Employment Law in Djibouti

Contracts

In Djibouti, employment contracts can be fixed-term or permanent, depending on the nature of the job and the agreement between the employer and employee. Permanent employment contracts must include benefits such as social security contributions, paid annual leave, end-of-service gratuity, and medical coverage. Fixed-term employees are entitled to the same benefits as permanent employees after they have completed their probation period, typically lasting up to three months. 

Djibouti also has apprenticeship contracts, mainly for training, which are governed by the Labor Code. Employers with 20 or more workers are required to hire apprentices under national skills development quotas.

Termination and notice periods

In Djibouti, labor laws generally require one month's written notice for termination or salary in place of notice. In most cases, terminated employees are entitled to a written warning and a formal hearing.  

Employees with at least one year of service are entitled to severance pay of one-fifth of a month’s wages for every year of service. Employees who have completed five years of service and work for an employer with 20 or more employees are entitled to a gratuity payment of 20 days’ wages multiplied by the number of years of service. As your EOR (employer of record) in Djibouti, we can work with you to quickly handle the unforeseen event of an employee termination, providing legal guidance and a personalized process that ensures you stay out of labor court.

Probation periods

In Djibouti, probation periods are indirectly addressed in employment laws, typically lasting one month for standard roles and up to three months for managerial positions.

Working hours and overtime

In Djibouti, the standard workweek is typically Sunday through Thursday, with eight hours per day, totaling 40 hours per week. Employees are prohibited from working for more than eight hours a day without appropriate compensation. It’s important to note that in Djibouti, as long as employees are physically at their workplace, they must be compensated for their work, whether they have clocked out or not. 

Any work beyond eight hours a day is considered overtime, and employees are entitled to an additional compensation of at least 25% over their regular hourly rate. For work performed on weekly rest days (Fridays) or public holidays, the overtime pay rate is higher, as specified by the Labor Code.

Taxes

In Djibouti, withholding tax is known as Retenue à la Source (RAS) and is deducted by employers before paying salaries to employees. Employers must deduct RAS from employee salaries based on applicable income tax slabs and submit it to the Direction Générale des Impôts. 

Employers in Djibouti must adhere to various taxation and regulatory compliance requirements to operate legally and avoid penalties. 

• Corporate tax: Domestic companies are taxed at 25% (standard rate) or 0% (if operating in Free Zones under the Investment Charter). Enterprises registered under the Djibouti Innovation Initiative may qualify for tax exemptions.
• Value added tax (VAT): VAT applies to businesses with an annual turnover exceeding 50,000,000 DJF. Employers must register, file monthly returns, and pay VAT on applicable goods/services.
• Withholding tax (RAS): Employers must deduct RAS from employee salaries, vendor payments, and contractor fees. RAS must be deposited by the 15th of the following month, and monthly declarations must be filed. Late RAS deposits earn interest at 1.5% per month.
• Income tax returns (ITR): ITRs are filed annually based on company profits. Companies must also file annual financial statements with the Commercial Registry using Form RCCM-5, and complete director verification via Form KYC-Directeur.

Employer payroll contributions

Djibouti’s social security system requires employer contributions that are dependent on the total number of employees, and these contributions cover pensions, medical care, disability insurance, and gratuity payments. In addition, workers’ compensation is financed by contributions from port authorities, employers, and employees.