Egypt Tax System: How it works

Navigating the complexities of Egypt’s tax system can feel like exploring an ancient labyrinth, filled with its own set of challenges and rewards.

This guide aims to illuminate the path for expats, providing a clear overview of how taxation works in this culturally rich yet bureaucratically complex country.

Let’s dive in!

What Is The Tax System In Egypt?

The tax year in Egypt starts in January and ends in December. 

The taxation system in Egypt is progressive, meaning that the more you earn, the higher your tax rate will be. 

The tax year in Egypt runs from July 1 to June 30, and taxes must be filed by the end of September of the following year.

There are several taxes that individuals and businesses in Egypt are required to pay. These include income tax, value-added tax (VAT), stamp duty, and real estate tax.

What Are The Main Types Of Tax?

Four main types of taxes apply in Egypt: corporate income tax, personal income tax, property tax and tax in interests, dividends and plus values. 

General Sales Tax, similar to Value Added Tax (VAT), applies to some extent. Below is some personal and corporate tax information and the General Sales Tax.

Personal income tax

Personal income tax applies to all residents and individual companies operating in Egypt at a rate reaching up to 20% of the net annual revenue.

The tax thus applies to earned income, business and other non-commercial profits and wages under this regime. It is calculated similarly to corporate tax in the business profits category.

Personal income tax is deducted at source every three months at the same rates and brackets. It is directly transferred to tax authorities by the employer as follows:

  • 0 to 5,000 Egyptian pounds – 0 %
  • 5,001 to 20,000 Egyptian pounds – 10 %
  • 20,001 to 40,000 Egyptian pounds – 15 %
  • Beyond 40,000 Egyptian pounds – 20 %

Corporate income tax

Corporate income tax applies to commercial companies operating in Egypt, namely liability companies and partnerships, at a fixed rate of 20%, except for profits generated by oil and gas companies (tax applies to them at 40,55 %).

General Sales Tax

As mentioned above, the General Sales Tax (GST) is similar to Value Added Tax (VAT). However, it differs according to the type of product, good or service provided. 

It thus applies at a fixed rate varying between 5 and 25%. Still, in some cases, it can reach up to 50, 75, 100 and even 200% according to the value of the product or service (alcoholic beverages, vehicles, etc.)

Value-added tax (VAT)

The VAT rate in Egypt is currently 14%. This tax is applied to most goods and services, including imports.

The VAT Act exempts several essential goods and services that affect low-income persons (in addition to other exceptions listed in the law). 

It also provides for a reverse charge mechanism whereby transactions involving non-residents providing services to Egyptian resident entities are subject to VAT in Egypt.

Withholding tax 

Dividends 

A withholding tax of 10% is imposed on dividends paid by Egyptian companies to non-resident corporate shareholders on shares not listed on the Egyptian Exchange (Egyptian Exchange / EGX). 

A flat rate of 5% withholding tax applies to dividends paid to non-resident corporate shareholders from shares listed on the EGX. 

Interest 

Interest on loans to private sector companies for more than 3 years is exempt from withholding tax, while loans for less than 3 years are subject to a 20% withholding tax. 

Royalties 

Royalty payments are subject to a 20% withholding tax.

Real Property Tax

The property tax law considers various variables that can affect property values, such as location, the value of similar buildings and the economic situation of the area where the property is located. 

Property tax is levied annually on all constructed properties except schools, orphanages, charities and private homes with a market value of less than EGP 2,000,000

The tax also applies to land and buildings, except machinery and equipment. 

The real estate tax rate is 10% of the value of the real estate (the calculation of the value of the real estate will be different for residential and non-residential properties). 

Social contributions

Egypt has begun implementing a new comprehensive health insurance system starting in 2019

The law on the new health insurance system came into force on July 12, 2018. The new system consists of 6 phases and will be implemented over 15 years. 

Each phase will cover 5 provinces simultaneously, with the provinces of Cairo and Giza, among others, to be included in the new system in the final implementation phase. 

The new health insurance system is to be financed from several sources, among which: 

  • A contribution of 0,25% of total annual income – is to be paid by all entities, and such contribution cannot be deducted as an expense for income tax purposes; 
  • EGP 0,75 of the value of each pack of cigarettes sold (local or foreign) – this value will increase every 3 years until it reaches EGP 1,50; 
  • 10% of the value of each unit of tobacco products sold (except cigarettes); 
  • Charges of EGP 1 000 to EGP 15 000 were paid by hospitals, medical clinics, treatment centres, pharmacies and pharmaceutical companies for subscribing to the new health insurance system. 

Individuals wishing to take advantage of the new health insurance system will have to pay a subscription fee (so-called subscription) depending on the category to which they belong:

  • The employer will pay a subscription fee of 4% of the employee’s socially insurable wages, and the employee will pay 1% of wages to reach a total of 5%; 
  • The employee will contribute 3% of wages to insure their spouse against unemployment (or lack of a stable fixed income); 
  • The employee will pay a contribution of 1% of wages subject to social security for insurance for each dependent; 
  • Business owners, self-employed professionals, and Egyptian

Who Has To File Taxes In Egypt?

Egypt uses a residence-based taxation system. 

This means that residents of Egypt are taxed on their worldwide income, while non-residents are taxed on income that comes from an Egyptian source.

For employment income from an Egyptian employer, income taxes will be withheld at the source, and there is no need to file a separate annual tax return. 

You would only need to file a tax return if you received some other form of taxable income, such as:

  • Foreign Income
  • Self-employment income
  • Rental income

Who Qualifies As A Tax Resident In Egypt?

The Egyptian government will consider you a resident for tax purposes if any of the following are true:

  • You are present in Egypt for at least 183 days in any twelve months (these days do not have to be consecutive)
  • You have a permanent home in Egypt
  • You have a local commercial presence in Egypt

If you do not meet these standards, you will be considered a non-resident for tax purposes.

How To Register Your Taxes?

To register at the tax department, you are required to produce:

  • a duly filled and signed application form
  • your work permit
  • your resident permit
  • your identity card or passport.

The application must be submitted to the nearest tax office to your residence. 

Fees of some 50 Egyptian pounds apply. 

Your tax identification number will then be issued within three to two weeks.

What Are The Special Tax Breaks In Egypt?

Several special tax breaks could apply to expats living in Egypt. These include:

Foreign tax credit

You may be eligible for the foreign tax credit if you are a US citizen or resident alien living in Egypt. 

This credit allows you to offset your US tax liability by the foreign tax paid on your foreign income.

Expat tax benefits

The Egyptian government offers several tax benefits to expats living and working there. 

✅ These benefits include exemption from income tax for the first six months of residency, exemption from VAT on purchasing a new vehicle, and exemption from customs duties on household goods and personal effects.

How To File A Tax Return?

If you are an expat living in Egypt, you must file a tax return if you meet specific criteria. 

If you are a resident of Egypt and your income exceeds EGP 7,000 per year, you must file a tax return. 

If you are a non-resident and earn income within Egypt, you must also file a tax return.

The tax return must be filed annually by the end of September of the following year. 

The ETA provides an online platform where you can file your tax return, and it is recommended that you seek the assistance of a tax professional to ensure that you file correctly and take advantage of any applicable tax breaks.

What Are The Tax Exit Procedures For Egypt?

If you leave Egypt to move abroad, you must complete a tax exit procedure with the ETA. 

This procedure involves filing a tax return for the year you leave, paying any outstanding taxes, and obtaining a tax compliance

Certificate

A tax compliance certificate is required to obtain a residence permit or visa in another country. 

Failure to complete the tax exit procedure can result in a pleasing and other legal consequences.

Egypt has a taxation system that is similar to many other countries in the world. 

The tax system is progressive, and individuals and businesses must pay several taxes, including income tax, value-added tax, stamp duty, and real estate tax. 

Expats living in Egypt may be eligible for special tax breaks, and it is essential to file a tax return correctly and complete the tax exit procedure if leaving the country. 

It is recommended that you seek the assistance of a tax professional to ensure that you comply with all tax regulations in Egypt.

Conclusion

Understanding the ins and outs of Egypt’s tax system is crucial for any expat living or planning to live in this vibrant country.

With this comprehensive guide, you’re now better prepared to tackle tax obligations head-on, ensuring compliance and potentially optimizing your financial situation.

Remember, the key to successfully navigating foreign tax waters is staying informed and seeking advice when needed. Here’s to mastering the financial aspects of your Egyptian adventure.

Smooth Sailing!

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