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Djibouti

Country Name: Republic of Djibouti
Currency: Djiboutian Franc (DJF)
Primary Tax Authority: Djibouti Ministry of Economy and Finance (Direction Générale des Impôts, DGI)
Key Legislation:

  • General Tax Code
  • Value Added Tax (VAT) Law
  • Customs Code
  • Investment Code
  • Tax Procedures Law

Fiscal Authority Allocation

Centralized Fiscal System:
Djibouti operates a centralized tax system. The Djibouti Ministry of Economy and Finance, through the Directorate General of Taxes (DGI), is responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), value-added tax (VAT), and customs duties.

Corporate Income Tax (CIT)

Standard Rate: 25%
Djibouti imposes a flat corporate income tax rate of 25% on the net taxable income of resident companies and non-resident companies with a permanent establishment in the country.

Corporate Forms and Taxation:

  1. Resident Companies: Taxed on worldwide income.
  2. Non-Resident Companies: Taxed only on Djibouti-sourced income.

Exemptions and Incentives:

  • Investment Incentives: Djibouti offers tax holidays, customs duty reductions, and VAT exemptions to companies investing in priority sectors such as logistics, infrastructure, telecommunications, and renewable energy. The Investment Code provides specific incentives based on the size and type of investment.
  • Free Trade Zones: Companies operating in Djibouti’s free zones enjoy CIT exemptions for up to 10 years, VAT exemptions, and customs duty relief on imported goods and equipment.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

Standard Rate: 10%
Djibouti imposes VAT at a standard rate of 10% on most goods and services. VAT is applied to both domestic production and imports.

Exemptions:
Certain goods and services, including healthcare, education, and basic food items, are VAT-exempt. Exports are zero-rated, meaning businesses can claim refunds on VAT paid on inputs used to produce export goods.

Personal Income Tax (PIT)

Progressive Rates:
Djibouti applies a progressive personal income tax system to residents’ worldwide income and non-residents’ Djibouti-sourced income.

Resident Tax Rates for 2023 (Annual Income):

  • Up to DJF 300,000: 2%
  • DJF 300,001 to DJF 1,000,000: 10%
  • Above DJF 1,000,000: 20%

Non-Resident Tax Rate:
Non-residents are taxed at a flat rate of 10% on Djibouti-sourced income.

Deductions and Allowances:
Taxpayers may deduct social security contributions, pension fund contributions, and charitable donations from taxable income.

Additional Mandatory Contributions

Social Security Contributions:
Employers and employees must contribute to Djibouti’s social security system, which covers pensions, healthcare, and other social services.

  • Employer Contribution: 15.7% of gross salary.
  • Employee Contribution: 4% of gross salary.

Withholding Taxes

  • Dividends: 15%
  • Interest: 15%
  • Royalties: 20%
    Djibouti imposes withholding taxes on payments to non-residents, including dividends, interest, and royalties. These rates may be reduced under double taxation agreements (DTAs).

Transfer Pricing Rules

Djibouti follows the arm’s-length principle for transactions between related parties. Companies engaging in cross-border transactions must ensure that prices reflect market value. Transfer pricing documentation is required for companies with significant related-party transactions.

Special Tax Regimes

  • Free Trade Zones: Companies operating in Djibouti’s free trade zones benefit from CIT holidays for up to 10 years, VAT exemptions, and customs duty reductions. These zones aim to attract foreign direct investment (FDI) and promote export-oriented industries.
  • Investment Incentives: Under Djibouti’s Investment Code, companies investing in key sectors such as logistics, energy, and telecommunications may benefit from CIT reductions, customs duty exemptions, and VAT deferrals for up to 10 years.

Other Taxes

  • Customs Duties: Djibouti, as a key logistics hub, imposes customs duties on imports, with rates ranging from 5% to 30%, depending on the type of goods. Essential goods and raw materials may qualify for reduced or zero customs duties.
  • Excise Taxes: Excise taxes are levied on products such as alcohol, tobacco, luxury goods, and petroleum products.
  • Property Tax: Djibouti imposes property taxes on commercial and residential properties, calculated based on the value of the property.

Double Taxation Agreements (DTAs)

Djibouti has signed several double taxation agreements (DTAs) with countries in Africa and the Middle East. These agreements help reduce withholding taxes on cross-border income and prevent the double taxation of income earned in Djibouti and other jurisdictions.

Local Taxes

Local governments in Djibouti may impose minor taxes, such as business license fees and property taxes. However, most significant taxes, including CIT, PIT, and VAT, are centrally administered by the Ministry of Economy and Finance.

Compliance and Reporting

Annual Filing:
Corporate tax returns must be filed by the end of the fourth month following the company’s financial year-end. Personal income tax returns are generally due by March 31st. VAT returns are filed quarterly or monthly, depending on the size of the business.

Penalties for Late Filing:
Penalties for non-compliance or late filing include fines and interest on unpaid taxes. Interest is charged at 1% per month on overdue tax amounts, with additional penalties for tax evasion or underreporting income.

Recent Developments

Logistics and Infrastructure Investment:
Djibouti’s strategic location as a logistics and shipping hub has attracted significant foreign investment, particularly in port infrastructure and telecommunications. The government is offering tax incentives, including CIT holidays, VAT exemptions, and customs duty reductions for companies investing in these sectors.

Focus on Renewable Energy:
Djibouti is promoting investment in renewable energy projects, particularly solar and wind energy. Companies investing in these projects can benefit from CIT exemptions, VAT deferrals, and customs duty reductions on imported energy equipment.

Digital Economy and E-Government:
Djibouti is working to modernize its tax administration by introducing electronic filing systems and enhancing e-government services. These initiatives are aimed at improving tax compliance and reducing administrative burdens on businesses.

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