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Income Tax in Egypt



Personal Income Tax

Individual income tax is imposed on the total net income of the resident individuals for income earned in Egypt, as well as the income earned outside Egypt for resident individuals whose centre of commercial, industrial, or professional activities is in Egypt. Also, tax is imposed on the income of non-resident individuals for their income earned in Egypt.

Earned income (EGP)
Tax rate on bracket (%)
Tax credit
First 7,200
0
N/A
7,201 to 30,000
10
80%
30,001 to 45,000
15
40%
45,001 to 200,000
20
5%
More than 200,000*
22.5
No tax credit

* The 5% surtax that was enacted by virtue of Law no. 53 of 2014 has been abolished after the introduction of Law no. 96 of 2015.

The above-mentioned brackets also apply to non-residents on the income they receive from an Egyptian treasury or against work performed in Egypt. Please note that both residents and non-residents are entitled to an annual salary tax exemption of EGP 7,000.

The tax due is to be calculated at the rate noted for each bracket. The tax credit shall apply only once based on the highest income bracket for the taxpayer. Nevertheless, for those taxpayers whose income falls within the fifth bracket, no tax credit is to be provided.
These rates and credits are applied:
· for payroll taxpayers starting the month following the publication of the law in the official gazette (i.e., July 2017), and
· for commercial, professional, non-commercial, or real estate taxpayers starting from the tax year ends after the publication of the law in the official gazette.

The executive regulation of Law No. 82/2017 shall provide more clarity on the calculation of the brackets, credits, and the preparation of annual payroll tax reconciliation for 2017.

Residency Rule

A natural person shall be considered an Egyptian resident in any of the following cases:
· If the individual has a permanent home in Egypt.
· If the individual is residing in Egypt for a period of more than 183 days continuous or intermittent within 12 months, taking into consideration the double taxation treaties (DTTs) between Egypt and other countries that might affect the determination of this period.
· If the individual is an Egyptian who performs the duties of one’s position abroad but receives one’s income from an Egyptian treasury.

Taxable Income

Individual income tax is imposed on the total net income of the resident individuals for income earned in Egypt, as well as the income earned outside Egypt for resident individuals whose centre of commercial, industrial, or professional activities is in Egypt. Also, tax is imposed on the income of non-resident individuals for their income earned in Egypt.

Employment income

Reimbursement for expenses of spouses and dependants is considered taxable income. In addition, school tuition fees, long-term living expenses, and overseas and hardship allowances are taxable.

The current tax law exempts severance pay, pension payments after the fulfilment of specific conditions, and employees’ profit share.

The following benefits are tax exempted, provided that the benefits are in kind and given for a group of employees. The benefits are:
· Meals distributed to the workers, provided that they are provided at the work place.
· Group transportation of workers or equivalent transportation costs.
· Health care.
· Tools and uniforms necessary for performing the work.
· Residence provided by the employer to the workers for performing their work, provided that the residence is owned or leased by the owner. However, it is worth noting that housing is a bit of a grey area in the Egyptian Income Tax Law as there is no clear-cut definition for the conditions to qualify for the exemption.

Equity compensation

Tax is due upon exercise on the difference between the fair market value (FMV) of the shares and the purchase price paid by the employee when the employee obtained beneficial ownership of the stock. Hence, there will be Egyptian payroll tax due in Egypt as the shares are exercised.

Business income

For self-employment income, the employer is taxed at the normal tax brackets.

Capital gains
The new law defines capital gains as the difference between the acquisition cost and the fair value/selling price of the share. As for listed shares acquired before 1 July 2014 and sold after that date, the capital gain will be calculated as the difference between either the acquisition price or the closing price on 30 June 2014 (whichever is higher) and the selling price.

Capital gains tax treatment applicable to resident individuals
· Listed shares/securities: Capital gains realised from the sale of listed shares on the Egyptian stock exchange (EGX) will be subject to 10% withholding tax (WHT). However, according to Law no. 96 of 2015, the capital gains tax on listed shares has been put on hold for two years, as of 17 May 2015. The Egyptian government has announced the extension of such exemption of listed shares from capital gains tax for another three years, ending on 17 May 2020.
· Unlisted shares/securities: Capital gains realised from the sale of unlisted shares will be subject to individual income tax at a progressive tax rate up to 22.5%.
· Foreign shares/securities (invested abroad): Capital gains realised from shares invested abroad will be subject to individual income tax, with a credit to be given for the foreign tax paid.

Capital gains tax applicable to non-resident individuals:
· Listed shares/securities: Capital gains realised from the sale of listed shares will be subject to 10% WHT. However, according to Law no. 96 of 2015, the capital gains tax on listed shares has been put on hold for two years, as of 17 May 2015.The Egyptian government has announced the extension of such exemption of listed shares from capital gains tax for another three years, ending on 17 May 2020.
· Unlisted shares/securities: Capital gains realised from the sale of unlisted shares will be subject to individual income tax at a progressive tax rate up to 22.5%.
· Foreign shares/securities (invested abroad): Capital gains realised from shares invested abroad will not be taxable in Egypt.

Capital losses

A capital loss can be offset against a capital gain arising during the same tax year, provided that they both arise from the sale of shares. Excess capital losses that are not utilised during a tax year can be carried forward for a period of three years and should be offset against capital gains from the sale of shares.

Dividend income

Dividend income tax treatment applicable to resident individuals
· Dividends received by resident individuals whose annual investment portfolio exceeds EGP 10,000 will be subject to WHT at a rate of 10% that can be reduced to 5% if the following conditions are met together:
o The shareholder holds more than 25% of the share capital or the voting rights of the subsidiary company.
o The shares are held for at least two years.
· In addition, these dividends will not be subject to individual income tax, provided that the associated costs are non-deductible.
· However, dividends received by resident individuals whose annual investment portfolio does not exceed EGP 10,000 are not subject to tax.

Dividend income tax treatment applicable to non-resident individuals
· 10% WHT is imposed on dividends paid to non-resident individuals. This rate is reduced to 5% if the shareholder owns more than 25% of the share capital of the subsidiary and the shares are held for at least two years.
· The relevant authority paying the dividends should withhold the full 10% of the dividends or the reduced 5% and remit it to the ETA.
· The taxable event of dividends is putting them at disposal of the beneficiary shareholder, pursuant to a general assembly meeting or board members’ decision.

Interest income

Interest income received from local banks is not taxable for residents in Egypt.
Interest income received from treasury bonds and treasury bills are subject to WHT at the rate of 20%.
The reduced rate from double taxation treaties (DTTs) applies for non-residents.

Rental income

According to article 39 of the Egyptian Income Tax Law, taxable revenue shall be determined on the basis of the actual rental value after deducting 50% therefrom in return for all costs and expenses concerning the revenues resulting from renting any realty or part of it according to the provisions of the Civil Code.

The normal tax brackets are imposed on the rental amount after the deduction of the 50% mentioned above.

Exempt income

Income from pensions and end of service bonuses are exempt from income tax.

Deductions from Income

Employment expenses

Social insurance contributions and others, as retained according to the provisions of the Egyptian Social Insurance Law, or any alternative systems established according to the provisions of Law no. 64 of the year 1980 on alternative private social insurance systems are deductible.

Employees' contributions to the private insurance funds established according to the provisions of the law on private insurance funds, promulgated by Law no. 54 for the year 1975, are deductible (but may be limited, see Insurance expenses below).

Personal deductions

Insurance expenses

Premiums of life and health insurance on the taxpayer, in one’s favour or in favour of one’s spouse or minor children, and any insurance premiums for pension entitlement, provided that the insurance policy is concluded with an insurance firm registered with the Egyptian Insurance Supervisory Authority, are deductible.

The total deductible amount for the employees' contribution to the private insurance funds, the premiums of life and health insurance, and the insurance premiums for pension entitlement cannot exceed 15% of the net revenue or EGP 10,000, whichever is lower. No further deduction of the same contributions and premiums should be repeated from any other industrial, commercial or non-commercial, or real estate income.

Personal allowances

Every resident individual (employee) is allowed EGP 7,000 of the taxable amount earned per annum as a personal allowance starting from 1 September 2013 (previously EGP 4,000). There is also the first EGP 6,500 in the first tax bracket that is subject to 0% tax, which applies to all resident individuals.
There are no family allowances in Egypt.

Business deductions

All expenses shall be deducted under the following conditions:
· They shall be connected with the commercial or industrial activity of the establishment and necessary for exercising that activity.
· They shall be true and supported documentarily, with the exception of the costs and expenses that are not customarily established by documents.

Losses

Losses may be carried forward against future business profits for a period not exceeding five years unless:
· a change occurs in the ownership of the company’s capital, exceeding 50% of the shares, stocks, or voting rights
· the company changes its activity, or
· the company is either a Joint Stock Company or a Company Limited by Shares whose shares are not listed on the EGX.

Please note that for the payroll tax there are no losses.



Corporate Income Tax

Corporate income tax. Egyptian corporations are subject to corporate profits tax on their profits derived from Egypt, as well as on profits derived from abroad, unless the foreign activities are performed through a permanent establishment located abroad. Foreign companies performing activities through a permanent establishment in Egypt are subject to tax only on their profits derived from Egypt.

Rates of corporate income tax. The standard rate of corporate income tax is 22.5%.
Exceptions to the 22.5% rate exist. Oil prospecting and production companies are subject to tax on their profits at a rate of 40.55%. The Suez Canal Company, the Egyptian General Petroleum Company and the Central Bank of Egypt are subject to tax on their profits at a rate of 40%.

Capital gains

From the sale of securities. Capital gains derived from the sales of securities realized by nonresident juridical persons are subject to tax at a rate of 10% (suspended for listed securities for a two-year period beginning on 17 May 2015).
The following rates apply to capital gains derived from the sale of securities by resident juridical persons:
· A 10% rate applies to capital gains on securities registered at the Egyptian Stock Exchange that are sourced in Egypt (suspended for listed securities for two years, effective from 15 July 2015).
· The standard corporate tax rate of 22.5% applies to capital gains on securities not registered with the Egyptian Stock Exchange that are sourced in Egypt, capital gains on securities realized abroad and capital gains on shares.

From the sale of other assets. Tax on capital gains on other assets is calculated at the ordinary corporate profits tax rates in the same manner as ordinary business profits and is not calculated separately. Trading and capital losses derived from sales of other assets are deductible against taxable capital gains.

Administration. Companies must file their annual tax returns, together with all supporting schedules and the original financial statements, before 1 May of each year, or four months after the end of the financial year. The tax return must be signed by the taxpayer. Taxpayers can file a request for an extension of the due date for filing the tax return if the estimated amount of tax is paid at the time of the request. A request for an extension must be filed at least 15 days before the due date. An extension of up to 60 days may be granted. An amended tax return can be filed within 30 days after the original due date.
Any tax due must be paid when the tax return is filed.

A late penalty is imposed at a rate of 2% plus the credit and discount rate set by the Central Bank of Egypt in January of each year.

The law has set up appeals committees at two levels — the Internal Committee and the Appeal Committee. The Appeal Committee’s decision is final and binding on the taxpayer and the tax department, unless a case is appealed to the court within 30 days of receiving the decision, which is usually in the form of an assessment.

Dividends. Dividends paid by corporations or partnerships, including companies established under the special economic zone system, to resident juridical persons, nonresident persons, or nonresident juridical persons that have a permanent establishment in Egypt are subject to tax on dividends.

Tax on dividends is imposed at a standard rate of 10% without any deductions or exemptions. However, this rate can be reduced to 5% if both of the following conditions are fulfilled:
· The recipient holds more than 25% of the distributing company’s capital or voting rights.
· The recipient holds the shares or commits to hold the shares for a period of not less than two years.

Under the law, foreign branches’ profits in Egypt are considered distributed profits within 60 days after the financial year-end. As a result, a branch must pay the dividend tax on its annual profits within 60 days after the financial year-end. The tax law grants exemptions for investment funds, parent companies and holding companies under some conditions. Dividends in the form of free stocks are not subject to tax on dividends.

Withholding tax. In general, payments for all services performed by nonresident companies for Egyptian companies in or outside Egypt are subject to withholding tax at a rate of 20%. However, this withholding tax does not apply to payments related to the following activities:
· Transportation
· Shipping
· Insurance
· Training
· Participation in conferences and exhibitions
· Registration in foreign stock markets
· Direct advertising campaigns
· Hotel accommodation
· Services related to religious activities

Foreign tax relief. Foreign tax paid by resident entities outside Egypt can be deducted if supporting documents are available. Treaties entered into between Egypt and other countries provide a credit for taxes paid abroad on income subject to corporate income tax in Egypt.


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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.

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This blog is Created by CA Anil Kumar Jain.