In Djibouti, employers have a significant responsibility towards making contributions to social security funds on behalf of their employees.

Social Security Contributions

The contributions are broken down as follows:

• Retirement: Employers contribute 4% of the employee's gross salary.
• Family Allowances: Employers contribute 6.2% of the employee's gross salary.
• Disability Insurance: Employers contribute 5.5% of the employee's gross salary.
• Obligatory Health Insurance: Employers contribute 2% of the employee's gross salary.

It's important to note that social security contribution rates are capped at a maximum monthly salary of approximately DJF 400,000.

Other Tax Contributions

Employers may also be subject to a professional training tax, which is calculated on the total salary of employees. The rate of this tax can vary.

Important Considerations

Employers are responsible for withholding employee contributions, adding their own contributions, and remitting the total payments to the appropriate social security funds. It's also crucial for employers to stay up-to-date on Djibouti's tax regulations, as these contributions might be subject to change.

In Djibouti, a progressive income tax system is in operation. The tax rates are dependent on the employee's income level. Generally, income of less than DJF 50,000 ($280) per month is exempt from tax.

Employee Social Security Contributions

Employees in Djibouti contribute to various social security funds. These include:

• Retirement: This is 4% of the employee's gross salary.
• Obligatory Health Insurance: This is 2% of the employee's gross salary.

Important Considerations for Employees

• Contribution Caps: Social security deductions have a maximum salary threshold, which is approximately DJF 400,000 per month.
• Withholding: Employees should be aware that income tax and social security contributions are withheld from their salaries.

The standard VAT rate in Djibouti is 10%. Certain categories of services might be exempt from VAT, often relating to essential services or those considered exports.

VAT Liability for Services

When determining your VAT liability in Djibouti, consider the place of supply, which determines where a service is deemed to be supplied for VAT purposes. Specific rules apply depending on the type of service, whether the customer is a business (B2B), or a consumer (B2C), and on the location of both parties. Services provided by a foreign business to a Djiboutian company might trigger VAT implications, with the Djiboutian company often becoming liable under a reverse charge mechanism. Similarly, exporting services to clients outside Djibouti might be treated as VAT-exempt exports.

Important Categories of Services

Professional services like consulting, legal, and accounting are generally subject to VAT in Djibouti when the place of supply rules determine Djibouti as the place of taxation. Services with a strong connection to a property located in Djibouti, such as construction and real estate services, usually fall under Djiboutian VAT rules.

VAT Registration and Reporting

Businesses in Djibouti exceeding a specific turnover threshold might be required to register for VAT. Registered businesses must file periodic VAT returns and make corresponding payments to the tax authorities in Djibouti. Consult the Djiboutian Ministry of Finance for the most current information on registration thresholds.

Important Considerations

Understanding place of supply rules and the VAT treatment of different types of services is crucial.

Djibouti's Free Trade Zones provide substantial tax advantages for qualifying businesses. Companies operating within these designated zones may be exempt from corporate income tax for varying periods, sometimes up to 25 years. Additionally, businesses in the Free Trade Zone can benefit from exemptions on import and export duties.

Investment Promotion Incentives

To stimulate investment in several key sectors, Djibouti offers incentives such as tax holidays and reduced tax rates. Businesses making significant investments in priority areas may be eligible for corporate tax holidays for a determined period. Reduced corporate tax rates can apply to companies engaging in specified activities.

Other Potential Incentives

There are also tax exemptions available for profits reinvested within the Djiboutian economy.

Important Considerations

To access various tax incentives, specific eligibility criteria and application processes apply. It's crucial to ensure your business and proposed activities meet these requirements. Many tax incentives are targeted towards specific sectors such as manufacturing, tourism, and logistics.