Last modified: 13/04/2024 06:55

Corporate taxation

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Residence: A corporation is resident in Yemen if it is registered in accordance with the regulations for companies, is headquartered in Yemen, has its place of business or management in Yemen, is an economic sector unit (i.e., 50% of the capital is owned by the state or a public legal person) in Yemen, or is a concession company operating in Yemen.

Basis: The tax law classifies taxpayers as large, medium, small, and micro, with a special regime applying to small and micro firms. A resident company is liable to tax on worldwide profits. A non-resident is subject to tax only on Yemen- source profits. Branches are taxed in the same way as subsidiaries.

Taxable income: Corporation tax is imposed on taxable income, less allowable deductions.

Significant local taxes on income: The standard CT rate is 20%. A 50% rate applies to mobile phone services providers, and a 35% rate to international telecommunications services providers; oil, gas, and minerals entities; and cigarette manufacturers. Concession companies engaged in the exploration of oil and gas pay a fixed tax, usually 3%, on expenditures incurred during the exploration phase, as per a relevant production-sharing agreement. The applicable tax rate on investment projects registered under the investment law is 15%.

Alternative minimum tax: There is no alternative minimum tax.

Taxation of dividends: Dividend income received by a legal entity from a public company is tax-exempt, assuming the public company’s income was taxed.

Capital gains: Capital gains are taxed as normal business income and are subject to tax at the standard corporate tax rate. For non-resident companies, capital gains on the sale of shares in resident companies and immovable property in Yemen are taxed at 20%.

Losses: Loss carryforwards may be used in the five years following the loss if the taxpayer provides a tax declaration certified by a chartered accountant based on proper books and accounts. Restrictions apply if there has been a 100% change in the company’s ownership.

Foreign tax relief: A resident may deduct the amount of foreign tax actually paid overseas from the tax payable under the provisions of the income tax law on foreign income that is included in the tax base in Yemen, provided the following conditions are fulfilled: • The deduction does not exceed the amount of tax payable under the relevant foreign law concerning the foreign income/gains or the tax payable in Yemen on the income; • Losses incurred overseas are not deducted from the tax base in Yemen;

Participation exemption: There is no participation exemption.

Holding-company regime: There is no holding company regime.

Tax-based incentives: The income tax law abolished all incentives and exemptions available under other laws, although exemptions granted under the investment law remain in effect until the exemption period expires. The income tax law provides for accelerated depreciation at a rate of 40% of the cost of assets in the first year of use, in addition to normal depreciation. An entity withholding tax at source from a payment must remit the amount to the tax authority within the first 15 days following the end of the month in which the payment was made. There are various incentives for early filings.

Group relief/fiscal unity: There is no Group relief/fiscal unity.

Small company/alternative tax regimes: Small firms (i.e., firms whose annual turnover is more than YER 1.5 million but less than YER 20 million and that have between three and nine employees) are subject to progressive rates ranging from 5% to 20% of the tax base determined as a percentage of turnover, depending on the type of activities. Micro entities (i.e., entities whose annual turnover is less than YER 1.5 million and that have fewer than three employees) are exempt from tax.

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Corporate taxation: compliance

Tax year: The tax year is the calendar year.

Consolidated returns: Consolidated returns are not permitted; each company must file its own return.

Filing and payment: The tax return must be submitted to the tax authority within the first 10 days of the following month. The employee is responsible for the payment of tax where income is from a foreign source.

Penalties: The penalty for failure to file a tax return is 2% of the tax payable for each month of delay.

Rulings: The tax authority has issued no rulings for individuals.

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Taxation of individuals

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Residence: Individuals are residents in Yemen for a tax year if they have a permanent place of residence in Yemen, have resided in Yemen for no less than 183 days, or are Yemeni nationals who work abroad and derive income from Yemen.

Basis: Resident individuals are taxed on worldwide income; non-residents are taxed only on income earned from Yemen.

Taxable income: Resident individuals are taxed on income from employment or commercial or industrial activities and noncommercial activities (i.e., the exercise of a profession) earned in Yemen, as well as foreign-source income. Income subject to salaries and wages tax includes income received by an employee for work performed outside Yemen for a resident employer; income received by a non-resident from a permanent establishment in Yemen; and salaries, rewards, and allowances paid to the chairman, members of the administration board, and managers of capital associations. Individuals are exempt from tax on income from treasury bills, interest from bank deposits, savings in post offices, and income from shares in public and shareholding companies.

Capital gains: Capital gains of individuals are subject to tax as regular income, including gains that are derived from the sale of an establishment; any of the establishment’s assets, shares, or quotas; or the assignment or change of its ownership in a way other than inheritance, whether during or at the end of the establishment’s activity. The income will be deemed earned through the transfer of the ownership, shares, quotas, establishment, or assets from the owner to another person, or a liquidation or merger of the establishment with another legal person.

Deductions and allowances: Deductions and allowances available on monthly salary income include YER 10,000 (monthly exemption limit); 6% of gross salary for an employee’s social security contribution; and transportation and representation allowances, up to a maximum of YER 65,000 for both.

Foreign tax relief: See “Foreign tax relief” under “Corporate taxation,” .

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Taxation of individuals: compliance

Tax year: The tax year is the calendar year.

Filing and payment: The tax return must be submitted to the tax authority within the first 10 days of the following month. The employee is responsible for the payment of tax where income is from a foreign source.

Penalties: The penalty for failure to file a tax return is 2% of the tax payable for each month of delay.

Rulings: The tax authority has issued no rulings for individuals.

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Withholding taxes

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Branch remittance tax: There is no branch remittance tax.

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Anti-avoidance legislation

Transfer pricing: The arm’s length principle applies; methodologies for establishing the arm’s length price have been introduced in executive regulations.

Interest restriction: The thin capitalization rules set a general debt-to-equity ratio of 70:30. If interest is paid to an affiliated party, the loan interest amount may not exceed the prevailing international rates or the central bank rate, plus 4%. Interest exceeding these amounts is nondeductible.

Controlled foreign companies: There are no controlled foreign company rules.

Hybrid mismatches: There are no anti-hybrid rules.

Disclosure requirements: There are no disclosure requirements.

Exit taxes: There is no exit tax.

General anti-avoidance rule: There is no General anti-avoidance rule

Digital services tax and Other significant anti-avoidance legislation: The Tax Authority recently approved electronic tax return services for small taxpayers and is studying in the coming years to generalize tax return submission services for all taxpayers in Yemen.

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Value-added tax/Goods and services tax

Type of tax: The Yemeni Sales Tax Law No. 19 for 2001 represents a pivotal piece of legislation in the taxation framework of Yemen, establishing the legal foundation for the imposition and collection of sales tax within the country. This law was a significant step towards modernizing Yemen’s tax system, aiming to broaden the tax base, increase government revenues, and create a more structured approach to indirect taxation.

Standard rate: 5%

Reduced rates: The general rate is 5%, although a 10% rate applies to some telecommunications and mobile communications products or services. Exemptions also are available.

Registration: Companies whose annual turnover exceeds YER 50 million or its equivalent are required to register for sales tax purposes. Registration is voluntary where turnover is below this amount.

Filing and payment: A registered entity must submit a declaration of its sales taxes for each month, within the first 21 days of the following month.

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Social security contributions

Self-employed

The employer must contribute 11% of a national or foreign employee’s salary to the General Corporation for Social Security (GCSS); the employee contributes 7%. An employee (whether a national or foreigner) must contribute 7% of salary to the GCSS. A foreign employee may withdraw the total contribution paid by the employee and the employer to the GCSS, subject to a deduction of 20% as a service charge. (Changes were made to these rules in 2017, but due to the ongoing political crisis, the GCSS continues collecting contributions under the old rules.)

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Other taxes

Capital duty: There is no capital duty.

Immovable property taxes: An annual tax equivalent to one month’s rent is levied on the rental value of real property, and a 1% tax is levied on income from the sale of land, constructed property, and land prepared for construction.

Transfer tax: There is no transfer tax.

Stamp duty: There is no stamp duty.

Net wealth/worth tax: Muslims are subject to Zakat, which is levied on net wealth as adjusted for Zakat purposes according to the requirements of the Zakat authority, at a rate of 2.5775%.

Inheritance/gift taxes: There is no inheritance tax or estate tax.

Other: Government agencies (ministries, departments, and public and semi-public establishments) are required to withhold 10% from payments made to subcontractors pending receipt of a tax clearance certificate issued by the tax department.

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Tax treaties

Yemen has a small number of tax treaties in force.