Income tax

fathalla & Company - specialist in creating company in egypt - tax services

Income tax is imposed on the following sources of
income:
• Worldwide income from employment or dependent services paid by the Egyptian government or any Egyptian public organisation, regardless of the employee’s residence, the place services are rendered or the place of payment
• Egyptian-source income paid by Egyptian or foreign companies or by private sector enterprises to any employee resident in Egypt or resident abroad, in return for services rendered in Egypt (pension payments are excluded)
• Non-Egyptian-source income paid to a resident employee or
individual if Egypt is the location of the headquarters of the individual’s commercial, industrial or professional activity Under the law, persons are deemed to be residents of the country where they have permanent homes. A person who resides in Egypt for a period exceeding 183 days during a calendar year is deemed to be resident in Egypt for tax purposes.

Nonresident individuals and expatriate experts (as defined) are generally taxed on Egyptian-source income only. Income subject to tax. Income tax is levied on the following types of income:
• Employment income
• Business profits, non-commercial profits (self-employment
in come) and income from immovable properties (including the assessed rental values of agricultural lands and buildings)
• Dividends
• Capital gains on disposals of shares and securities Employment income. Income tax is levied on salaries, wages, compensation awards, overtime pay and all cash and in-kind fringe benefits.
The following rules apply to the taxation of employment income:
• Casual workers are also subject to tax.
• Tax is imposed on income generated from Egyptian sources, regardless
of whether the work is performed in or outside Egypt. 342 EGYPT 343 Tax is also imposed on income generated from foreign sources for work performed in Egypt.
• Tax is imposed on all salaries, remunerations and bonuses paid to managing directors, board members and managers of corporations for the performance of administrative duties. In addition to other tax exemptions prescribed in special laws, the following types of income are exempt from tax:
• Certain collective allowances in-kind for employees, which are meals distributed to the workers, collective transportation of workers or equivalent transportation costs, health care, tools and uniforms necessary for performing work and housing provided by the employer to workers for performing their work.
• Workers’ share in the profits distributed according to the law.
• All compensation received by members of diplomatic and consular
corps, international organizations, and other foreign dipole
matic representatives in the context of their official work.
This exemption is conditioned on reciprocity of treatment and
is granted within the limits of such treatment.
Self-employment and business income. Income tax is levied on
non-commercial profits derived by professionals or in dependent
persons practicing other non-commercial activities in Egypt if
work is the primary element of the activity (for example, lawyers,
accountants, artists and writers). This tax applies to any income
derived from professions or activities not otherwise subject to tax
in Egypt. Graduates and members of a professional association
about to practice for the first time enjoy certain exemptions.
Non-commercial profits generated outside of Egypt that are
derived by professionals or independent persons practicing noncommercial
activities in Egypt are subject to tax in Egypt if
Egypt is the location of the headquarters of the professional or
non-commercial activities.

Taxable non-commercial income consists of net non-commercial profits from various operations after deduction of all related costs.

If no proper books are kept, gross revenue is estimated using indicators and guidelines issued by the tax authorities. Income tax is levied on the net profits of business in come from all activities carried on by commercial and industrial entities operating as sole traders, partnerships and limited partnerships in Egypt, and on profits derived from certain other categories of income as specified by law.

Profits generated outside of Egypt by commercial and industrial entities operating in Egypt are subject to Egyptian income tax if
Egypt is the location of the headquarters of the entity’s commercial
and industrial activities.
Nonresidents with commercial and industrial activities are taxed
only on income earned from an establishment in Egypt or from
operations carried on in Egypt.
Taxable commercial and industrial income consists of net commercial
and industrial profits derived within a calendar year from
all business transactions, including sales of assets (after deduction
of all business charges, expenses and personal allowances).
344 EGYPT
Investment income. Dividends from shares and interest received
by residents from bonds and debentures of companies that are
officially listed on the Egyptian stock exchange are exempt from
income tax. See Capital gains and losses for the taxation of
capital gains on these investments.
Dividends from foreign sources received by resident individuals
not engaged in commercial or industrial activities are not subject
to tax.
Certain interest is exempt from tax, including interest derived
from securities listed on the Egyptian stock exchange.
Commission payments unrelated to a resident taxpayer’s profession
and royalties received by residents are taxed on gross income
as commercial and industrial profits (business income; see
Self-employment and business income).
Payments by domestic corporations to foreign or nonresident
persons are subject to final withholding taxes in accordance with
the following rules:
• Dividends realized in Egypt by resident and nonresident individuals
engaged in a commercial or industrial activity are subject
to tax at a rate of 10% without deducting any expenses. This
rate is reduced to 5% if the individual holds more than 25% of
the distributing company’s capital or voting rights of and if the
shares were held for at least two years.
• Dividends realized in Egypt by resident individuals not engaged
in a commercial or industrial activity are subject to tax at a rate
of 10% of the annual taxable income of more than EGP10,000.
This rate is reduced to 5% if the recipient meets the abovementioned
conditions.
• Royalties are taxed on gross income at a rate of 20%. Several
tax treaties concluded between Egypt and other countries have
specific rates for taxes on royalties, varying from complete
exemption to a tax of up to 20% of gross royalties.
• Interest is subject to a 20% withholding tax with some specific
exemptions. Special rates are established by certain tax treaties.
Capital gains and losses. Capital gains derived from transfers of
real estate are not subject to tax unless the real estate is used in a
trade or business. However, a 2.5% tax is levied on the gross proceeds
from the total disposal value of built real estate and land
prepared for buildings.
Tax on capital gains realized by business entities from the sale of
other capital assets, including machinery and vehicles, is calculated
in the same manner and at the normal rates that apply to commercial
and industrial profits. Trading losses and capital losses on
the sale of these assets are deductible from taxable capital gains.
Capital gains on sales of personal property, including automobiles,
jewelry and shares, owned by an individual are not taxed in
Egypt, unless used in a trade or business.
Capital gains realized by resident individuals on the sale of
shares, bonds and debentures of companies that are listed on the
Egyptian stock exchange is subject to tax at a rate of 10% without
any deduction of costs.
EGYPT 345
Capital gain realized by resident individuals from the disposal of
shares not listed on the Egyptian Stock Exchange or shares
abroad is subject to income tax in Egypt at the progressive tax
rates listed in Rates, plus the additional temporary surtax of 5%,
which is also mentioned in Rates.
Capital gains realized by nonresident individuals on disposals of
shares listed or not listed on the Egyptian Stock Exchange is
subject to tax at a rate of 10% without any deduction of costs.
Deductions. The following deductions may be claimed:
• An annual personal deduction of EGP7,000 for each individual
• Social insurance and other contributions that may be deducted
in accordance with the measures in the social insurance law and
under alternative systems
• Employees’ contributions to private insurance funds established
according to the provisions of the Private Insurance Funds Law,
as promulgated by Law No. 54 for 1975
• Premiums paid for life and health insurance for the benefit of
the individual or the individual’s spouse or minor children, and
insurance premiums paid with respect to pensions
The total deduction for the last two items mentioned above may
not exceed 15% of the net income or EGP10,000, whichever is
lower.
For purposes of computing taxable commercial and industrial
income, all costs generally are deductible. In particular, the following
specific deductions are allowed:
• Costs for rental of premises
• Tax depreciation and accelerated depreciation for new machines
• All taxes except taxes on business income
• Social insurance contributions
• Contributions to pension and savings funds
• The deductions described in the first paragraph of this section
Rates. The following progressive tax rates apply to employment
income, income derived by individuals from commercial, industrial
and non-commercial activities and income from immovable
properties.
Taxable income Tax
Exceeding Not exceeding rate
EGP EGP %
0 5,000 0
5,000 30,000 10
30,000 45,000 15
45,000 250,000 20
250,000 1,000,000 25
In addition to the above tax, an additional temporary surtax of
5% is imposed on annual taxable income exceeding EGP1 million.
This surtax applies for three years, effective from 2014.
Tax is imposed at a rate of 10% on amounts received by resident
employees from entities other than their original employers. No
deductions or exemptions are allowed with respect to the calculation
of the 10% tax.
346 EGYPT
Amounts paid and benefits provided to nonresidents performing
activities in Egypt are subject to the same tax rates as Egyptian
residents.
Relief for losses. A taxpayer may offset losses against profits of a
business and may carry losses forward for a period up to five
years. Losses may not be carried back. Losses incurred in long-term
projects may be carried back within the same project