goods were originally produced;

• Other documents
• as required, such as pre-import permits issued by regulatory agencies and duty free permits for investment goods.

• With the exception of the other documents, all documents will be obtained from the bank and/or
the supplier.
 4. Collect commercial documents required for
customs declaration
• Transportation document
• bill of lading
• air way bill
• truck way bill
 4. Collect commercial documents required for
customs declaration
• Transportation document
• Delivery Order
• A Delivery Order (D/O) is a document from a consignee, an owner or an
agent of a freight carrier that orders the release of the transportation of
cargo to another party.
• This written order allows for the direct delivery of goods to a
warehouseman, carrier or another person who issues warehouse receipts or
Bills of Lading.
• This document should not be confused with delivery instructions.
• Delivery Instructions provide specific details to carriers regarding the
arrangement made by the forwarder to deliver the merchandise to a
particular destination.
 4. Collect commercial documents required for
customs declaration
• Transportation document
• Dock Receipt
• A Doc Receipt confirms that cargo has been received for
shipment.
• This document is issued by a shipping company and
transfers the accountability for the safe transport of the
cargo from the shipper to the carrier.
• It is the basis for preparing the bill of lading.
 4. Collect commercial documents required for
customs declaration
• Transportation document
• Bill of Lading (B/L)
• A Bill of Lading is evidence that there is a contract between a
shipper of goods and a carrier.
• The customer typically needs this original copy as proof and in
order to take ownership of the goods.
• includes the conditions under which the transportation was
conducted and acts as a receipt
• may be endorsed or transferred to a third party even while
goods are in transit
 4. Collect commercial documents required for
customs declaration
• Transportation document
• Sea Waybill
• A Sea Waybill is a contract that is not needed for cargo
delivery and is only issued as a cargo receipt.
• This document of title is used on a trust basis between the
shipper and importer, which means that no Bill of Lading is
necessary and goods are automatically authorized to be
released once they arrive at the destination.
 4. Collect commercial documents required for
customs declaration
• Transportation document
• Air Waybill
• An Air Waybill (AWB) is used when carrying goods via air
transport.
• acts as a receipt of goods and reports the condition of the
goods.
• This is a non-negotiable document that must name a recipient
(may be the buyer).
• The AWB indicates acceptance of goods for carriage.
• It is prepared by IATA agents or airlines.
 4. Collect commercial documents required for
customs declaration
• Transportation document
• Shipping Guarantee
• is a written document issued by the bank which will take on
joint liability.
• It is handed from the importer to the carrier or its agent for
picking up the goods.
• This document is used in case of arrival before shipping
documents.
 4. Collect commercial documents required for
customs declaration
• Transportation document
• Packing Note or List
• provides the information needed for transportation purposes
• It includes the details of the invoice, the buyer, the consignee, country of
origin, transport date, delivery destination, shipping and container marks,
weight and volume.
• It is a more detailed version of a commercial invoice and excludes pricing
information.
• It is typically attached to the shipment and a copy is sent t the consignee so
that he or she can check the shipment once received.
• It is not required by all countries, but by some.
 5. Prepare customs declaration
• The importer or his/her agent is required to fill in
the clearance customs declaration, indicating
• the type of import regime,
• detailed data or information about the imported
goods, and also
• tariff classification and customs valuation,
which leads to determining the import duties and taxes
 5. Prepare customs declaration
• According to the Ethiopian tax laws the following duties and taxes are
levied on imported goods:
1. Customs duty
• is normally calculated as a percentage of the duty paying value, also known as CIF
value
• This is the sum of
• the transaction value (cost of goods),
• transport charges paid to transport the good from the original port of loading to the port
of entry in Ethiopia,
• the transport insurance paid and
• other charges such as loading and unloading charges, port charges, etc
• The duty rate varies depending on the type of imported goods and ranges from 0-
35%.
 5. Prepare customs declaration
• According to the Ethiopian tax laws the following duties and
taxes are levied on imported goods:
2. Excise tax
• is charged on selective goods such as
• luxury goods,
• basic goods demand for which is hardly affected by price changes,
• goods that are hazardous to health, etc
• is computed on the basis of the CIF value + the amount of the customs
duty payable
• The rate of the excise tax varies depending on the type of imported goods,
from 10%-100%
 5. Prepare customs declaration
• According to the Ethiopian tax laws the following
duties and taxes are levied on imported goods:
3. Value added tax (VAT)
• is levied at a flat percentage rate of 15% on the sum of
• CIF value,
• customs duty, and
• excise tax
• Some types of supplies of goods, services and imports are
exempted from payment of VAT
 5. Prepare customs declaration
• According to the Ethiopian tax laws the following duties and
taxes are levied on imported goods:
4. Surtax of 10%
• is levied on all goods imported to Ethiopia with some exceptions, such as
• fertilizers,
• petroleum and lubricants, etc
• The amount payable is calculated on the sum of
• CIF value,
• customs duty,
• excise tax, and
• VAT
 5. Prepare customs declaration
• According to the Ethiopian tax laws the following
duties and taxes are levied on imported goods:
5. Withholding tax
• is collected on goods imported for commercial use, at a level of
3% on the CIF
• The collected amount is creditable against the taxpayer’s income tax
liability for the year
• Thus, it is not a tax in itself but rather a (partial) guarantee on the
payment of income taxes
 5. Prepare customs declaration
• The calculation of the duties and taxes on imports to be paid to
government is the responsibility of the importer.
• This requires the following steps.
1. tariff classification
• the goods must be classified in order to determine the applicable import duty
2. customs valuation
• the value of the imported goods for the purpose of calculating duties and taxes
must be established
3. the duties and taxes payable must be calculated by applying the respective
percentages on the respective base values
 5. Prepare customs declaration
• Tariff classification
• is used to determine the correct commodity code of, and duty and taxes payable on, imported goods
• Ethiopia’s tariff classification, like that of most countries, is based on the International Convention on
the Harmonized Commodity Description and Coding System (HS)
• The national tariff book specifies the rate of duties and taxes applicable on each import good
• The book is structured in two schedules (1st and 2nd) and the COMESA tariff rate:
• The two schedules allow the importer to apply different customs duty rate for the same import good
depending on the intended purpose of importation;
• the COMESA tariff rate is a preferential tariff applicable on goods originating in COMESA member
countries.
• Tariff classification numbers can be determined by consulting the tariff book, searching the code online
on ERCA’s website, or obtaining binding information regarding tariff classification from ERCA
 5. Prepare customs declaration
• Customs valuation
• The amount of duty and taxes payable depends on the customs value of
imported goods (adjusted by freight, insurance and other charges, as
mentioned above).

• In most cases, the cost of the imported goods is the amount paid to the
seller, as expressed in the commercial invoice.

• However, the Customs Proclamation distinguishes six different customs

valuation methods applicable in Ethiopia.
 5. Prepare customs declaration
• Calculation of duties and taxes
• In order to calculate the duties and taxes payable, look up the applicable
percentages for the tariff classification number, either in the tariff book
or online, and multiply them with the duty paying value as obtained
through the customs valuation.

• The table below provides examples of how duties and taxes are
calculated.

• ERCA’s website also provides an online tax calculator which calculates

duties and taxes based on the HS Code and the CIF value indicated.
 5. Prepare customs declaration
Calculation of duties and taxes
Item A Item B

Steps to calculate duties and taxes Basis for Duty/tax calculation Rate Amount (ETB) Rate Amount (ETB)

Invoice value 5,000,000.00 20,000,000.00

Freight and insurance 500,000.00 1,600,000.00

Other charges 250,000.00 600,000.00

Duty paying/ CIF value 5,750,000.00 22,200,000.00

Customs duty CIF 20% 1,150,000.00 35% 7,770,000.00

Excise tax CIF + duty 0 - 100% 29,970,000.00

Value added tax CIF + duty + excise tax 15% 1,035,000.00 15% 8,991,000.00

Surtax CIF + duty + excise tax + VAT 10% 793,500.00 10% 6,893,100.00

Withholding tax CIF 3% 172,500.00 3% 666,000.00

Total duties and taxes 3,151,000.00 54,290,100.00

 6. Submit the customs declaration
• To obtain clearance of imported goods from ERCA, two different
procedures exist, depending on the type of transport used for the
goods, i.e. whether it is multi-modal or unimodal

• Under multimodal transport, goods are transported under a

single contract with the logistics company but using different
means of transport (e.g., sea and road transport)

• Conversely, unimodal transport only uses one means of

transportation.
 6. Submit the customs declaration
• Multimodal transport
• the importer or his/her agent must complete the customs declaration and
submit it, in hard copy, at the ERCA office of destination together with
the entire documentation necessary for clearance

• the importer must pay the amount of duty and taxes, on the basis of the
self-assessment undertaken, before submitting the declaration
• Payments made through a bank can be proven by a cash payment order (C.P.O.)
from the bank, and ERCA will issue a payment receipt

• Declaration forms can be obtained from ERCA’s website or from the

customs offices.
 6. Submit the customs declaration
• Unimodal transport
• the importer or his/her agent must pay the duty and taxes, and register
and submit a transit declaration with the ERCA office of destination
together with the necessary documentation for clearance, prior to the
start of the transit

• Once the transit goods arrive at the customs office of destination in

Ethiopia, the importer or his/her agent is required to submit the transit
documents together with the clearance declaration and supporting
documents to initiate the clearance processes
 7. Obtain import customs clearance and goods
release note
• After submitting the customs declaration, ERCA first determines, and notifies the importer
of the decision, whether to accept or reject it based on an initial compliance check, including
of the completeness of documentation submitted

• If accepted, the risk level of the consignment is determined using the customs management
system.

• ERCA distinguishes three risk levels, i.e.

• Green
• automatic release of goods without further checks

• Yellow
• requiring the verification of the declaration only

• Red
• requiring the verification of the declaration and the physical examination of the imported goods

• Blue
• automatic release of goods without further checks at own premise
 7. Obtain import customs clearance and goods
release note
• The examination of the declaration includes the verification of the correctness of data information,
tariff classification, valuation and payment of duties and taxes registered and supporting documents
attached to declaration.

• The verification process may also include the fulfillment of legislative requirements administered by
other regulatory agencies, such as veterinary, health and/or phytosanitary issues.

• The physical examination of goods is performed to satisfy that the origin, country of export, nature,
condition, quality, quantity, tariff classification and value of the goods are in accordance with the
information furnished in the goods declaration.

• In addition to ERCA’s clearance activities, other regulatory bodies will also be involved in the clearance
of certain imported goods.

• This applies to all goods for which pre-import permits are issued, as well as the ones listed below for
which an import permit is issued only at the time of clearance.

• The importer or his/her agent is responsible for obtaining the necessary permits from the regulatory
agencies at the time of clearance.
 7. Obtain import customs clearance and goods
release note
• Regulatory agencies issuing import permits at the time of clearance
• Ministry of Agriculture
• Phytosanitary certificate and veterinary health certificate, export permit, pre-import permit and import release permit

• Ethiopian Conformity Assessment Enterprise

• Laboratory test report, quality certificate

• Food, Medicine and Health Care Administration and Control Authority

• Special import permit

• Veterinary Drug and Feed Administration and Control Authority

• Import release permit

• Information Network Security Agency

• Import release permit

• Once ERCA is satisfied, based on the risk assessment and examinations undertaken, that all
requirements prescribed by law have been complied with, the goods release note is released
to the importer or his/her agent.
 8. Pay service charges, exit goods from customs
warehouse, and receive final import customs
declaration
• As the goods have been stored in a customs warehouse during clearance,
storage fees must normally be paid by the importer; in addition, other
service charges (e.g. for scanning of goods) might apply.

• Therefore, the importer must settle these charges once the goods release
note has been issued.

• The goods will then be released and the importer takes possession of them.

• In addition, ERCA will issue a final declaration for the importer as a

certificate of completing the import procedures and importation of goods.
 9. Submit clearance declaration to NBE
• Any importer who obtained a foreign currency permit should present the
final import customs declaration to the NBE.

• This is a requirement for importing (or exporting) goods in the future.

• An importer must keep all records and documents related to the import for
five years from the date of ERCA’s acceptance of the goods declaration.

• During this period, ERCA may perform a post clearance audit of the import.

• The purpose of such audits, which may cover traders’ commercial data,
business systems, records and books, is to verify the accuracy and
authenticity of declarations and information provided by the importer.