For a long time, Djibouti had just been one of those lesser known tax havens that I would see listed here and there, very inconsistently. I had inquired with contacts at FIUs and FSCs about Djibouti, and all they could tell me was that it has a FZ and the ones that list it as a tax haven couldn’t really explain why or if it’s a problematic one.

Then, a few weeks ago as of writing, I found myself on a flight headed towards the charming Ambouli International Airport.

About the Country

Djibouti is an interesting country in that it is a relatively stable country in an extremely volatile region. It neighbours Eritrea in the north, Ethiopia in the west, and Somalia (what some would argue is actually called Somaliland) in the south. A narrow distance across the waters of where the Red Sea becomes the Gulf of Aden, Djibouti is about 30 kilometers away from the Yemeni coast.

Entry into Djibouti requires a visa arranged in advance for everyone except French and Singaporean passport holders, who can arrange for visa upon arrival. A visa can be acquired easily from a Djibouti or – if there isn’t one – French embassy for a small fee.

The republic of Djibouti has a history as a French territory until its independence in 1977. While the official languages are Arabic and French, most people speak Somali followed by Afar. Arabic is common in formal settings, with few actually speaking French. The government prefers French and all official information is published in French.

In the capital city of Djibouti City, one gets by in French or a combination of French and English. The locals are friendly but travel agencies recommend – and rightfully so – that non-African tourists do not leave the capital to travel around the countryside. This isn’t a country you go to for the sight-seeing. If you want that – go to the likes of South Africa, Kenya, Namibia, and Botswana.

Djibouti can get scorching hot in summer, but there is an almost ever-present wind from the ocean to cool you down.

I’m told it’s quite easy to become a permanent resident of Djibouti but I couldn’t find any official sources that provide the specifics. The country is decently connected to the outside world by air, be it directly or via Adis Ababa, and its telecom connectivity is surprisingly reliable. AS30990, for the tech savvy, is the AS of the telecom monopoly. If Djibouti invests more (or manages to attract foreign investment) into its ICT infrastructure, it could become an important hub for connecting Europe, Africa, the Middle East, and Asia.

Djibouti is also one of Africa’s most wealthy nations. After a civil war 1991—1994, the country has seen relatively stable economic growth. Its harbour was once an important stop but improved distance capabilities has faded the importance of Port de Djibouti. It’s still a popular port for shipments from the Middle East intended for Africa, especially landlocked Ethiopia. The Djibouti Free Zone is even managed by the Dubai’s JAFZA. The port is big enough to be one of the country’s primary sources of income. In 2012, its traffic had risen to almost 7 million tonnes. See 2012 annual report by the Djibouti central bank.

In the same report, Djibouti saw 238,212 air passengers pass through its international airport.

But there is more that would draw an international investor’s eyes to this small republic: namely its penchant for secrecy. As of writing, it has not signed a single tax treaty or exchange of information treaty.

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Djibouti Free Zone Companies

Companies can be formed in the Djibouti Free Zone, which is focused on attracting shipping traders. Some 75% of registered companies in the FZ engage in shipping or shipping-related trading. It is a tax neutral zone, meaning there are no tax there but salaries paid to workers outside of the FZ are subject to income tax. There are no capital requirements to set up a branch in the FZ, a 2,700 USD requirement for setting up an establishment, and 70,000 USD to form a new company.

US dollar is the preferred currency for international trade in Djibouti. The euro sees some use together with Emirati dinar.

Companies can have 100% foreign ownership. There is no corporate tax or income tax within the FZ, but workers that live outside the FZ are subject to personal income tax. A minimum of two directors are required, at least one of which must be a natural person, and a minimum of one share holder is required. Details about share holders and directors are not public information.

Companies are required to prepare a P/L report and a balance sheet which are to be audited by an approved auditor and submitted to the government.

Banks in Djibouti

While forming companies in Djibouti is not yet very popular outside of Djibouti import/export shipping, the country is attractive for its no-questions-asked type of banking. Now, there are perfectly legitimate reasons for using such banks, especially in a world where banks move away from cash deposits and will ask intrusive questions to legitimate business owners. It can also be advantageous in industries where funds need to be moved quickly, such as shipping.

There is, however, no doubt that a lot of illegal money comes and goes through the banks of Djibouti. So far, organizations like FATF and OECD haven’t even made any reviews of Djibouti. They are likely to be scalding, when the time comes.

The main banks in Djibouti are:

• BCIMR (Banque pour le Commerce et l’Industrie Mer Rouge) – owned by French BRED Banque
• Bank of Africa (BOA) – Moroccan BMCE Bank
• International Commercial Bank (ICB) – Owned by ICB Malaysia, ultimately a part of IC Banking Group

These three account for 55% of the market in terms of capital.

Other banks worthy of note:

• Dahabshiil Bank International S.A – an Islamic bank owned by a free trade zone company
• Exim Bank – operated as a branch of Exim Bank Tanzania
• Salaam Bank – Somali-owned bank

In total, there are 11 banks licensed in Djibouti, four of which are Islamic banks.

Opening a Bank Account in Djibouti

I was here to open a bank account for a client in the shipping industry but had been tasked with a few more accounts while here.

For the primary account openings, ICB, BCIMR, Dahabshiil, and Salaam Bank had been the most responsive banks when I placed initial phone calls and emails a few days prior to flying. Through some further discussions, I had it down to BCIMR and Salaam Bank. Dahabshiil seemed unable to offer the relevant international services, such as different currencies. The fact that they’re using unlicensed stock photos on their website didn’t exactly build trust either.

I had appointments pencilled in with BCIMR for one day and Salaam Bank for the next day.

BCIMR asked for no minimum deposit. They were happy to open accounts in EUR, USD, as well as DJF (the local Djibouti franc).

Salaam Bank is a smaller bank, but as is common for smaller banks, they go the extra mile to satisfy the customer. They called up about an hour ahead of the meeting just to confirm that we were still on. No minimum deposit was required but it was clear they expected to see about a thousand dollars on the account quite quickly; a rather modest sum.

Both banks offer internet banking facilities, which vary between mediocre and adequate. It’s comparable to the smaller Caribbean banks. There’s enough to send and receive wires, keep track of balances, and some rudimentary services.

Banking fees in Djibouti are low. Unlike what you can see in some other African countries, the banks here don’t seem to charge any different fees for non-residents than they do residents.

Cash deposits are welcome without too many questions, which is a mixed blessing. The banks I ended up dealing with were also chosen for their level of compliance. Some of the banks didn’t seem to have KYC policies in place. It was more or less understood with some of the banks that disclosure of UBO could be omitted, which is an instant red flag, along with other significant lapses in due diligence.

Wire transfers in and out are executive in a timely manner, typically passing through correspondent accounts in UAE and France.

Djibouti is not a signatory to the 1961 Hague Convention (Convention of 5 October 1961 Abolishing the Requirement of Legalisation for Foreign Public Documents).