Egypt

4 Chapter Tax Law

    • Overview of Tax Law.

       

      Tax Authorities in Egypt are the MOF and the Ministry of Finance and there are two committees at two levels, the Internal Committee and the Appeal Committee for any appeals in regards of taxes. With the amendments done in 2015 to the Egyptian Investment Law to increase incentives for investors, sales taxes and custom duties where reduced and social charges as well. The Egyptian Government has enacted Laws No. 76 and 82 of 2017, introducing certain amendments to the Income Tax Law No. 91 of 2005 and the Stamp Tax Law No. 111 of 1980.  

      Resident companies are taxed on a worldwide income and non-residents only on income generated in Egypt. Tax Paying companies are subject to different taxes such as, Corporate Tax, Value Added Tax, Capital Transfer Tax and Real Property Tax.


    • Law related tax

       

      1.1.1.     Direct tax.

      Direct taxes are levied on to the income or benefits of individuals or legal entities such as Income tax, this are some examples:


      • Income from movable capital (from interest, executive fees, etc., taxed at 30%)

      • Income from immovable capital (from land and other real estate investments, taxed between 20%-48%)

      • Commercial and industrial profits (from businesses not under the corporate tax system, taxed between 20%-48%)

      • Professional fees (professionals such as lawyers and engineers, taxed between 20-40%)

      • Salaries (earnings paid in Egypt or from abroad for services performed in Egypt)


      1.1.2.     Indirect tax.

      Indirect taxes are levied on goods, services or events, such as VAT, taxes on wealth, on real estate, stamp duty, etc.


    • Corporate Income Tax.

       

      The CIT Tax Rate is 22.5%, Resident companies are taxed on a worldwide income and non-residents only on income generated in Egypt.

      Taxed income can be from profits from business or industrial activities, from the use and disposal of buildings or assets, amounts received on shares of associations of capital, rental amounts, license fees, royalties and income from any other activity performed in Egypt. There are no district or local taxes on corporate income in Egypt.


      2.1.1.    Who is subject to Corporate Income Tax?

      Corporate Income tax is imposed every year on the net profits and is applicable to legal entities located in Egypt, applicable to their income generated in the country and abroad.

      Oil prospecting and production companies are taxed at 40.55%, The Suez Canal Company, Egyptian General Petroleum Company (EGPC) and Central Bank of Egypt are subject to tax on their profits at a rate of 40%.


      2.1.2.    Non-taxable Income.

      This are some exemptions:

      • Severance pay.

      • Meals for workers.

      • Employees’ payments of Social Insurance.

      • Employees’ subscriptions to special insurance funds.

      • Payments for end of services.

      • Pensions.

      2.1.3.    Non-deductible expenses.

      This are some Non-deductible expenses:

      • Reserves and appropriations.

      • Financial fines and criminal penalties.

      • Income tax payable.


    • Deductible expenses.

       

      2.2.1.     Organization expenses.

      For the first year of operations the expenses from starting the business are tax deductible and the total amount can be amortized.


      2.2.2.     Bad debt loss.

      Article 28, Tax Law.

      Deduction of bad debts excluded by the taxpayer from the firm's books and accounts may be permitted if he presents a report by an accountant enrolled on the Accountants and Auditors Register indicating the fulfillment of the following requirements:

      Serious actions to recover the debt include the following:

      1-That the firm keeps proper accounting records.

      a- Obtaining a writ for payment in cases where this is possible

      2-That the debt is associated with the firm's business

      b- Issue of a judgment by a court of first instance obliging the debtor to pay the amount of the debt.

      3-That the amount of the debt has been previously included in the firm's accounts

      c- Claiming the amount of the debt during procedures of implementing a court judgment for the debtor's bankruptcy or concluding a conciliatory agreement preventive of bankruptcy.

      4-That the firm has taken serious actions to recover the debt, but failed to collect it after 18 months of its due date.

      		  

      2.2.3.     Travel expenses.

      Deductions are allowed for any costs and expenses that are incurred at business activity but if it is proved that it is not connected to the activity of the company,  it shall be included in the income subject to personal expenses.


    • Real estate

       

      2.3.1.     Tangible real estate

      [Depreciation cost]

      Article 25th from Tax Law indicates how is depreciation calculated


      1-

      (5%) of the cost of procuring, constructing, developing, renovating or

      reconstructing any building, establishment, ships and aircrafts, for each tax period.

      2-

      (10%) of the cost of procuring, developing, improving or renewing any

      of intangible assets purchased, including goodwill, for each tax period.

      3-

      The following two categories of assets are to be depreciated according to the Depreciable Base System at the rates corresponding to each:

      (a) For computers, information systems, software and data storage

      equipment, 50% of the depreciable base for each tax year.

      (b) For all other assets, 25% of the depreciable base for each tax

      year.

      4-

      No depreciation shall be calculated for land, works of art, monuments,

      jewelry and other assets which by nature are not depreciable.


      2.3.2.     Intangible real estate

      [Depreciation cost]

      Tax rate is 10%.


    • Calculation.

       

      Tax is assessed on the basis of the information provided in the tax return.


    • Filling of Return/Payment and Refund.

       
       Consolidated returns are not allowed, each company has to file its own tax return within four months of the following the end of the year. The tax return must include all supporting schedules and the original financial statements There are many types of penalties, for example, if the amounts included in the tax return are less than the final assessed tax amount, there is an additional penalty on the difference between the amounts in the assessment and the one´s in the tax return, if the difference is from 10% to 20% the rate will be 5%, if it’s from 20% to 50% the rate is 15% and if the difference is above 50% the rate will be 40%.

    • Value Added Tax.

       

      Residents provider of goods or services have to register for VAT if their annual revenue is 500,000 EGP or more. There is voluntary registration in case the revenue is less.


      4.1. Who is subject to VAT?

      VAT will be applied to different consumption goods and services, while a number of basic goods and services which affects the low-income earners will be exempt, as well as exports and those in the zero rated list.


      The rates are the following;

      -VAT regular rate is 14%

      -5 % on machinery and equipment used to produce a commodity or render a service

      - 0% for exports.

      - 0% for goods and services imported by free zone projects.

      4.2. Goods and services not subject to VAT.

      All local and imported goods and services are subject to VAT except those specifically exempted. There are 57 exempted goods and services listed in the VAT Law, this are some examples.

      - Tea, sugar and milk.

      - Gas, electricity and water bills.

      - Banking services ( legally restricted to banks only)

      - Medicines and the active substances used in the manufacture of medicines, whether  locally manufactured or imported.

      - Health services except  plastic  surgery and weight loss services other than for medical purposes.


      4.3. Filling of Return/Payment and Refund.

      Taxpayers have to hold records of all their transactions, such as copies of the invoices for five year following the tax year of creation. All companies in Egypt must file a monthly VAT return. This system is the same used for reporting under the Sales Tax Law. VAT returns are due two months following the end of each month except for April (Tax should be filed by June 15th). The VAT has to be refunded within 45 days after submitting the documented refund request.


    • Other taxes.

       

      • Real estate Tax: The rate is 10% of the rental value, is levied annually on all constructed units such as land and buildings (except schools, orphanages, charitable organizations and private residences less than 2 million EGP). It is assessed based on the rental value of the land and building, with the rates set by the Committee in charge.  The calculation will be different for residential and non-residential units. There are exemptions for commercial, industrial and administrative non-residential properties, with an annual rental value of less than 1200 EGP, for residential properties is less than 2400 EGP.


      • General Sales Tax: levied on the supply of most goods and services at a standard rate of 13%. (Providers of goods and services with turnover above 500,000 EGP have to be registered).


      • Stamp tax:

      Is charged at variable fixed rates:

      • 0.1% per quarter for banking transactions.

      • 20% for commercial advertisements.

      • 1.08% to 10.08% for insurance premiums.


      • Social Insurance: The social insurance applies only for nationals, the employers contribution is as follows:

      -26% of the basic salary (up to 1,370 EGP).

      -24% of the variable salary (up to  2,800 EGP).


    • Custom Tax

       

      6.1. Overview of Custom Tax.

      Customs are regulated by the Egyptian Customs Authority, they implement laws and regulations. The tariffs are provided by the Ministry of Finance for each imported product. All importers are required to be registered with the General Organization for Export and Import Control (GOEIC) within the Ministry of Foreign Trade and Industry.

      6.2. Export tax.

      0% tax on export.

      Exporters must register with the GOEIC. They must meet a minimum capital requirement of  3,000 EGP and must not have a criminal record. To be able to export goods from Egypt there are some documents needed such as a customs declaration, commercial invoice, packing list, customs procedural certificate, export statistical form, bill of lading and certificate of origin.


      6.3. Import tax.

      Imports are separated into six groups for tariff purposes ranging from 5% up to 40%.( for vehicles different rates apply, machines and equipment will be charged customs duty at 5%.). There are ten free trade zones in operation in Egypt (Alexandria, Nasr City, Port Said, Port Said East, Suez, Ismailia, Damietta, Shebin El Kom, Keft and Media Production City). There is also a North-West Suez Special Economic Zone near the Red Sea Port of Sokhna.


    • Tax related PE.

       

      7.1. Overview of tax related PE.

      A permanent establishment by the Egyptian Tax Law, is known as a fixed place of business through which the business of a company is wholly or partially carried on. It can be established as an office, factory, workshop, headquarters, branch, building used for sales, etc. A foreign company that wants to have a permanent establishment has to establish a local entity according to Egyptian laws.


    • Withholding Tax.

        

      8.1. Overview of Withholding Tax.

      • Dividends: Dividends paid to a resident or non-residents has a tax rate of 10%. (The rate can be reduces to 5% when a corporate recipient holds 25% of the capital or voting rights in the payer company for at least 2 years)

      • Interest: If its paid to a non-resident then the tax rate will be 20% unless there is an applicable tax treaty.

      • Royalties: If its paid to a non-resident then the tax rate will be 20% unless there is an applicable tax treaty.

      • Technical Service fee: 20% withholding tax rate, unless there is an applicable tax treaty.

      • Branch remittance Tax: Profits from a branch or a PE are considered to be distributed to the head office within 60 days from the year end and are subject to a 5%, this may change if there is an applicable tax treaty.


    • Transfer Pricing tax.

       

      9.1. Overview of Transfer Pricing Tax.

      Since 2005, Transfer pricing Rules are applied in Egypt, there are no specific penalties, but there are provisions applicable to income tax will apply the same, that may be as high as 40% from the assessed taxes. Related party transactions have to be done with the Arm's length terms. This rules apply to exchange of goods, services, licensing of intangibles and loans.

      There are five transfer pricing methods:

      -The comparable uncontrolled price

      -Resale price

      -Total cost plus margin.

      -Profit split.

      -Transactional net margin methods.