Among Djibouti’s economic advantages is its strategic position at the southern entrance to the Red Sea, making the country a bridge between Africa and the Middle East. Located near some of the world’s busiest shipping lanes, Djibouti is home to US, Chinese, French, Japanese and NATO military bases supporting regional anti-piracy efforts, among other purposes. The economy is oriented around one of the world’s most modern port complexes, and additional economic activity is derived from submarine telecoms cable infrastructure.
Incentives
Djibouti’s Investment Code permits any natural or legal person of Djiboutian or foreign nationality the freedom to invest and undertake an economic activity. Establishing a joint venture with a Djiboutian national is not required for foreign investment, and local and foreign investors are treated equally under the law. However, some professions are regulated, and therefore affected companies must obtain approval from the relevant ministry.
Several sectors benefit from the general exemption regime granted by the Investment Code. Furthermore, the Investment Code contains two preferential systems. For a minimum investment of DJF5m ($28,000) an investor can benefit from the advantages of Regime A, namely an exemption from the internal consumption tax on materials and equipment necessary for carrying out the investment programme, as well as a tax on raw materials imported and approved during the first three years of an approved company’s operations.
Investments or companies considered to be of particular economic or social interest can benefit from Regime B if they fulfil one of the following conditions: an investment of DJF50m ($282,000), or the creation of a minimum number of permanent jobs. A decree by the Council of Ministers defines the conditions for the second condition of Regime B to be applicable.
Entities benefitting from Regime B are engaged in the construction of buildings for exclusive industrial, commercial and tourism use; or the construction, creation and operation of education establishments and trainings.
Sources of Finance
There are many commercial and Islamic banks in Djibouti that offer financial products, namely housing loans, personal banking services and asset loans.
Foreign Exchange Controls
Djibouti has no foreign exchange restrictions, and businesses are free to repatriate profits. There are no limitations on converting or transferring funds, or on the inflow and outflow of money. The Djiboutian franc, which has been pegged to the US dollar since 1949, has a fixed exchange rate of DJF177.7:$1. Funds can be sent via banks or international money transfer companies.
There have been no recent changes to investment remittance policies and there are no time limits on carrying out remittances. The government does not issue bonds on the open market. Cash-like instruments are not commonly used in Djibouti, so direct currency transfers are the only practical method to remit profits.
Employment Regulations
Foreign individuals who wish to work in Djibouti are required to obtain a work permit and residence card, which is generally valid for one year and can be renewed through application. Visa fees vary depending on the category, and can be obtained online. A transit visa, which is valid for one to 14 days, costs $12, while a short-stay visa, which is valid for 15 to 90 days, costs $23.
Both local and foreign workers are required to make social security contributions based on their gross salary and benefits, which are capped at DJF400,000 ($2300) with the exception of the pension portion which is uncapped. The social security contributions that an employer is responsible for paying include: 5.5% for family allowance; 1.2% for work-related injuries; 4% for pension; and 5% for health insurance.
Foreign workers in the Djibouti Free Zone are exempt from paying social contributions, and companies are not obligated to make payments for such employees.
Types of Businesses
The main kinds of companies in Djibouti are sole-personal limited liability; limited liability (société à responsabilité limitée, SARL public limited; and simplified joint stock.
Business Licence
All individuals engaged in commerce, industry or any profession, whether a national or a foreigner are required to pay the business licence fee. Exemptions apply under the provisions in the General Tax Code (GTC). The licence is valid for one year, and must be renewed before the expiration of the deadline.
Under the 2023 finance law, the business licence fee structure in Djibouti is changing. Activities in classes 7 to 8 will be charged an additional $0.07 per Djiboutian franc, and activities in classes 1 to 6 will be charged an additional $0.09 per Djiboutian franc. Classes 9 and 10 are exempt. The Chamber of Commerce and Industry will be responsible for collecting the fees.
FORMATION PROCEDURES & BALANCE DATE: The government has eased business registration by reducing the investment capital requirement, as well as streamlining the application process and certain tax procedures. For example, foreign investors do not need a domestic partner to start a business unless they plan to conduct specified regulated activities. All steps are carried out by the National Promotion Investment Agency (Agence Nationale pour la Promotion des Investissements, ANPI), a one-stop shop that combines the various agencies with which a company must register. Formation procedures take an average of 14 days.
SARL
A company’s capital is set by the articles of association and divided into equal shares. The number of members of a SARL may not exceed 50. If a company has more than 100 members, it must become a public limited company within two years. If a company fails to do so, it is then dissolved unless the number of members is equal to or less than 50 during the twoyear period.
SARLs are overseen by one or more natural persons and these entities can choose managers who are not partners. Such managers are appointed by the companies’ partners, either in the articles of association or via a subsequent act resulting from a decision undertaken during the partners’ general meeting. Within the same parameters, the mention of a manager’s name in a SARL’s articles of association in the event that their functions are terminated for any reason whatsoever may be a proxy decision of the partners. In the absence of statutory provisions, managers are appointed for the duration of the company.
A report on operations, inventory, the general operating account, the profit and loss account, and the balance sheet for the financial year are submitted for the approval of the SARL’s members within six months of the end of the financial year in question.
Auditors
To appoint statutory auditors, a SARL’s partners must vote on the matter at a meeting or via a written consultation adopted by one or more partners representing more than half of the entity’s shares.
A statutory auditor must be appointed by companies with limited liability that fulfil two of the following three criteria at the end of at least one financial year: total balance sheet exceeding DJF500m ($2.8m); turnover exceeding DJF250m ($1.4m) excluding tax; and/or more than 150 employees on average during the previous financial year. Auditors are responsible for checking the books and value of a company and verifying the conformity of company accounts.
Members
A public limited company is administered by a board of directors comprising at least three members and at most 12 members. However, in the event of a merger, this number increases to the total number of directors in office for more than six months in the merged companies without exceeding 24.
Auditors are appointed during an ordinary general meeting. One or more substitute auditors may be appointed during an ordinary general meeting. Their role is to certify the conformity of inventory, the general operating account, the profit and loss account, and the balance sheet. The board of directors or management board publishes documents to shareholders on the company’s financial situation and accounts.
Fiscal Year
The fiscal year for all taxpayers ends on December 31. However, an alternative tax year can be followed under certain circumstances for the first year of a business’ activity.
Corporate Income Tax (CIT)
Resident and non-resident entities are subject to CIT only on income generated from activities carried out in Djibouti. The tax rate on business profits is set at 25% of taxable net profit in case of profit and 1% of income in case of loss, however the tax authority applies the rate linked to the highest tax amount. The tax must not be less than DJF120,000 ($676) – the minimum flat-rate tax. Royalties and dividends are exempt from CIT. Under the GTC companies are required to file an annual tax return before March 31 for the previous fiscal year.
Government & Local Incentives
The business tax exemption applies to newly registered foreign and Djiboutian companies that fall within Classes V (DJF110,000 [$620] worth of annual business taxes) to VIII (DJF513,000 [$2900] worth of annual business taxes) for the first three years of their operation. All entities that are categorised above Class VIII, as well as all banks, are exempt from the proportional business tax, which is equivalent to 20% of business revenue.
Supporting Micro-enterprises
To support micro-enterprises and very small enterprises, the government has introduced a tax regime through the 2023 finance law. Micro-enterprises are defined as business entities with a turnover of DJF2m ($11,300) or less and employ 0-5 employees. Very small enterprises are defined as business entities with a turnover of DJF5m ($28,200) or less and 0-10 employees. The following provisions apply to these companies:
• A tax exemption for the first two years of activity;
• An annual global flat tax in the following years of DJF35,000 ($200) for micro-enterprises in Djibouti City and DJF17,500 ($98.59) for the rest of the country; DJF50,000 ($280) for very small enterprises in Djibouti City and DJF25,000 ($140) for the rest of the country;
• Exemption from all company creation costs payable at the one-stop shop during formalities; and
• No requirement for auditing for micro-enterprises.
Personal Taxation
A progressive salary tax is applied to locals and foreigners’ monthly incomes exceeding DJF50,000 ($280) at the following rates:
• Salaries between DJF50,001 ($280) and DJF150,000 ($850) are taxed up to 15%;
• Salaries between DJF150,001 ($850) and DJF600,000 ($3400) are taxed up to 20%;
• Salaries between DJF600,001 ($3400) and DJF1m ($5600) are taxed up to 30%;
• Salaries between DJF1,000,001 ($5600) and DJF2m ($11,000) are taxed at 35%; and
• Incomes over DJF2m ($11,000) are taxed at 40%. The Free Zone Code grants qualifying companies an exemption from all taxes – including corporate tax – for a renewable period of up to 50 years, excluding social security and salary taxes. For the first five years of an entity’s existence up to 30% of a company’s employees should be local hires; after that period, the quota rises to 70%.
Value-added Tax (VAT)
Businesses with turnover between DJF10m ($56,000) and DJF20m ($110,000) must register for VAT, depending on their activities. Entities whose turnover is below this threshold can be subject to VAT if certain conditions are fulfilled. The standard VAT rate is 10%. Export and international transport transactions are exempt from VAT. New companies are eligible for VAT-free imports during their construction period if they invest in hotels, real estate and industries of transformation.
Withholding Tax (WHT)
The WHT rate is 15%. VEHICLE TAX: Annual vehicle tax applies to all motorised vehicles transporting people and goods in Djibouti, except for two-wheeled vehicles. The tax rate varies from DJF18,000 ($100) to DJF35,000 ($200) based on the engine power of the vehicle. Payment is due on the first day of the taxable period after the vehicle enters service in Djibouti or after the end of tax exemption.
Stamp Duty
Stamp duty is payable on documents subject to registration. Except for specific deeds, the stamp duty is generally DJF1000 ($5.60) per page.
Land Tax
The land tax differs depending on whether a property is developed or undeveloped. For developed properties the tax base is as such:
• The annual rental revenue for the rented property;
• The rental value for unrented property; and
• The higher amount between the two assessments for property rented on a timeshare basis. A 20% reduction is applied to the tax base, taking into consideration the property’s administrative, insurance, depreciation, maintenance and repair costs. The rate collected on the annual rental value from the sixth year onwards after a building’s completion is as follows:
• 10% from DJF0 ($0) to DJF1.12m ($6300);
• 18% from DJF1.12m ($6300) to DJF3.84m ($22,000); and
• 25% above DJF3.84m ($22,000). For undeveloped properties, the tax base is as such:
• The amount of annual rental revenue for the rented property;
• The rental value for unrented property; and
• The higher amount between the two assessments for property rented on a timeshare basis. A rate of 25% is applied to the tax base for undeveloped property.
Penalties
The GTC outlines the penalties for non-payment or delayed payment of CIT, WHT and VAT:
• Under Article 246 a late payment interest of 5% of the amount of CIT due per month of delay is applicable;
• Under Article 249 the penalty amount is equal to the full amount of unpaid WHT; and
• Under Article 265 non-declaration or late submission of VAT is subject to penalty and interest as outlined in Article 246, with fines starting at DJF50,000 ($280).
OBG would like to thank HLB Djibouti for its contribution to THE REPORT Djibouti 2023
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