/ 2015 16

2015 /16
Egypt
FOREWORD
A country's tax regime is always a key factor for any business considering moving into new markets.
What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double
tax treaties in place? How will foreign source income be taxed?
Since 1994, the PKF network of independent member firms, administered by PKF International
Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses
with the answers to these key tax questions.
As you will appreciate, the production of the WWTG is a huge team effort and we would like to
thank all tax experts within PKF member firms who gave up their time to contribute the vital
information on their country's taxes that forms the heart of this publication.
The PKF Worldwide Tax Guide 2015/16 (WWTG) is an annual publication that provides an overview
of the taxation and business regulation regimes of the world's most significant trading countries. In
compiling this publication, member firms of the PKF network have based their summaries on
information current on 1 January 2015, while also noting imminent changes where necessary.
On a country-by-country basis, each summary such as this one, addresses the major taxes applicable
to business; how taxable income is determined; sundry other related taxation and business issues;
and the country's personal tax regime. The final section of each country summary sets out the
Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends,
interest, royalties and other related payments.
While the WWTG should not to be regarded as offering a complete explanation of the taxation
issues in each country, we hope readers will use the publication as their first point of reference and
then use the services of their local PKF member firm to provide specific information and advice.
Services provided by member firms include:

Assurance & Advisory;

Financial Planning / Wealth Management;

Corporate Finance;

Management Consultancy;

IT Consultancy;

Insolvency - Corporate and Personal;

Taxation;

Forensic Accounting; and,

Hotel Consultancy.
In addition to the printed version of the WWTG, individual country taxation guides such as this are
available in PDF format which can be downloaded from the PKF website at www.pkf.com
PKF Worldwide Tax Guide 2015/16
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Egypt
IMPORTANT DISCLAIMER
This publication should not be regarded as offering a complete explanation of the taxation matters
that are contained within this publication. This publication has been sold or distributed on the
express terms and understanding that the publishers and the authors are not responsible for the
results of any actions which are undertaken on the basis of the information which is contained
within this publication, nor for any error in, or omission from, this publication.
The publishers and the authors expressly disclaim all and any liability and responsibility to any
person, entity or corporation who acts or fails to act as a consequence of any reliance upon the
whole or any part of the contents of this publication.
Accordingly no person, entity or corporation should act or rely upon any matter or information as
contained or implied within this publication without first obtaining advice from an appropriately
qualified professional person or firm of advisors, and ensuring that such advice specifically relates to
their particular circumstances.
PKF International is a family of legally independent member firms administered by PKF International
Limited (PKFI). Neither PKFI nor the member firms of the network generally accept any responsibility
or liability for the actions or inactions on the part of any individual member firm or firms.
PKF INTERNATIONAL LIMITED
JUNE 2015
© PKF INTERNATIONAL LIMITED
All RIGHTS RESERVED
USE APPROVED WITH ATTRIBUTION
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Egypt
STRUCTURE OF COUNTRY DESCRIPTIONS
A. TAXES PAYABLE
CORPORATE INCOME AND GAINS TAX
ADMINISTRATION
DIVIDENDS
CORPORATE TAX RATES
OTHER TAXES
B. DETERMINATION OF TAXABLE INCOME
DEBIT INTEREST
DEBT-TO-EQUITY RULES
INVENTORIES
PROVISIONS
BAD DEBTS
DEPRECIATION AND AMORTISATION ALLOWANCES
REAL ESTATE TAX
C. FOREIGN TAX RELIEF
D. CORPORATE GROUPS
E. RELATED PARTY TRANSACTIONS
F. WITHHOLDING TAX
G. EXCHANGE CONTROL
H. PERSONAL TAX
I. TREATY WITHHOLDING TAX RATES
PKF Worldwide Tax Guide 2015/16
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Egypt
MEMBER FIRM
For further advice or information please contact:
City
Name
Contact information
Cairo
Hany Rashed
+20 2 2354 7340
[email protected]
BASIC FACTS
Full name:
Capital:
Main languages:
Population:
Major religion:
Monetary unit:
Internet domain:
Int. dialling code:
Arab Republic of Egypt
Cairo
Arabic
84.6 million (2013 PRB)
Islam, Christianity
Egyptian pound (EGP)
.eg
+20
KEY TAX POINTS
•
Egyptian resident companies are taxable on their worldwide income, except for profits derived
from permanent establishments abroad. Non-residents are only taxed on Egyptian sourced
income.
•
Dividends paid to residents and non-residents are not subject to withholding tax. Companies
and individuals are not taxed on dividends received from resident companies but are taxed on
dividends and other payments from non-residents.
•
A credit system is available to relieve double taxation on foreign source income. The credit is
subject to a maximum of the Egyptian tax paid on the overseas income concerned.
•
There are provisions which limit the tax deductibility of interest based on the rate of interest
charged and the debt to equity ratio of the company concerned.
•
Transfer pricing rules are based on arm's length principles. An advance pricing arrangement is
available.
•
Domestic tax law provides for a 20% withholding tax applicable to the payment of interest and
royalties to non-residents. Treaties with various countries reduce the rate of withholding tax
applying.
•
General sales tax is payable on the supply of goods and services and imports. The standard rate
of tax is 10% although rates vary from 0% to 30%.
•
Resident individuals are subject to income tax on their worldwide income whereas nonresidents on taxed on Egyptian sourced income.
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Egypt
A. TAXES PAYABLE
CORPORATE INCOME AND GAINS 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 resident in Egypt are subject to tax only on their
profits derived from Egypt.
Oil prospecting and production companies are subject to tax on their profits at a rate of 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%.
ADMINISTRATION
Companies must file their annual tax returns, together with all supporting schedules and the original
financial statements, before 1 May each year or four months from the financial year end. The tax
return should be signed by the taxpayer. Taxpayers can file a request to extend the due date of filing
the tax return provided they pay an estimated amount of tax. The request must be filed at least 15
days before the due date and the estimated tax due must also be paid before the due date. The
extended period can be up to 60 days.
An amended tax return can be filed within 30 days from the due date. Any tax due must be paid when
the tax return is filed. A late penalty is applied at the rate of 2% plus the credit and discount rate
issued by the Central Bank of Egypt as of January 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 by either to the court within 30 days of receiving the decision,
which is usually in the form of an assessment.
DIVIDENDS
Dividends distributed by an Egyptian company are not subject to withholding tax because they are
paid out of corporate profits that are taxed under the normal rules. Dividends received by residents
from foreign sources are not taxed in Egypt.
Dividends are exempt from tax. Interest on bonds listed on the Egyptian stock exchange is exempt
from tax if certain conditions are satisfied. Certain exemptions may be provided in some cases.
CORPORATE TAX RATES
Nature of Tax
Rate
Corporate income tax
25%
Capital gains tax
20%
Branch tax
20%
Withholding tax:
Dividends
0%
Interest
20%1
Royalties from patents, know-how, etc.
20%1
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Egypt
Nature of Tax
Rate
Certain services provided from non-resident
entities
20%1
Branch remittance tax
0%
Net operating losses (years)
Carry back
3 years
Losses incurred in long-term projects can be
carried back within the same project with no
limits.
Carry forward
5 years
NOTES:
1
Final tax imposed on gross payments. The rate may be reduced under a tax treaty.
OTHER TAXES
The table below summarises other significant taxes.
Nature of Tax
Rate
General sales tax
0% to 30%
Customs Duties:
 General, ad valorem
Various
 On value of machinery needed for investments by companies
5%
Stamp duties on bills, promissory notes and letters of guarantee
as well as most types of documents, contracts, checks and
receipts (shares and bonds listed on the Egyptian Stock Exchange
are exempt)
Various
The amounts paid become credits available for income tax purposes at the end of the period.
SOCIAL INSURANCE
On monthly base salary, up to EGP 987.5 paid by:
Employer
Employee
26%
14%
On amount in excess of EGP 987.5 of the base salary, with a maximum excess amount of EGP 1,520 a
month, paid by:
Employer
Employee
24%
11%
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Egypt
B. DETERMINATION OF TAXABLE INCOME
Corporate income tax is based on taxable profits computed in accordance with generally accepted
accounting and commercial principles, modified for tax purposes by certain statutory provisions
primarily concerning depreciation, provisions, inventory valuation, inter-company transactions and
expenses. Start-up and formation expenses may be capitalised and amortised in the first year.
The deductibility of a branch's share of head office overhead expenses is limited to approximately
3% to 5% (according to practice) of turnover. Head office expenses other than overhead and general
administration expenses are subject to negotiation with the tax authorities. They are fully deductible
if they are directly incurred by the branch and are necessary for the performance of the branch's
activity in Egypt.
Such expenses must be supported by original documents and approved by the head office auditors.
DEBIT INTEREST
Debit interest of loans/overdraft used in the company's activity is a deductible item after offsetting
the interest income. Interest expense paid to individuals who are not subject to tax or exempted
from tax is not deductible.
Interest expense is limited to the interest rate which will not exceed twice the discount rate
determined by the central bank of Egypt.
DEBT-TO-EQUITY RULES
The tax law has determined the maximum debt to equity ratio to be 4:1. In the event the debt
exceeds such ratio, the excess interest is not considered by the Tax Authority to be a deductible
expense.
INVENTORIES
Inventories are normally valued for tax purposes at the lower cost or market value. Cost is defined as
purchase price plus direct and indirect production costs. Inventory reserves are not permissible
deductions for tax purposes.
For accounting purposes, companies may elect to use any acceptable method of inventory valuation
such as first-in, first-out (FIFO) or average cost.
The method should be applied consistently and the reasons for such change should be stated if the
method is changed.
PROVISIONS
Provisions are not considered as deductible costs except for the following:
•
80% of loan provisions made by banks (required by the Central Bank of Egypt);
•
Insurance companies provision determined by Law No 10 of 1981.
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Egypt
BAD DEBTS
Bad debts are a deductible cost if the company provides a report from an external auditor certifying
the following:
•
The company is maintaining regular accounting records;
•
The debt is related to the company's activity;
•
The debt appears in the company's records; and,
•
The company has taken the necessary actions to collect the debt.
DEPRECIATION AND AMORTISATION ALLOWANCES
Depreciation is deductible for tax purposes and may be calculated using either the straight-line or
declining-balance method. Depreciation rates are as follows:
Type of Asset
Rate
Method of Depreciation
Buildings
5%
Straight-line
Intangible assets
10%
Straight-line
Computers
50%
Declining-balance
Heavy machinery and equipment
25%
Declining-balance
Small machinery and equipment
25%
Declining-balance
Vehicles
25%
Declining-balance
Furniture
25%
Declining-balance
Other tangible assets
25%
Declining-balance
Accelerated depreciation is allowable only once at a rate of 30% on new machines and equipment in
the year they are placed into service.
Normal depreciation is calculated after considering the accelerated 30% depreciation on the net
value of new assets, provided that proper books of account are maintained. Tax losses may be
carried forward for five years. Losses incurred in long-term projects can be also carried back within
the same project.
REAL ESTATE TAX
Egypt introduced a new tax law No 196 of 2008 with effect from 23 June 2008 to be applied with
effect from 1 January 2009.
Tax Rate: 10% of the annual rental value after excluding the following representing an assumed
maintenance expenses:
•
30% of the rental value for properties used for living accommodation;
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Egypt
•
32% of the rental for properties used for other purposes.
C. FOREIGN TAX RELIEF
Foreign tax paid by a resident entity outside Egypt can be deducted provided there is supporting
documentation. Losses generated outside Egypt cannot be offset against the taxable amount in
Egypt.
Treaties concluded between Egypt and other countries regulate the credit for taxes paid abroad on
income subject to corporate income tax in Egypt.
D. CORPORATE GROUPS
Associated or related companies in a group are taxed separately for corporate income tax purposes.
Egyptian law does not contain a concept of group assessment under which group losses may be
offset against profits within a group of companies.
E. RELATED PARTY TRANSACTIONS
The Egyptian tax law contains provisions for transfer pricing.
The transfer pricing provisions are based on the arm's length pr1nciple. Under these provisions, the
tax authorities may adjust the income of an enterprise if its taxable income in Egypt is reduced as a
result of contractual provisions that differ from those that would be agreed to by unrelated parties.
However, it is now possible to enter into arrangements with the tax department to agree a transfer
pricing policy in advance (Advance Pricing Arrangement). This provides assurances that transfer
prices will not be challenged after the tax return is submitted, with the consequent exposure to
penalties and interest on late paid taxes.
F. WITHHOLDING TAX
No withholding tax is levied on dividends distributed by resident companies, regardless of the
residence status of the recipient. Interest derived by non-resident legal persons is subject to a final
withholding tax at the rate of 20% on the gross amount, unless a lower treaty rate applies.
Royalties derived by non-resident legal persons are subject to a final withholding tax at the rate of
20% on the gross amount, unless a lower treaty rate applies.
G. EXCHANGE CONTROL
Egypt has a free market exchange system. Exchange rates are determined by supply and demand
without interference from the central bank or the Ministry of the Economy.
H. PERSONAL TAX
Income tax is imposed on the worldwide income of Egyptian residents. Non-residents are subject to
tax on income earned or realised in Egypt. An individual is deemed to be a resident of Egypt if:
•
The individual is present in Egypt for more than 183 days in a fiscal year;
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Egypt
•
The individual's principal place of residence is Egypt. Article 2 of the Executive Regulations
states that an individual is considered to have a permanent residence in Egypt if:
(a) The taxpayer stays in Egypt for the majority of the year, either in his own property, in a
rented property or in any other place;
(b) The taxpayer has a local commercial presence, professional office, industrial site or any
other place where he carries on his activities in Egypt;
(c) The individual is an employee who performs his duties abroad and receives a salary from
an Egyptian public or private source.
Income tax is assessed each year on the aggregate of the net amounts from each category of income
realised during the preceding year. There are four recognised categories of income, namely:
(1) Employment income;
(2) Business income (which includes income from commercial and industrial activities);
(3) Non-commercial income;
(4) Income from real estate assets.
Graduated rates apply with effect from 1 July 2005 to the aggregate of the four categories of
income, as follows:
Income (EGP)
Rate
Up to 5,000
0%
5,001 to 30,000
10%
30,001 to 45,000
15%
45,001 to 25,000,000
20%
Over 25,000,000
25%
Individuals are not subject to a tax on capital gains except in the case of the disposal of real estate or
building sites within the boundaries of Egyptian cities.
Such gains are not subject to income tax but are taxed at the rate of 2.5% on the value of the
property.
I. TREATY WITHHOLDING TAX RATES
Dividends paid to non-residents are not subject to withholding tax under Egyptian domestic law.
Consequently, the following table sets forth maximum withholding rates provided in Egypt's tax
treaties for interest and royalties only.
Egypt has signed double tax treaties with Armenia, Bangladesh, Greece, Ireland, Kazakhstan,
Mongolia, Norway, Oman, Senegal, Seychelles, the Slovak Republic, Spain, Sri Lanka, Tanzania,
Thailand, Uganda and Vietnam but these treaties have not yet been ratified.
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Egypt
Tax treaty negotiations are underway with Congo, Macedonia and North Korea.
Interest
(%)
Royalties
(%)
20
20
Albania
10
10
Algeria
5
10
Austria
15
0
Bahrain
–1
–1
Belarus
10
15
Belgium
15
15/20
Bulgaria
12.5
12.5
Canada
15
15
China
10
8
Cyprus
15
10
Czech Republic
0
10
Denmark
15
20
- From Finland
0
20
- From Egypt
20
20
France
20
15/203
Germany
15
15/203
Hungary
15
15
India
20
–1
Indonesia
15
15
- From Iraq
10
15
- From Egypt
20
15
Italy
20
15
Japan
20
15
Jordan
15
20
10/15
15
Non-treaty countries
Treaty countries:
Finland1
Iraq:
Korea (South)
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Egypt
Interest
(%)
Royalties
(%)
Kuwait
Lebanon
10
10
10
5
Libya
20
20
Malaysia
15
15
Malta
10
12
Morocco
20
10
Netherlands
12
12
- From Norway
0
0
- From Egypt
20
15
Pakistan
15
15
Palestine
15
15
Poland
12
12
Romania4
15
15
Russia
15
15
Singapore
15
15
South Africa
12
15
Sudan
20
10/35
Sweden
15
14
Switzerland
15
12.5
Syria
15
20
Tunisia
10
15
Turkey
10
10
Ukraine
12
12
United Arab Emirates
10
10
United Kingdom
15
15
United States
15
15
Yemen
10
10
Yugoslavia6
15
15
Norway:
NOTES:
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Egypt
1.
According to domestic law in each country.
2.
A final draft of a new tax treaty with Finland was initialled on 17 September1997, but the new
treaty has not yet been ratified.
3.
The higher rate applies to trademarks.
4.
The treaty with Romania is being renegotiated.
5.
Films, otherwise 10%.
6.
The treaty with Yugoslavia applies to the republics that formerly comprised Yugoslavia.
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