Country Name: Republic of Yemen
Currency: Yemeni Rial (YER)
Primary Tax Authority: General Authority for Zakat and Tax (GAZT)
Key Legislation:
- Income Tax Law
- General Sales Tax Law (GST)
- Corporate Tax Law
- Customs Law
Fiscal Authority Allocation
Centralized Fiscal System:
Yemen operates a centralized tax system where the General Authority for Zakat and Tax (GAZT) is responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), and the general sales tax (GST). Local governments have limited taxing authority.
Corporate Income Tax (CIT)
Standard Rate: 20%
Yemen imposes a corporate income tax rate of 20% on the net taxable income of resident companies. Non-resident companies are taxed on their Yemen-sourced income.
Corporate Forms and Taxation:
- Corporation (Company): Resident companies are taxed at the 20% CIT rate on their worldwide income.
- Branches of Foreign Companies: Non-resident companies are taxed at the same CIT rate on Yemen-sourced income.
Exemptions and Incentives:
- Investment Incentives: Yemen offers tax holidays and other incentives to companies investing in key sectors such as oil and gas, agriculture, and manufacturing. Incentives may include customs duty reductions and CIT exemptions for a limited period.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 5%
Yemen applies a General Sales Tax (GST) at a rate of 5% on most goods and services. The GST functions similarly to a VAT, with businesses able to reclaim GST paid on inputs.
Exemptions:
Basic food items, healthcare, education, and certain financial services are exempt from GST. Exports are zero-rated, allowing businesses to claim GST refunds on inputs used in export production.
Personal Income Tax (PIT)
Progressive Rates:
Yemen applies progressive personal income tax rates as follows:
- Up to YER 300,000: 10%
- YER 300,001 to YER 1,000,000: 15%
- Above YER 1,000,000: 20%
Zakat:
In addition to PIT, individuals and businesses may be subject to Zakat, an obligatory almsgiving system rooted in Islamic law. The Zakat rate is generally 2.5% of qualifying assets and income and is collected alongside taxes.
Additional Mandatory Contributions
Social Security Contributions:
Employers and employees must contribute to Yemen’s social security system, which provides pensions and other social benefits.
- Employer Contribution: 9% of gross salary.
- Employee Contribution: 6% of gross salary.
Withholding Taxes
- Dividends: 10% withholding tax on dividends paid to non-residents.
- Interest: 10% withholding tax on interest paid to non-residents.
- Royalties: 10% withholding tax on royalties paid to non-residents.
Withholding tax rates may be reduced under double taxation agreements (DTAs).
Transfer Pricing Rules
Yemen does not have specific transfer pricing regulations. However, the tax authority expects related-party transactions to be conducted at arm’s length in accordance with general international principles.
Special Tax Regimes
- Oil and Gas Sector: Yemen’s economy is heavily dependent on the oil and gas sector. Companies operating in these industries are subject to special tax regimes, including higher taxes and royalties on production, but also benefit from various incentives like tax holidays and reduced customs duties on imports of equipment and machinery.
- Free Zones: Yemen has established free zones that offer tax incentives for foreign investors, such as CIT exemptions, customs duty waivers, and simplified tax procedures for export-oriented businesses.
Other Taxes
- Customs Duties: Import duties are levied on goods brought into Yemen. Rates range from 5% to 25%, depending on the type of goods. Essential goods like food and medical supplies are often subject to lower rates or exemptions.
- Excise Taxes: Excise taxes are imposed on specific goods such as alcohol, tobacco, and petroleum products.
- Property Tax: Yemen imposes a property tax on land and buildings, with rates varying by region and property type.
Double Taxation Agreements (DTAs)
Yemen has signed several double taxation agreements (DTAs) with countries such as Saudi Arabia, Egypt, and France. These agreements help reduce withholding taxes on dividends, interest, and royalties, and prevent the double taxation of cross-border income.
Local Taxes
Local governments in Yemen have limited authority to impose taxes. Most revenue collection, including CIT, PIT, and GST, is centralized under the General Authority for Zakat and Tax (GAZT).
Compliance and Reporting
Annual Filing:
Corporate tax returns must be filed by March 31st of the following year. Personal income tax returns are also due by the same date. The tax year in Yemen follows the calendar year.
Penalties for Late Filing:
Penalties for non-compliance or late filing include interest on overdue taxes and fines. Interest on unpaid taxes is typically set at 1.5% per month, with additional penalties for significant delays.
Recent Developments
Oil and Gas Sector Developments:
Yemen is highly dependent on the oil and gas sector for revenue, and the government continues to offer tax incentives to attract foreign investment. However, ongoing conflict in the country has severely affected the energy sector, leading to fluctuating production levels and revenues.
Humanitarian Crisis and Economic Impact:
Yemen is experiencing a severe humanitarian crisis, with much of its infrastructure, including tax collection systems, disrupted due to ongoing conflict. Despite this, the government has been working to maintain revenue through oil exports, foreign aid, and limited tax collection in stable regions.
Free Zones and Economic Diversification:
Yemen is attempting to diversify its economy by promoting investment in free zones, agriculture, and fisheries. Tax incentives, such as exemptions from CIT and customs duties, are available for companies willing to invest in these sectors despite the challenges posed by the country’s political instability.
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