Yemen

Yemen

Thinking beyond borders

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Employers must withhold and declare tax monthly on employee salaries at rates of 15 percent for residents and 20 percent for non-residents. Individuals have no obligation to file personal income tax returns.

Key message

However, the employee is required to submit personal income tax returns when he works in Yemen with a non-resident employer.

Income tax

Liability for income tax

Income earned or paid in Yemen is taxable. Employment income is taxable to the Yemeni registered employer.

Tax trigger points

If salary is paid by a Yemeni entity, or the employee holds a work permit (which may only be obtained by a Yemeni entity), or works in Yemen on behalf of a Yemeni affiliate of the foreign non-resident employer, their income should be taxed in Yemen. Yemeni entities employing foreign individual contractors should also pay tax on their salaries as if they were employees.

An individual becomes a resident either when they obtain personal housing (a residence) or when they meet the 183-day physical presence test during the year.

Types of taxable income

Salaries, wages and most in-kind benefits are taxable to the employer.

Individuals who own a business (sole proprietors) are taxable on business income at corporate tax rates.

Individuals who own or deal in real estate are subject to real estate taxes.

Tax rates

Resident salaries are taxed monthly at 1,000 Yemeni Rial (YER) on the first YER20,000 and 15 percent on all amounts in excess of YER20,000. Non-resident salaries are taxable at a flat rate of 20 percent.

Business net profit is taxable annually at YER102,000 on the first YER840,000, and at 20 percent on all amount in excess of YER840,000.

Social security

Liability for social security

Employers are liable to withhold and pay social security contributions monthly at 6 percent from the employees’ salaries, plus 9 percent paid by the employer.

Compliance obligations

Employee compliance obligations

There are employee compliance obligations in Yemen only when the employee works for a non-resident employer.

 

Employer reporting and withholding requirements

Employers must withhold, declare and pay salary tax and social security contributions on all employees on a monthly basis.

Other issues

Double taxation treaties

Yemen has tax treaties with most Arab countries (excluding Saudi Arabia), Ethiopia, Pakistan, Iran, and Turkey.

Permanent establishment implications

An unregistered foreign entity (no branch) with a fixed place of business in Yemen is considered to have a permanent establishment (PE). PEs are subject to withholding tax on the same basis as non-resident foreign entities with business in Yemen. Association with a PE does not trigger salary taxation, but a PE by virtue of being unregistered is unable to obtain visas and work permits to employ Yemenis, or to obtain a tax identification. A local party, such as a Yemeni agent that performed such activities for the PE, would be subject to salary taxes on behalf of employees related to the PE.

Indirect taxes

General sales tax (GST) functions like a simplified value-added tax (VAT), applicable primarily to entities with YER50 million or more in annual sales. Taxpayers must declare and pay tax monthly at a rate of 5 percent. A handful of goods and services are either exempt or subject to special tax rates.

Customs duties are levied on imports, generally at rates ranging from 5 percent to 25 percent, with the lower rates typically applicable to raw materials. GST is also collected on imports cleared at customs.

Transfer pricing

No detailed transfer pricing rules exist. However, deductibility of costs may be disallowed if not considered reasonable, such as a negative gross profit, or if costs appear obviously too high in relation to similar costs declared by other taxpayers, or in relation to third-party purchases.

Work permit/visa requirements

All non-Yemenis working in Yemen must have a valid work permit and residence permit. Short-term visitors, except those coming from nearby Arab countries, generally require visas which may be readily obtained.

Local data privacy requirements

Yemen has no local data privacy requirements.

Exchange control

Only documentary controls apply. Yemeni rial are freely convertible. For bank transactions, official rates may apply that vary slightly from market rates.

Non-deductible costs for assignees

Generally, any compensation subjected to salary tax may be deducted as a valid business expense.

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