Skip to content

Somalia

Country Name: Federal Republic of Somalia
Currency: Somali Shilling (SOS)
Primary Tax Authority: Ministry of Finance, Federal Government of Somalia
Key Legislation:

  • Income Tax Act
  • Value Added Tax (VAT) Law
  • Customs and Excise Act
  • Investment Promotion Law
  • Tax Procedures Code

Fiscal Authority Allocation

Centralized and Decentralized System:
Somalia’s fiscal system is a mix of centralized and decentralized structures. The Federal Government administers key taxes such as corporate income tax (CIT), personal income tax (PIT), and VAT, while some local governments levy smaller local taxes, particularly in autonomous regions like Somaliland and Puntland.

Corporate Income Tax (CIT)

Standard Rate: 10%
Somalia imposes a corporate income tax rate of 10% on 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 Somalia-sourced income.

Exemptions and Incentives:

  • Investment Incentives: The Investment Promotion Law offers tax holidays, customs duty reductions, and VAT exemptions for companies investing in priority sectors such as agriculture, fishing, telecommunications, and infrastructure.
  • Free Economic Zones (FEZs): Companies operating in FEZs benefit from CIT exemptions, customs duty reductions, and VAT relief for a period of up to 10 years.

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

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

Exemptions:
Certain goods and services, such as unprocessed agricultural products, healthcare, education, and financial services, are VAT-exempt. Exports are zero-rated, allowing businesses to claim VAT refunds on inputs used in producing export goods.

Personal Income Tax (PIT)

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

Resident Tax Rates for 2023 (Annual Income):

  • Up to SOS 2,000,000: 0%
  • SOS 2,000,001 to SOS 4,000,000: 5%
  • SOS 4,000,001 to SOS 8,000,000: 10%
  • Above SOS 8,000,000: 15%

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

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

Additional Mandatory Contributions

Social Security Contributions:
Somalia has a limited social security system, focused on pensions and public healthcare.

  • Employer Contribution: 5% of gross salary.
  • Employee Contribution: 2% of gross salary.

Withholding Taxes

  • Dividends: 5% for residents, 10% for non-residents
  • Interest: 10% for residents, 10% for non-residents
  • Royalties: 10%
    Somalia imposes withholding taxes on payments to non-residents, including dividends, interest, and royalties. These rates may be reduced under double taxation agreements (DTAs), though Somalia currently has limited DTA coverage.

Transfer Pricing Rules

Somalia is in the process of developing transfer pricing rules. The government plans to introduce regulations requiring companies to adhere to the arm’s-length principle for related-party transactions, though currently no formal rules are in place.

Special Tax Regimes

  • Free Economic Zones (FEZs): Companies operating in Somalia’s FEZs enjoy tax holidays, customs duty exemptions, and VAT relief for up to 10 years. These zones are designed to promote export-oriented industries and attract foreign direct investment.
  • Investment Incentives: The government offers tax holidays and customs duty exemptions for companies investing in key sectors such as agriculture, fisheries, and renewable energy.

Other Taxes

  • Customs Duties: Somalia applies customs duties on imported goods, with rates ranging from 5% to 25%, depending on the type of goods. Raw materials and essential goods may qualify for reduced or zero customs duties.
  • Excise Taxes: Excise taxes are levied on goods such as alcohol, tobacco, petroleum products, and luxury items.
  • Property Tax: Local governments in autonomous regions such as Puntland and Somaliland impose property taxes on land and buildings, based on their assessed value.

Double Taxation Agreements (DTAs)

Somalia has limited coverage in terms of double taxation agreements (DTAs). The government is working on expanding its network of DTAs to attract more foreign direct investment and reduce withholding taxes on cross-border income.

Local Taxes

Local governments in Somalia may impose property taxes, business license fees, and local service levies. Taxation in autonomous regions such as Somaliland and Puntland includes local taxes that may vary from the national system.

Compliance and Reporting

Annual Filing:
Corporate tax returns must be filed within six months following the end of the financial year. Personal income tax returns are generally due by March 31st. VAT returns are filed monthly or quarterly, 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. The Ministry of Finance imposes interest at 1.5% per month on overdue taxes, with additional penalties for tax evasion or underreporting.

Recent Developments

Focus on Infrastructure and Reconstruction:
Somalia is prioritizing infrastructure projects, particularly in transportation, telecommunications, and energy. The government offers tax incentives such as CIT reductions and customs duty exemptions to encourage investment in these areas.

Oil and Gas Exploration:
Somalia’s offshore oil and gas sector is attracting foreign investment. The government is developing regulatory frameworks to offer tax incentives and customs duty reductions for companies engaged in oil and gas exploration.

Digital Taxation:
Somalia is exploring digital taxation as part of broader efforts to expand its tax base. The government is also working to implement electronic tax filing systems to improve compliance and transparency.

Subscribe to my free newsletter for regular updates on law, taxation and business worldwide.

Tags: