Taxable income is determined by adjusting the accounting/ financial income for non-tax deductions, exemptions, etc. General deduction of expenses is allowed on accrual basis. The Proclamations on Mining and Petroleum activities provide for the following rules regarding the determination of taxable income:

All capital expenditure including pre-production costs may be capitalized at cost if the transaction is not with an affiliated party. For transactions with an affiliated party, the licensing authority may adjust the costs incurred to reflect an arm’s length price;
Capital contributions to the licensee in the form of physical assets may be capitalized and depreciated;
Pre-production exploratory and study costs may be depreciated at a rate of 25% per annum;
General administrative expenses and management and professional commissions and services, lease licensing and other fees incurred within and outside of Eritrea for mining and petroleum operations are deductible, provided that the amounts expended were for services actually rendered or property actually provided and correspond to amounts normally paid by other persons in similar transaction; and
Interest payments on loans used exclusively to finance mining and petroleum operations, excluding those to prospect and explore, are deductible provided that the interest rate is fixed on a reasonable commercial basis and reflects that which would normally be paid by another person with a similar credit rating and equity/debt ratio as the taxpayer in question for similar financing and that the loan has been previously approved on this basis by the Licensing Authority.

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