Egypt: Income tax law in Egypt in attracting investment and achieving target tax proceeds

The Income Tax Law No. 91 of 2005 was issued to address the issues of application of the previous laws to restore confidence between the taxpayer and the Tax Authority as follows: 

(i) Law No. 157 of 1981- amended by Law No. 187 of 1993, which shifted the tax thought from administrative linkage to self-linkage 

(ii) cancellation of absolute tax exemptions and reduction of tax rate from 40% to 20% as an incentive to attract investment, which led to the increase of foreign investments from half a billion in 2005 to 8.6 billion pounds in 2009/2010. It has had a significant impact on increasing the state resources and expanding the taxpayers’ base and containing the informal economy. 

The law introduced some articles that were not reflected in the previous tax laws, including: 

- Article 17: Determination of net profit on a basis based on the income statement in accordance with Egyptian accounting standards. 

- Exemption from the revaluation of the taxpayer’s assets in respect of the contribution to the capital of a joint stock company provided that these shares corresponding to the share in kind are nominal and are not disposed of within five years, thus encouraging SMEs to invest. 

- Article 30: Determination of the transfer price by the free comparative price or the total cost plus the profit margin or the resale price method. - Exemption of some productive projects related to the environment and the need of the community for a period of 10 years such as land reclamation and cultivation, animal production, deposit returns, savings accounts, investment certificates and savings.

- Article 53: Tax deferral shall be permitted if the legal form of the juridical person is changed, as the capital gains tax is now applicable unless assets and liabilities are recorded at their book value at the time the legal form is changed and that the assets are disposed of within 3 years following the change. 

- Article 56: Amounts paid to non-residents in Egypt by Egyptian resident establishments and by nonresidents entities with permanent establishments in Egypt shall be taxable at a rate of 20% of gross amount. Accordingly, to avoid double taxation Egypt is consistently working on increasing its double tax treaties. 

- Article 94: The tax has been reduced from 30% to 22.5% since 2014 and for 10 years as a step towards the stability of the tax community and to reassure and attract investors. 

- Issuing Law No. 14 of 2018 with an initial payment of the tax due instead of the delay penalties, which is attached to Law No. 174 of 2017, to give reduction rates as incentives to the taxpayers according to the original repayment terms due, indicating the progress of financial and tax reforms towards the support and stability of the society. Business and investment and retreat from the idea of collection in the financial community. 

The new investment law included many amendments, guarantees and incentives for all investment activities. The tax incentive in the old investment law was the five-year exemption for any area in the Republic and a ten year exemption in the new urban areas. The first of which includes the economic zones of the Suez Canal and the Golden Triangle (Safaga, Qusayr, Qena) and Upper Egypt’s most needy areas. The exemption is 50% of the investment costs. The exemption shall be applied to the deduction from the net profit taxable, provided that this deduction is amortized within 7 years only and that the 50% exemption from the paid-up capital is not exceeded and the company was established within 3 years from the date of issuance of the law.

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