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10. INCENTIVES AND SPECIAL REGIMES

Several tax incentives are available under the Investment Code and the Free Zone Code, which apply to all economic sectors.

Incentives under the Investment Code

The investment code provides fiscal and tax advantages that the government grants to private companies, which invest in Djibouti, and governs the conditions necessary to grant these advantages. The Investment Code does not apply to public legal persons.

Effective 1 January 2022, an exceptional contribution equal to 1% on turnover or 10% on profits, (depending on the applicable method defined in the tax code), based on the 2021 fiscal year results, is introduced for companies exempt under the investment code.

General Schemes Eligible for Exemptions

Regime A

Companies to be eligible for tax benefits under this regime are required to: a) Invest minimum amount of DJF 5,000,000 and b) Create minimum number of permanent jobs as prescribed by the minister.

Further, materials and equipment used under the regime cannot be transferred, sold, loaned, or assigned before a period of 5 years.

The regime is applicable to specified sectors such as - animal or sea products; mining; research, exploitation and storage of energy; tourism and handicraft-making activities; creation and development of electricity, electronic, chemical and shipping industries; service activities provided in harbours or at airports; construction, repair and maintenance of ships; processing of goods for consumption; financial activities other than those specifically covered by the “Regime for financial investments”; and communication services.

Following benefits / incentives are available under Regime A:

  • Industrial Companies: following benefits are available
    • exemption from domestic consumption tax and other taxes on materials and equipment required for investment operations; and
    • exemption from domestic consumption tax on raw materials imported to be used by within first 3 years by companies approved under the investment scheme.
  • Commercial Companies: following benefits are available
    • exemption from domestic consumption tax and other import taxes on materials required for investment operations.

Regime B

Companies to be eligible for tax benefits under this regime are required to: a) Invest minimum amount of DJF 50,000,000 and b) Create minimum number of permanent jobs as prescribed by the minister

The regime is applicable to specified industry sectors such as - construction of buildings to be used for industrial, commercial or tourism purposes; construction of buildings to be used for social purposes; construction, creation and exploitation of teaching and training institutions.

Following benefits / incentives are available under Regime B:

  • Exemption from property tax on constructed buildings to be used for investment operations for a period of 7 years (non-renewable) from the year following the year of completion;
  • Exemption from CIT on approved activities for a period of 7 years (non-renewable) from the date of commencement;
  • Exemption from domestic consumption tax on imported and used materials for first 7 years on manufacture of imported products; and
  • Exemption from registration duty on the deed of incorporation if the company’s share capital exceeds DJF 30 million. An increase in share capital is exempt from registration duty if the increase in value is over DJF 10 million and the investment is made within 5 years of the incorporation date or of a previous capital increase.

Special Exemptions Scheme – Financial Investments

This regime is applicable to profits reinvested in the acquisition of securities of an approved company under the Investment Code. Such reinvestments are exempt from CIT, subject to certain conditions regarding the amount of investment and the level of participation in the share capital.

Incentives under Free Zone Code

As part of the promotion of exports, Djibouti has created free zones that allow investors tax benefits and flexible labor legislation.

The Free Zone Code grants qualifying companies operating in a free zone an exemption from direct taxes, indirect taxes excluding VAT for a renewable period of up to 50 years. Up to 70% of the company’s staff may be foreign for the first five years; after that, the quota will be reversed, i.e. it will be 70% of nationals and 30% foreign staff. If the company fails to comply, the Free Zone Authority will not grant a new license. Foreign staff is not required to pay social security contributions, and the entity does not have to pay social security contributions for such staff.

Effective 1 January 2022, an exceptional contribution equal to 1% on turnover or 10% on profits, (depending on the applicable method defined in the tax code), based on the 2021 fiscal year results, is introduced for companies established in free zones.