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).
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.
CGT treatment applicable to resident companies
- Capital gains realised by resident shareholders from the disposals of listed shares on the EGX should be subject to CGT at the rate of 10%.
- On the other hand, capital gains realised from the sale of unlisted shares/securities should be subject to 22.5% CGT.
- Foreign shares/securities (invested abroad): Capital gains realised from shares invested abroad would 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
- Capital gains realised by non-resident shareholders from the disposals of listed shares on the EGX should not be subject to CGT, including the T-bonds.
- Capital gains realised from the sale of unlisted shares/securities should be subject to 22.5% CGT with the exception of the T-bills that are not taxable.
- Capital gains realised from shares invested abroad should not be taxed in Egypt.
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.
Law No.30 updates CGT additional incentives
Shares offering (IPO)/additional share tranches incentives:
- If the shares were offered on the EGX for the first time (IPO):
Within two years of the newly amended tax law issuance date (i.e., before the 15th of June 2025), 50% of the realised capital gains shall not be subject to tax.
After two years of the newly amended tax law issuance date: (i.e., after the 15th of June 2025): Only 25% of the capital gains would not be subject to tax.
In case additional tranches were offered after the issuance date of the newly amended tax law (i.e., the 15th of June 2023), 25% of the realised capital gains shall not be subject to tax on capital gain upon fulfilment of certain conditions.
EGX trading incentives:
- Additional cost (capped by 0.5% of both selling and buying transactions) would be allowed as a deductible cost, thus decreasing gains subject to tax on capital gains.
Dividend income treatment applicable to resident companies
A 10% WHT will be imposed on dividends paid by Egyptian companies unlisted on the EGX to resident corporate shareholders. The 10% WHT will be reduced to 5% if the dividends are paid by Egyptian companies listed on the EGX.
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 (only 10% of the dividends received should be added to the taxable pool subject to CIT at the rate of 22.5%), provided that the company receiving the dividends holds more than 25% of the shares or the voting rights of the subsidiary company and holds or is committed to hold those shares for at least two years.
Dividend income treatment applicable to non-resident companies
A 10% WHT will be imposed on dividends paid by Egyptian companies unlisted on the EGX to non-resident corporate shareholders. The 10% WHT will be reduced to 5% if the dividends are paid by Egyptian companies listed on the EGX.
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 should 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 are not subject to tax in Egypt.
Tax leakage on dividends distribution (As per the new amendments"Law No.30").
For the purpose of reducing the tax leakage related to dividends distributed through a multi-layered structure in Egypt, the new amendments eliminate/reduce double taxation on dividends.
Certain eligibility conditions are provided for WHT deduction, including:
The shareholding percentage of the recipient resident entity exceeds 25% of the capital or voting rights of the distributing entity.
The period of ownership should not be less than two years from the date of acquisition of the shares and quotas.
Moreover, certain other constraints related to the amount qualified for WHT tax deduction.
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 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).
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.