Tax Exemptions of The New Tax Law (91/2005)
The Egyptian Cabinet approved a new unified corporate and income tax law on November 24, 2004. The new tax law (No.91/2005) was passed on June 8, 2005. It basically replaces Law 157 of 1981 and its successive amendments. It also replaces law 187 of 1993.
It is effective starting July 1, 2005 for personal income. The corporate income tax will be effective starting January 1 st, 2006.
General Tax Exemptions
- Profits of land reclamation or cultivation establishments for a period of 10 years.
- Profits of establishments of poultry production, bees breeding, cattle breeding, fattening pens, fisheries and trawlers projects for a period of 10 years.
- Profits of securities investment listed in the Egyptian Stock Exchange.
- Interests of all kinds of debentures and finance bonds listed in the Egyptian Stock Exchange.
- Dividends of the shares of the capital of the joint stock, limited liability companies and partnerships limited by shares obtained by individuals.
- Dividends of the investment securities issued by the investment funds.
- Returns from deposits, savings accounts…etc. in Egyptian banks.
- Profits realized from the new projects established by finance from the Social Fund for Development for a period of 5 years.
- Interest on loans and credit facilities obtained by the government from sources abroad.
- Interests obtained on securities issued by the Central Bank of Egypt.
- Revenues from writing and translating religious, scientific, cultural and literary books and articles.
- Revenues of members of teaching staff in the universities, institutes and others as realized from their books & compilations.
- Revenues of members of the plastic artists association from production of works of photography, sculpture and craving arts.
- Revenues of free professionals that are registered as active members of trade unions in their field of specialization for a 3-year period.
Tax Exempted Entities
- Ministries and government administrations
- Non-profit educational establishments
- Non-governmental organizations established according to law 84 of 2002
- Non-profit entities that are exercising social, scientific, sporting or cultural activities
- Profits of private insurance funds under law 54 of 1975
- International organizations
- Educational establishments under government supervision
Treatment of Foreigners and Foreign Branches
Resident foreigners (i.e. staying in Egypt for more than 183 days in a calendar year) get same tax treatment as locals. On the other hand, non-resident foreigners get a different treatment. Non-resident foreign employees are taxed at a rate of 10% without any deductions. Foreign branches get same local corporate tax treatment.
Corporate Income Rates
||Standard Corporate Income Tax
|Suez Canal Profits
||Industrial & Export Companies
|Egyptian Petroleum Authority
||Oil Exploration & Production Companies
|Central Bank of Egypt
|Oil Exploration & Production Companies
Deductible costs and expenses:
- Interests on loans
- Depreciation of the establishment assets
- Duties & taxes borne by the establishment except for corporate tax.
- Social insurance premiums settled to the National Social Insurance Authority in favor of the workers or in favor of the establishment's owner.
- Amounts that the establishment deducts annually from its funds or profits, up to and not exceeding 20% of total salaries and wages of the workers, on the account of private saving, pension funds or others according to the Private Insurance Funds Law 54/1975 or Law 64/1980.
- Insurance premiums against disability or disease, which shall not exceed LE3000.
- Donations and aids to the government and Egyptian non-governmental institutions with the maximum of 10% of the net profit.
- Financial penalties as a result of contractual liability.
Costs and expenses that are not considered deductible:
- Financial fines and penalties against the taxpayer
- Income tax payable according to the current law
- Interests settled on loans, which exceed twofold the credit and discount rates announced by the Central Bank
- Interests on loans and debts paid to tax exempted entities
Personal Income Rates
The new law has a unified the ceiling of tax exemption of both single and married employees with children.
|LE1 - 5,000
||LE1 – 50,000
|LE5,001 – 20,000
|LE20,000 – 40,000
|Note: Pensions and Severance Pay are not taxed
Personal Income tax exemptions are on the following:
- An Amount of LE4,000 as an annual personal exemption for the taxpayer.
- Social Insurance
- Employees' contributions to the private insurance funds established according to the Private Insurance Funds Law 54/1975
- Life and health insurance premiums
- Collective allowances
- Workers' share in the profits to be distributed
- All that is obtained by members of diplomatic or consular corporations
Taxation of Non-Commercial Profession:
A wider range of professions shall be taxed, under the title "non-commercial professions", for example plumbers, technicians, mechanics, hairdressers, doctors and lawyers. However, they would enjoy a 3-year tax exemption.
These include the following:
- Legal Profession
- Composition of scientific and literary compilations
- Accountancy and auditing
- Religious reading and recitations
- Drawing, sculpture and calligraphy
- Singing, music playing and composing, dancing, acting and filmmaking.
- Customs clearance
- Weigher's trade
- Registration fees & fees for exercising the professions
- Other taxes in the course of exercising the profession
- Pension scheme amounts
- Life and heath insurance
Total exemption given to the taxpayer shall not exceed 15% of the net income or LE3,000 whichever is more but not exceeding the actual amount paid.
Donations that are granted to the government, NGOs, educational establishments and hospitals are deducted from the new revenues provided that they shall not exceed 10% of the annual net revenue.
Treaties for the Prevention of Double Taxation
Egypt has concluded treaties for the prevention of double taxation with a number of countries, including: Austria, Bahrain, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Holland, Hungary, India, Indonesia, Iraq, Italy, Japan, Jordan, Korea, Lebanon, Libya, Malta, Morocco, Norway, Pakistan, Palestine, Romania, Russia, Singapore, Serbia & Montenegro, South Africa, Sudan, Sweden, Switzerland, Syria, Tunisia, Turkey, UAE, Ukraine, the United Kingdom, the United States & Yemen. In the absence of a tax treaty, unilateral tax relief is available by way of deduction rather than by a tax credit.
- Amounts paid to non- residents in Egypt paid by residents or non-residents having permanent establishments in Egypt are taxed at 20%, without deducting any costs from them.
- Bond yield by the Ministry of Finance in favor of CBE shall be taxable at 32% without deduction of any costs.
- The foreign tax paid by a resident company on its profits that are incurred abroad shall be deducted from the tax payable by it according to the law. While losses incurred abroad shall not be deducted from the tax paid in Egypt.
- The law has exempted royalties that serve manufacturing activities.
- Total exemption for the profit distribution of Egyptian companies to non-resident individuals and companies.
- The law taxes the profits of resident Egyptian corporations regardless of the location of their activities whether inside Egypt or offshore.
- Profit that an International company or shareholder makes from profits generated by a local subsidiary is not subject to taxes.
- The deduction of bad debts is allowed after submission of a report by one of the accountants or auditors indicating fulfillment of certain conditions.
- Losses may be carried forward and applied against future profits for up to 5 years.
- The new tax law cancels the state’s financial resources development duty.
Withholding Payments on Account of Tax: (Onshore Payments)
- The new law has retained the withholding payments on account of the taxpayer. Moreover it introduced a new pretax payment system.
- The obliged parties to apply the withholding payments mechanism include government ministries and departments, public sector companies, free zone companies, syndicates, all kinds of non-governmental organizations.
- Withholding payments will be applied to any payments such as commissions, brokerage, purchases, supplies, contracting or services over LE300 paid to private sector entities.
- A ministerial decree will be issued to determine the withholding payment rate that should not be exceeding 5% of the payment as follows:
|Contracting & Supplies
|Professional fees & Commissions
- Withholding payments will be applied to non-commercial professions at 5% for each amount more than LE100.
- Free zone projects are clearly obliged to withhold the taxes due on their employees and remit such amounts to the tax authority.
Withholding Taxes at Source: (Offshore Payments)
- A tax rate of 20% shall be applied to the amounts paid by the individual companies or any legal entities resident in Egypt to non-residents (free zone companies were not clearly mentioned in the law) without any deductions. These amounts include interests, royalties (except those related to manufacturing), and services, payments for athletic activity and for artists.
- The government, local governmental units, public entities, public sector companies and public business sector and private sector will be exempted from taxes due on loan interests obtained from abroad.
- The private sector will be entitled to this exemption on condition that the loan period is at least for three years.
- Amounts paid by sole proprietorships or any legal entities to any natural person as a commission or a brokerage fee that is not relevant to the work performed will be subject to tax at 20% without any deduction.
The New Tax Law and Investment Law 8/1997
Law 91/2005 has revoked articles 16, 17, 18, 19, 21, 22, 23-bis, 24, 25 and 26 of the Investment Guarantees and Incentives Law 8 of 1997. These articles mostly exempted certain industrial and commercial activities (Hotels and tourist projects, reclamation of desert lands…etc.) for a period of 5 years.
Moreover, it exempted new industrial zones and the new urban communities as well as the remote areas and new projects financed by the Social Fund for Development for a period of 10 years. They exempted any establishment outside the old valley for a period of 20 years.
Under the new tax law, exemptions as prescribed in the said articles shall remain valid for companies and establishments whose exemption period started before the effective date of the law, until the end of the period determined.
Furthermore, companies and establishments that were created according to the provisions of Investment Law 8 of 1997 but have not yet started production until the effective date of the present law shall conditionally begin exercising their activity or production within a period not exceeding 3 years from the effective date of the law in order to be granted the exemptions.
The new law had defined royalties as amounts paid, whatever their kind, against using or the right to use the copyrights concerning a literary, artistic or scientific work, including movies, and any patent, trade mark, design, pattern, plan, secret formula or process, or against using or the right to use industrial, commercial, or scientific equipment, or information connected with industrial, commercial, or scientific expertise.
Payments to non-resident entities or individuals are subject to tax at the rate of 20% without any deductions except for know-how fees or designing fees for serving the Egyptian industry.
Pending Law Cases
Lawsuits filed against taxpayers before October 1 st, 2004 will be dropped on condition that conflicts in those cases are related to determining the taxable amoun t less than LE10,000 . Any tax paid by the tax payer on such cases will not be refunded.
For Court cases filed before October 2004 in which the taxable amount is higher than LE 10,000, a resolution together with a discount percentage of the tax due are allowed as based on the following scale :
- 10% of the tax amount if it does not exceed LE100,000
- 25% of the tax amount between LE100,000 – LE500,000
- 40% of the tax amount exceeding LE500,000
The Sales Tax
The tax rate for goods ranges from a 10% general rate ranging up to 50% for certain specified goods. The services tax ranges from 5-10%.
(Last Updated November 10, 2005)
Debt to Equity
The law allows deductibility of interests at a debt to equity starting at 8:1 for the year 2005 then reducing it each year to reach 4:1 by 2009.