AmendmentInvestment

Establishment and Operation of Foreign Currency Account for Non-Resident Ethiopians and Non-Resident Ethiopian Origin (As Amended) (Directive No. 784/2021)

National Bank Of Ethiopia784/2021

Summary

This directive, as amended, outlines the procedures and conditions for non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin to open and operate foreign currency accounts in Ethiopian banks. It aims to incentivize diaspora to maintain foreign currency in Ethiopia, thereby supporting domestic investment and the country's foreign exchange reserves.

Who's affected

Non-resident Ethiopians, non-resident foreign nationals of Ethiopian origin, and Ethiopian banks.

Action required

Non-resident Ethiopians and foreign nationals of Ethiopian origin should review the eligibility criteria and required documentation to open a foreign currency account. Banks must comply with the operational and reporting requirements outlined in the directive.

Key points

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  • Establishes rules for foreign currency accounts for non-resident Ethiopians and those of Ethiopian origin.
  • Aims to attract diaspora funds for investment and improve foreign exchange reserves.
  • Specifies eligibility, account types, currencies, deposit methods, and usage.
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    • Outlines penalties for violations by banks and account holders.
    • Amends and replaces Directive No. FXD/64/2019.

Requirements

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  • Eligibility criteria for opening accounts include being a Non-Resident Ethiopian or a Non-Resident Foreign National of Ethiopian Origin.
  • Specific documentation is required, such as application forms, resident permits, work permits, passports, identification cards, and business ownership certificates.
  • Minimum initial deposit for a current account is USD 100, and for a fixed deposit account is USD 5,000.
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    • Accounts can be opened in USD, Pound Sterling, or Euro, with other convertible currencies accepted and converted.
    • Deposits can be made through various means including transfers, checks, and cash notes (with specific limits and declaration requirements).
    • Opening banks must maintain confidentiality, submit monthly reports, and prepare undertaking letters for account holders.
    • Foreign currency accounts must be maintained in USD, Pound Sterling, or Euro.
    • 30% of foreign currency credited to a current account shall be automatically converted into Birr.

Rights and permissions

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  • Account holders can use the foreign currency accounts for local payments in Birr, foreign payments for specified import items and services, transfers abroad, withdrawal for travel allowance, conversion to Birr, and payment of bank charges.
  • Fixed deposit accounts can serve as collateral for local currency loans.
  • Interest income on non-resident foreign currency fixed deposit accounts is free from income tax.
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    • Banks shall provide monthly account statements, create mechanisms for withdrawals and local payments, credit interest quarterly, and facilitate standing authorizations for permanent payments.
    • Diaspora International Remittance Service Providers have the right to retain 45% of foreign currency inflow.
    • Repatriation of deposits from fixed and current accounts is allowed upon request.

Restrictions

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  • Power of attorney holders are not allowed to open foreign currency accounts or credit them on behalf of non-residents, but can withdraw under specific conditions.
  • Overdrawing of accounts is prohibited.
  • Foreign exchange acquired from forex bureaus or other local sources cannot be used to credit or open a foreign currency account.
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    • Opening banks shall not honor cheques drawn in favor of residents who do not hold similar non-resident foreign currency accounts.
    • Fixed deposit accounts cannot be withdrawn before maturity without incurring an interest penalty.
    • Depositing cash notes exceeding USD 3,000 requires a signed declaration form from the Ethiopian Revenue and Custom Authority.
    • Residents from neighboring and Middle East countries have specific declaration requirements for cash deposits up to USD 3,000.

Penalties

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  • Any bank violating the directive shall be subject to a penalty of USD 5,000 for each violation.
  • If an account holder violates the directive, the opening bank may suspend the account and report to the NBE.
  • Failure to comply with the directive may result in punishment according to Article 26 of the National Bank of Ethiopia Establishment (as Amended) Proclamation No. 591/2008.

Objectives

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  • To create incentives for Ethiopians in the diaspora to maintain foreign currency accounts in Ethiopia.
  • To encourage domestic investment through diaspora funds.
  • To support the international foreign exchange reserve.
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    • To ease the balance of payments problem of the country.
    • To encourage foreign direct investment.

Organizations

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  • National Bank of Ethiopia
  • Commercial Banks in Ethiopia
  • Ethiopian Revenue and Custom Authority
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    • Ethiopian Embassies
    • Ethiopian Postal Service

Legal references

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  • National Bank of Ethiopia Establishment Proclamation No. 591/2008, Article 20(2) and Article 27(2)
  • Proclamation No. 270/2002
  • Transparency in Foreign Currency Allocation and Foreign Exchange Management Directive
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    • Foreign Currency Account for Non-Resident Ethiopians and Non-Resident Ethiopian Origin Directive No. FXD/64/2019
Original sourcehttps://justice.gov.et/en/directives/establishment-and-operation-of-foreign-currency-account-for-non-resident-ethiopians-and-non-resident-ethiopian-origin-as-amended-directive-no-784-2021/
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