Djibouti

In Djibouti, employers face several tax obligations, including payroll taxes and social security contributions.

Employer Payroll Taxes

• Social Security: Employers contribute 4% of each employee's gross salary to social security.
• Disability Insurance: Employers contribute 6.2% of each employee's gross monthly salary towards disability insurance.
• Family Allowances: Employers contribute 5.5% of each employee's gross monthly salary for family allowances.
• Health and Professional Injuries: While not explicitly stated as the employer's responsibility in the sources, they may also be liable for an additional contribution towards Obligatory Health Insurance of 2% for a total combined contribution of 17.7%. Hence, the total employer contribution, excluding the potential 2% health insurance, is 15.7% of the employee's gross monthly salary.

Employee Payroll Taxes

• Social Security: Employees contribute 4% of their gross salary towards social security.
• Income Tax: Djibouti uses a progressive income tax system, with rates varying based on income levels as of 2024:
  • Up to DJF 30,000: 2%
  • DJF 30,001 to DJF 50,000: 12%
  • DJF 50,001 to DJF 150,000: 15%
  • DJF 150,001 to DJF 300,000: 22%
  • DJF 300,001 to DJF 600,000: 25%
  • DJF 600,001 to DJF 1,000,000: 30%
  • DJF 1,000,001 to DJF 2,000,000: 35%
  • Over DJF 2,000,000: 44% (A rate of 45% was stated in one source, but 44% is consistent across multiple sources)

Corporate Tax

Companies incorporated in Djibouti are subject to a 25% corporate tax on their worldwide income. Non-resident companies are generally taxed on income sourced within Djibouti. Companies benefiting from the Investment Code may be exempt.

Additional Considerations

• Payroll Cycle: Typically monthly, with payments within the first eight days of the following month.
• Fiscal Year: January 1st to December 31st.
• Minimum Wage: No legally mandated national minimum wage for the private sector.
• 13th-Month Salary: Not obligatory.
• Work Permits: Required for foreign nationals. Employers are responsible for obtaining work permits from the National Agency for Employment, typically valid for one year.
• Tax Filing Deadline: Corporate income tax returns must be filed by March 31st of the following year. Social security contributions are due by the 15th day of the following month.

Important Note: Tax laws and regulations are subject to change. This information is current as of February 5, 2025, but it's crucial to consult with local authorities or a tax professional for the most up-to-date details and specific requirements for your situation.

In Djibouti, employee tax deductions encompass income tax, social security contributions, and other statutory deductions.

Income Tax

• Progressive Rates: Djibouti employs a progressive income tax system, meaning higher earners pay a larger percentage of their income in taxes. The rates range from 2% to 30%.
• Tax Brackets (2025): While the sources do not provide the exact current brackets, they mention rates between 2% and 30%. A previous bracket structure was:
  • 2% for up to 30,000 DJF
  • 15% for 30,001 to 50,000 DJF
  • 18% for 50,001 to 150,000 DJF
  • 20% for 150,001 to 600,000 DJF
  • 30% for above 600,000 DJF.
• Exemption Threshold: Incomes below 50,000 DJF (approximately $280 USD as of January 2025) are generally exempt from income tax.

Social Security Contributions

• Employee Contribution: Employees contribute 4% of their monthly wages to social security.
• Employer Contribution: Employers also contribute 4% of the employee's monthly wages to social security.

Other Deductions and Employer Contributions

• Disability Insurance: Employers contribute 6.2% of the employee's monthly wages towards disability insurance.
• Family Allowance: Employers contribute 5.5% of the employee's monthly wages towards a family allowance.
• Health and Professional Injuries: The combined contribution for health and professional injuries by employers is reportedly 6.2%.
• Obligatory Health Insurance: Some sources mention employers paying an additional 2% for obligatory health insurance, resulting in a total employer contribution of approximately 17.7%.

Additional Information

• PAYE System: Many employers in Djibouti utilize the Pay-As-You-Earn (PAYE) system, automatically deducting taxes from employee salaries. This simplifies tax compliance for employees.
• Non-Resident Withholding Tax: Non-residents earning income in Djibouti are subject to a 10% withholding tax.
• Currency: The official currency is the Djiboutian Franc (DJF).
• Important Note: Tax laws and regulations are subject to change. The information provided is believed to be accurate as of February 5, 2025 but should be confirmed with official sources for the latest updates.

In Djibouti, the Value Added Tax (VAT) is a consumption tax applied to most goods and services.

VAT Rates and Applicability

• Standard Rate: 10% (This rate applies to most goods and services.)
• Zero Rate: 0% (Applicable to exports.)
• Exempt: Certain goods and services are exempt from VAT, such as banking and insurance operations, real estate transactions, medical services, and some food items. It's important to note that VAT incurred on expenses related to staff, hotels, restaurants, entertainment, and touristic vehicles is generally not deductible.

VAT Registration

Businesses with an annual turnover of DJF 50 million or more are required to register for VAT.

VAT Filing and Payment

VAT returns are typically filed monthly. Although the filing process can be done electronically by the last day of the following month, manual submission requires fulfilling it by the last business day of the following month at the local tax office. This includes both VAT declarations and payment of any tax due.

Input VAT

Businesses registered for VAT can generally claim a deduction or credit for the VAT they have paid (input VAT) on purchases of goods and services directly related to their taxable activities. Input tax on goods and services related to VAT-exempt sales cannot be reclaimed. The input VAT claim is made when filing the monthly VAT return, by offsetting it against the output VAT collected.

VAT for Non-Residents

Non-resident companies conducting taxable activities in Djibouti are subject to the same VAT rules as resident companies. They must appoint a tax representative in Djibouti responsible for declaring and paying VAT. If no tax representative is appointed, a reverse charge mechanism may apply, requiring the Djiboutian recipient of the services to account for the VAT.

Upcoming Changes

The Djiboutian government announced in November 2024 a proposal to introduce an 18% VAT by 2026, replacing the current goods and services tax.

Additional Information

• It's crucial to maintain accurate records of all transactions to comply with VAT regulations.
• Penalties may apply for late filing or non-payment of VAT.
• It's important to keep track of any changes in tax laws and regulations to remain compliant.

Please note that this information is current as of February 5, 2025, and may be subject to change. Consulting with a tax advisor is recommended for specific guidance.

Djibouti offers a range of tax incentives primarily geared towards attracting foreign investment and promoting specific sectors.

General Tax Incentives

• Investment Code Incentives: Investments exceeding DJF 50 million (approximately US$ 282,486 as of 2024) and creating several permanent jobs can qualify for exemptions from various taxes. These include license and registration fees, property taxes, taxes on industrial and commercial profits, and corporate entity profit taxes. Imported raw materials used in manufacturing may also be exempt from internal consumption tax. These exemptions can last up to 10 years after production begins. Note that incentives are often negotiated on a case-by-case basis and depend on agreements with the relevant ministries.
• Free Zone Incentives: Companies operating within Djibouti's free zones are exempt from most direct and indirect taxes, excluding VAT. Some sources mention a potential exemption period of up to 50 years, renewable. Free Zone companies do remain subject to provisions of the general tax code.
• Business Tax Exemption for New Companies: Newly registered companies, both foreign and Djiboutian, categorized within specific business tax classes (Classes V to VIII, based on annual business tax amounts) are exempt from certain taxes for their first three years of operation. Note that information on specific classes and current business tax amounts may be outdated.
• Tax Incentives for Specific Industries: To incentivize investments in priority sectors (such as industry, services, agriculture and health, and tourism), the government has planned a new investment charter distinguishing incentives by sector.

Free Zone Specific Information

• Free Zone Company Types: The Free Zone Establishment (FZE) and the Free Zone Company (FZCO) are the common company types within the free zones, subject to the Free Zones Law, Commercial Companies Law, and the Free Zone Law.
• Local Hiring Requirements: Companies in the free zone should ensure their workforce is at least 30% local hires for the first five years of operation. This percentage requirement increases to 70% after this period.

Application Procedures

Information on specific application procedures is limited and often requires direct engagement with the Djiboutian authorities or ministries relevant to the specific sector. However, negotiating incentives is often done on a case-by-case basis.

Additional Information

• Dividends: Dividends are generally not subject to tax in Djibouti.
• Capital Gains: Sources suggest the capital gains tax rate in Djibouti is 0%.
• VAT: Djibouti has a VAT, which applies even within free zones. The rate is 33%, ranking Djibouti on the higher end globally for VAT rates.
• Corporate Tax: The general corporate tax rate outside of free zones and specific exemptions is reported to be 25% (some older sources state 38%).
• Social Security Contributions: Employers contribute 15.7% while employees contribute 4% to social security.

It is crucial to verify this information with current official Djiboutian government sources or consult with local tax advisors for the most up-to-date details and specific guidance. Tax laws and regulations can change, and individual circumstances may impact eligibility for specific incentives. This information is current as of February 5, 2025, and is subject to change.