Overview Tax Compliance in Yemen

The Republic of Yemen is located in Southwest Asia on the southern point of the Arabian Peninsula. It shares boundaries with the Sultanate of Oman to the east, the Kingdom of Saudi Arabia to the north, the Arabian Sea and Gulf of Aden to the south, the Red Sea to the west, and the Gulf of Aden. Due to globalization and the need for a better quality of life, economic and commercial success in Arab countries has drawn substantial attention, and tax income has grown in importance for governments globally. Zakat and taxes must be paid in Yemen by both private citizens and corporate entities. These earnings are very important to the government since they provide the primary funding for both governmental and public operations.

Yemen's tax structure is essential to the country's economic growth and government income creation. The Tax Law and other pertinent laws serve as the primary regulatory framework for Yemen's tax policy. The tax system is set up to ensure that various government programmes and services are financially responsive and sustainable. Understanding their tax responsibilities, following the law, and being accountable taxpayers are crucial for people and companies doing business in Yemen. The importance of abiding by the nation's tax laws is underscored by the fact that non-compliance can result in penalties, fines, and legal implications.

What is tax?

Taxes are mandatory financial duties that the government imposes in order to raise income. This money is then used to support various public programmes and services aimed at advancing society. Taxes can also be used as tools to promote equitable wealth distribution, control economic activity, and mitigate negative external impacts, among other economic and social objectives. In essence, taxes are essential for maintaining a country's economy and advancing it while ensuring its citizens' well-being.

Advantages of taxes

• Taxes are the government's main source of funding for vital services like public safety, healthcare, infrastructure development, and education that benefit the whole community.
• By enabling governments to employ counter-cyclical actions during economic downturns, such as putting in place stimulus packages to enhance economic activity and preserve stability, tax revenues help to promote economic stability.
• Roads, bridges, public transit, and utility projects-all essential for connectivity and economic growth are funded in large part by taxes.
• By levying higher tax rates on those with high incomes, progressive taxation systems help to reduce income inequality and promote a more fair allocation of resources.
• Taxes are a regulatory instrument that may be used to affect consumer behaviour and economic activity. Tax incentives; for instance, promotefinancial investments in certain businesses or R&D.

Tax regulating authority of Yemen

Two organisations in Yemen manage the government's tax collections. Zakat is managed and collected by the General Directorate of Zakat Obligation (GDZO), whilst traditional taxes are handled by the Yemeni Tax Authority (YTA). Taxes and zakat are collected from individuals and companies by the General Directorate of Zakat Obligation and the Yemeni Tax Authority, respectively. They make sure that individuals and businesses, respectively, abide by the tax and zakat rules. There is no direct administrative relationship between these two authorities, who operate independently of one another. For Yemeni citizens and businesses, paying Zakat to the government is a mandatory requirement. The General Directorate of Zakat Obligation and Yemeni Tax Authority also check whether the taxpayers have paid their tax according to the rules and regulations prescribed by tax laws.

Types of taxes in Yemen

• Corporate Tax Income Tax

The corporate income tax rate is 20% in Yemen. Corporate tax is a direct tax placed on corporate and other business earnings. The tax rate is applied to the company's net income, which is determined by subtracting permissible costs and deductions from total revenues.

• Property Tax

Property tax is a type of direct tax levied on owners of real estate assets comprising buildings that are both residential and commercial. Local governments or municipalities collect the tax, which is based on the assessed value of the property. A monthly tax of one month's rent is paid on the rental worth of real estate, while a 1% tax is levied on revenue received from the sale of land, completed properties, and land destined for building purposes.

• Value Added Taxes

VAT is an indirect tax levied on the amount of value added to products and services at every stage of manufacturing and distribution. It is a consumption tax, which means that it ultimately gets paid by the end user. Businesses collect and submit VAT on their sales to the government. Many nations use the VAT system because of its efficiency and capacity to minimize double taxes.The VAT rate in Yemen is 5%.

• Withholding Taxes

A withholding tax is a levy by the payer instead of by the receiver at the source of income. The payer deducts a proportion of the recipient's payments and pays it to the government. It is a strategy used by governments to secure tax collection and can apply to a variety of sources of income, including wages, dividends, and royalties. The rate of withholding taxes in Yemen is at 10%.

• Zakat

As one of Islam's core foundations, zakat is very important. Financially secure Muslims are expected to pay Zakat, which assists the poor and underprivileged. In accordance with Islamic principles, the Zakat Authority collects Zakat from all commercial companies and professional organizations at a predetermined rate of 2.5% of their net revenue in Yemen.

Tax period in Yemen

Yemen uses the calendar year, i.e. January 1^st to December 31^st, as the financial year of the country.

International tax treaties

To avoid double taxation on particular types of income specified in each individual treaty, the Government of the Republic of Yemen has established bilateral agreements with a number of countries, including Algeria, UAE, Qatar, Bahrain, Oman, Iraq, Egypt, Lebanon, Sudan, Jordan, Ethiopia, Tunisia, Syria, and Kuwait. By removing the possibility of individuals and companies being taxed repeatedly on the same income in Yemen and the partner countries, these agreements seek to promote and foster international commerce, investments, and economic cooperation. These treaties provide a fair and beneficial business climate, lower tax barriers, and increase cross-border economic operations by avoiding double taxation.

Services offered by Enterslice

• Helping clients resolve tax challenges in various nations while taking into account the growing attention placed on tax strategies. This service aids customers in establishing their tax planning ideas while adhering to applicable tax regulations.
• Developing individualized tax planning techniques to reduce prospective tax liabilities while guaranteeing conformity to evolving tax laws.
• Providing vital advice and customized alternatives to help companies address tax-related issues effectively.
• Offering support to companies doing research and development (R&D) operations, particularly with relation to their ability to claim R&D tax deductions. This service maximizes R&D tax benefits while ensuring legal compliance.
• Our company provides a number of services with a tax management and control focus.
• In addition to creating strategic value, reducing expenses, and reducing risks, our tax compliance advising service seeks to increase customer pleasure.
• We help companies adjust to legislative changes, turn data into actionable insights, and enhance compliance and planning processes.
• We provide professional counsel and support for challenging cross-border merger and acquisition deals. We carefully consider the tax consequences brought on by changes in local jurisdictions throughout the whole M&A process.
• In order to optimize tax outcomes and support a smooth and successful implementation of the agreements, our proactive approach is made to address and overcome any tax issues and hurdles.
• Our multidisciplinary team promotes effective communication between the tax, financial, and legal departments to promote seamless collaboration.