The Legal 500

Article on THE EGYPTIAN INCOME TAX LAW

Egyptian Income Tax law : A new income tax law no. 91 of 2005 (the “Law”) was promulgated in Egypt that drastically amended the income tax rules that were applied up to the date of its entry into force as from June 10, 2005. The law did not change the basic structure of the tax that is imposed on the total net income of natural persons domiciled in Egypt and on those domiciled outside Egypt concerning their incomes that are derived from permanent establishments in Egypt, nor did the law fail to mention that this total net income is derived from the following sources. 1.    Salaries and wages of individuals. 2.    Commercial and industrial activities of individuals. 3.    Professional and non Commercial activity. 4.    Income derived from immovable property.  On the other hand, the law lowered the maximum income tax rate from 40% to 20% and abolished the totality of the income tax exemptions provided in the investment guarantees and incentives law no. 8 of 1997 in relation to establishments that are incorporated after entry into force of the law.  The law defines in some detail the meaning of the “permanent establishment” which was not mentioned in the previous income tax law no. 157 of 1981 as amended and increases the income that is exempted from the tax to L.E 5000 (and L.E 9000 in general relation to the salaries and wages).  We shall mention herein-below in some details the rules provided in the law concerning the tax on the income of juristic persons due to its importance for foreigners doing business in Egypt.  The tax on the profits of juristic persons   The tax is imposed on the net yearly profits of the juristic persons that are domiciled in Egypt from all their profits, whether from Egypt or abroad, and on the profits derived from a permanent establishment in Egypt in relation to juristic persons that are not domiciled in Egypt.  The definition of “juristic persons”  includes all types of companies, as well as foreign banks and foreign establishments, even if their head offices are situated outside Egypt and their branches are in Egypt, and the income tax on their net yearly profits is 20% and 40.55% concerning the profits of companies that are prospecting for oil and gas.  The taxable profit of those juristic persons consists of the total revenue after deducting, the costs and expenses that are necessary for obtaining the profit, as detailed in the law.  On the other hand, the various tax exemptions provided in the previous income tax law for companies listed in the stock exchanges and that employ a certain number of employees have been abolished on the understanding that the lowering of the income tax rate by 50% (i.e. 20% instead of 40%) is a fair counterpart for such abolishment of those exemptions.   The main tax exemptions provided in the law concerning the profits of juristic persons include the following:- 1-    Profits of reclamation or cultivation of reclaimed land for a period of ten years starting from the date of exercising the activity. 2-  Profits of animal, poultry and fish production for a period of ten years starting from the date of exercising the activity.  3-  Revenues from investments in securities which are listed in the Egyptian stock exchanges. 4-  Returns of bonds and securities which are listed in Egyptian stock exchanges and returns of investment funds established in accordance to the Egyptian stock exchange law. 5-  Distributions and profits obtained by Egyptian domiciled        persons against their participation in other domiciled juristic persons. 6-  The returns of the juristic persons from their securities which are issued by the Egyptian central bank or the returns from the dealing in those securities.         

KOSHERI, RASHED & RIAD LEGAL CONSULTANTS & ATTORNEYS AT LAW 16, Maamal El Sokkar St., Garden City, Cairo 11451, Egypt            TELEPHONE: + (20 2) 7954795 (10 lines), 7959228, 7952096            FAX: + (20 2) 7958521            E-mail: samiakr@link.net                        mailbox@krr-law.com            Web site: www.krr-law.com