In 2004 Egypt witnessed a monumental change to a government concentrated on improving the country’s business environment through privatisation and a move towards a more knowledge-based society. Fundamental to improving Egypt’s investment climate was the reform of Egypt’s taxation policies. The Egyptian Parliament enacted comprehensive reforms to their tax system on 20 June 2005.

Since the implementation of the new tax law, tax evasion has reduced substantially. Egypt’s national income from tax increased to over LE 130bn in fiscal year 2008/09. The government further aims to create job opportunities, stimulate foreign direct investment (FDI), increase exports, introduce advanced technology, help small & medium enterprises (SME’s), and increase purchasing power and standard of living through Egypt’s new modern and efficient tax law.

Income Tax Law
The tax reforms in 2005 have led to a substantial improvement in taxation on natural persons. Prior to the enactment of the new law, the tax rate on income below LE 48,000 stood at 20% and income over LE 48,000 was taxed at 32%.The maximum income tax is now set to 20% and income tax brackets have been reset according to the table below. The total net income comprises of salaries; commercial & industrial activity; professional and non-commercial activity and real estate.

Natural persons are required to pay tax on employment with or without a contract irrespective of the regularity of work. The individual is deemed a resident of Egypt if the person is present in Egypt for more than 183 days in a fiscal year. The Egyptian tax law applies for persons paid from a source located in Egypt or persons working in Egypt paid from a foreign source. Any amounts earned by residents from other than their original place of employment is taxed at a rate of 10% without further reductions.

Tax does not apply on pensions or severance allowances.Social insurance contributions, employees’ subscriptions in private insurance funds, life & health insurance premiums for next of kin, in-kind benefits, employees’ dividends and amounts received by foreign diplomatic representatives are all tax exempt. Remittances of Egyptians working abroad are also exempt.

Corporate Tax Law
Egypt’s tax reform of 2005 most notably impacted corporate tax, prior to the reform Egypt’s corporate tax rate stood at 42%, this has now been cut to a 20% flat rate. Oil prospecting and producing industries are excluded from the 20% flat rate and are taxed at 40% as Egypt endeavours to move towards a greener society; Egypt has pledged a renewable energy share of 20% in 2020.

Egyptian corporate tax applies to joint stock companies, companies limited by shares, companies with limited liability and foreign companies; this includes foreign companies that have their head office or branches located overseas. It needs to be mentioned that in Egypt there is no corporate group assessment; branches of the same company cannot offset losses against profit from other branches. General and limited partnerships are not subject to corporate taxation. The tax rate is based on the respective shares in partnerships profits categorized within income tax from natural persons.

Foreign companies and branches are subject to the same corporate income tax law as Egyptian companies. There is no withholding tax on payment to head offices abroad or on dividends paid to foreign parent companies. Any dividends or interest received from abroad are subject to moveable funds at 32%.

Corporate Tax Exemptions
There are 9 public & private free zones in Egypt where business can be established to enjoy a lifetime exemption from all tax and customs. Free zones are usually located adjacent to sea ports and airports. High energy consuming industries within the free zones are taxed at 20%. Egypt’s Special Economic Zone offers a 10% flat rate on corporate tax on all activities and a 5% flat rate on personal income tax. Other tax exemptions are profits of land reclamation, cultivation enterprises, poultry farming and fish farming enterprises for 10 years from the start date of the activity; physical persons’ income received from investment Egyptian Stock Exchange Market; interest on savings and deposits on bank accounts in Egypt and profits from projects set up by funding from the Social Fund for Development (SFD).

Real Estate Tax Law
Egypt’s taxation on real estate revenues has been amended under Law 196 and applied on 1 January 2009. The tax rate for real-estate in Egypt is 10% and is determined by taking the rental value as a base. Depending on the type of real-estate, a percentage of expenses is deducted from the rental value before determining the tax rate.The following table is a breakdown of various types of real-estate and different taxation methods.

Global Arab Network
Sources:
-Egyptian Ministry of Finance
-PKF International
-General Authority for Investment
-OECD
Produced by the Egyptian-British Chamber of Commerce © May 2010