With the advancement of technology, it is increasingly becoming clear that communications services is permeating all aspects of life. Technology enabled communications services are being deployed to facilitate various economic transactions, thereby playing critical roles in the economy in general and in the digitized economy in particular. In light of this, the role of communications service providers such as Telecom Service Providers, Value Added Service Providers (including the provision of technology services to banks, vehicle tracking service, entertainment and information service), Data Center Service Providers, Virtual Internet Service Providers, in digitizing the economy cannot be overestimated.
With the aim of facilitating the creation of an efficient and reliable communications services, Ethiopia has promulgated laws, including the Communications Service Proclamation No. 1148/2019 (“the Proclamation”) and a number of subsidiary laws (directives). The Proclamation defines communications service as a service that consists of the dissemination or interchange of audio, video or data content using telecommunications media, and if a physical content, using postal service. As such, communications services can be broadly catogorised into two: telecommunications service and postal service. Postal service in Ethiopia is generally conducted by a public enterprise, the Ethiopian Postal Services Enterprise, with the exception of courier services which is fully open for private investors including foreign investors. This legal update limits the discussion to the licensing regime on telecommunications services.
The legal update has two sections. The first section discusses the licensing regime on telecommunications services. The second section explores issues in relation to the provision of telecommunications services to Ethiopian market remotely i.e. the delivery of services to the Ethiopian market by companies based off-shore.
Licensing Regime for Telecommunications Services
The Ethiopian Communications Authority (ECA) enacted the Telecommunications Licensing Directive No. 792/2021 (“Telecom Licensing Directive”) to regulate licensing of telecommunications services. The Telecom Licensing Directive provides three types of licenses: Individual license, Class License; and Radio Frequency Spectrum and Land Mobile Radio Licenses. That said, the Telecom Licensing Directive anticipates that additional category of licenses may be determined in the future.
Individual license is a “license granted by means of a competitive licensing process, which involves the selection of one or more operators from a group of applicants for a limited number of Licenses”. Such type of license includes the Unified Telecommunications License (UTL), which is granted for activities of planning, building, operating, and maintaining of any mobile and fixed networks. This type of license is granted for a period of fifteen years, which can be renewed when it expires. An example of this license is the UTL license granted to Safaricom Telecommunications Ethiopia PLC upon winning an international bid.
Class License, on the other hand, allows “any person that complies with the basic terms and conditions of the authorization to provide a telecommunications service and/or use frequencies without the need for an Individual License”. Unlike individual license, class license, in principle, can be granted to any person who meets the basic terms and conditions of license authorization set by the ECA. Most of the licenses enumerated under the Telecom Licensing Directive are class licenses.
Class licenses, among others, include: Telecommunications Value-Added Service (VAS) License; Hosting Service Provider License; Data Service Provider License; Internet Service Provider License; Outdoor Telecommunications Facilities Installation License; Indoor Telecommunications Facilities Installation and Maintenance Works License. In addition to the individual and class licenses, a third category of licenses namely Radio Frequency Spectrum and Land Mobile Radio Licenses has been included under the Directive.
The ECA is given the power to exempt some specified telecommunications services or class of persons from being required to obtain a license. This license exemption is intended to meet the needs of target persons who may wish to connect specifically defined communities as well as not-for-profit and/or social purpose organizations to telecommunications services.
Provision of Communications Services from Off-shore
The development of technology has enabled many companies to provide services off-shore i.e. without local presence. From an Ethiopian law perspective, the issues would be whether Ethiopian entities or individuals are allowed to import services from abroad and whether the off-shore (non-resident) entities will be subject to regulations of Ethiopian law for providing services from overseas. Notwithstanding data protection rules, there is generally no legal limitation placed on Ethiopian-based businesses to import services from abroad.
That said, one relevant issue, that may legitimately be of concern is the tax aspect applicable on the provision of such service which in turn will depend on the manner and duration of the non-resident company’s business in Ethiopia. The determination of a non-resident company providing service to clients in Ethiopia being subject to Ethiopia’s tax regime depends on whether or not the non-resident company’s services qualify as Permanent Establishment (“PE”). A non-resident which earns income from Ethiopia resulting from its PE’s activities is treated in the same way as a resident tax payer for purposes of taxation of the income earned from Ethiopia. In addition, Ethiopia’s tax law requires full-fledged fiscal registrations from PE and, most notably, securing a Tax Identification Number (TIN).
Generally, a PE exists in Ethiopia if a person has a fixed place of business in Ethiopia. However, the Ethiopian law further provides that the furnishing of services by a non-resident or through employees or other personnel engaged by the non-resident for such purpose can be deemed a PE – but only if services last for a continuous or an aggregated period of more than 183 (One Hundred Eighty Three) days within a given one-year period. Thus, the provision of communications services by a non-resident entity to clients in Ethiopia may be subject to the tax law regime (including tax registration and taxation of business income tax), if the non-resident entity is deemed as a PE in light of Ethiopian law.
Further, restrictions set under the pertinent Ethiopian data protection rules have implications on services provided from off-shore. In particular, services including data storage, hosting and processing may not be provided from off-shore due to legal restrictions on the transfer of certain data overseas. As such, local presence may be required for the provision of some communications services.
Communications services continue to play a significant role in the digitized economy. As such, Ethiopia’s recent efforts to regulate the sector with a view to enhancing the economic and social development is a step in the right direction. Regulating the communications service will not be an easy task as the delivery of the service is highly dependent on the ever dynamic technology. Therefore, the government’s regulatory capacity to cope up with fast-changing technology will be critical in creating an enabling environment for investors in the sector and the overall economy.
The information contained in this legal update is only for general information purposes. Nothing herein shall be considered and relied upon as a legal advice or a substitute thereto.