Egypt

Corporate - Income determination

Last reviewed - 16 January 2020

Inventory valuation

Egyptian generally accepted accounting principles (GAAP) should be applied to inventory valuation, and all methods that are acceptable by Egyptian GAAP can be used. The methods acceptable are almost the same as those acceptable under International Financial Reporting Standards (IFRS).

Capital gains

The law defines capital gains as the difference between the acquisition cost and the fair market value/selling price of the share. However, for listed shares acquired before 1 July 2014 and sold after that date, the capital gain will be calculated as the difference between either the acquisition price or the closing price on 30 June 2014 (whichever is higher) and the selling price.

Capital gains tax treatment applicable to resident companies

  • Shares/securities listed on the Egyptian stock exchange: Capital gains realised by a resident/non-resident company due to the disposal of shares listed on the Egyptian stock exchange should be subject to a capital gains tax at the rate of 10%. However, such tax imposed on the gains realised from the sale of listed shares was put on hold for two years starting 17 May 2015, and that ended on 17 May 2017. On 19 June 2017, the Egyptian government has announced the extension of such exemption of listed shares from capital gains tax for another three years, ending on 17 May 2020.
  • Unlisted shares/securities: Capital gains realised from the sale of unlisted shares will be subject to a capital gains tax at the rate of 22.5%.
  • Foreign shares/securities (invested abroad): Capital gains realised from shares invested abroad will be subject to a capital gains tax at the rate of 22.5%, with a credit to be given for the foreign tax paid.

Capital gains tax treatment applicable to non-resident companies

  • Shares/securities listed on the Egyptian stock exchange: Capital gains realised from the sale of listed shares will be subject to 10% WHT. However, law no. 96 of 2015 has put the tax on capital gains on listed shares on hold for two years as of 17 May 2015 (i.e. until 17 May 2017). The Egyptian government has announced the extension of such exemption of listed shares from capital gains tax for another three years, ending on 17 May 2020.
  • Unlisted shares/securities: Capital gains realised from the sale of unlisted shares will be subject to a capital gains tax at the rate of 22.5%.
  • Foreign shares/securities (invested abroad): Capital gains realised from shares invested abroad will not be taxable in Egypt.

Capital losses

A capital loss can be offset against a capital gain arising during the same tax year, provided that they both arise from the sale of shares (i.e. gain and loss of listed shares are in a separate pool from the gain and loss of unlisted shares, so the loss from the sale of listed shares can only be offset against the gain from the listed shares and cannot be offset from the gain of unlisted ones). Excess capital losses that are not utilised during a tax year can be carried forward for a period of three years and should be offset against capital gains from the sale of shares.

Dividend income

Dividend income treatment applicable to resident companies

A 10% WHT will be imposed on dividends paid by Egyptian companies to resident corporate shareholders. The 10% WHT can be reduced to 5% if both of the following conditions are met:

  • The shareholder holds more than 25% of the share capital or the voting rights of the subsidiary company.
  • The shares are held for at least two years.

Dividends received by resident companies from other resident companies should not be added to taxable income, provided that the related/associated costs are not deductible from the recipient companies' taxable profit.

Dividend income treatment applicable to non-resident companies

A 10% WHT will be imposed on dividends paid by Egyptian companies to non-resident corporate shareholders. The 10% WHT can be reduced to 5% if both of the following conditions are met:

  • The shareholder holds more than 25% of the share capital or the voting rights of the subsidiary company.
  • The shares are held for at least two years.

Participation exemption

90% of the dividends distributed by a non-resident corporate shareholder to a resident one will be exempt from tax (i.e. only 10% of the amount of the dividends will be subject to tax). Such exemption can be benefited from if both of the following conditions are met:

  • The shareholder holds at least 25% of the share capital or the voting rights of the subsidiary company.
  • The company holds or commits to hold the shares of the subsidiary for at least two years.

Permanent establishments (PEs)

A PE's profits can be deemed dividend payments, and thus subject to the above treatment, if they were not repatriated to the parent company within 60 days of the PE's financial year-end.

Stock dividends

Stock dividends are not subject to tax in Egypt.

Interest income

Interest expenses are deducted from interest income when calculating the interest income to be included in taxable income, provided certain conditions are met.

Generally, interest income is not taxed separately; it is considered as part of the company's income and taxed accordingly (i.e. at the 22.5% CIT rate).

Rent/royalty income

Rent/royalty income are not taxed separately; they are considered as part of the company's income and taxed accordingly (i.e. at the 22.5% CIT rate).

Foreign income

Income from any source, domestic or foreign, received by a corporation within Egypt is subject to CIT. The scope of tax covers the activities carried out inside and outside Egypt, which are administered or managed within Egypt.

There is no provision for deferring income earned abroad.