Value-added tax (VAT)
The standard VAT rate is 14% as of financial year 2017/18 (i.e. as of 1 July 2017; previously 13%). The standard rate is applicable on all goods and services, except for machinery and equipment used for the purpose of producing a commodity or rendering a service, which are subject to a 5% VAT (although buses and passenger cars are subject to different tax rates).
The VAT law exempts a number of basic goods and services that affect low-income earners (in addition to other exemptions listed within the law). It also includes a reverse-charge mechanism, whereby transactions involving non-residents providing services/royalties to Egyptian resident entities are subject to VAT in Egypt.
Electronic filing of VAT returns
The Egyptian tax authority (ETA) has introduced a new e-filing system for the submission of the VAT returns, hence taxpayers will be required to submit their VAT returns (i.e. monthly VAT and/or schedule returns) electronically through the ETA’s website, starting from January 2019. Accordingly, the manual filing of VAT returns will not be acceptable as of the mentioned date.
The account created by taxpayers for the e-filing of CIT returns shall be used to access the ETA’s website. Such account will provide taxpayers the access for the e-filing of all relevant taxes, including VAT. Taxpayers will be required to register on the ETA’s website to create an online account for the e-filing procedures. Upon filing the online VAT return, taxpayers should pay the VAT amount due through the regular bank transfers and then enter the details of the payment on the ETA’s website to finalise the VAT e-filing process.
In addition to the above, the ETA is currently working on the creation of a standardised tax invoice in line with the provisions of the VAT law. Such standardised form will meet the basic requirements requested during the VAT e-filing process and ease the filing process.
The liability for customs duty rests with the person who is importing the goods from abroad.
Customs duty rates on imported goods range from 5% to 40%, with the exception of vehicles for which different rates apply.
Where entities import machines and equipment as capital assets, and to establish a company’s project, the machines and equipment will be charged customs duty at 5%.
Component parts, which are imported to be assembled in Egypt, are assessed customs duty based on the complete product. Then, it is reduced by a percentage ranging from 10% (if the local content of the final product is less than 30%) to a maximum of 90% (if the local content exceeds 60%).
Machines, equipment, and similar capital assets (with the exception of private motor cars) imported on a temporary basis are subject to fees at 20% of the original customs duty for each year or fraction of a year during which they remain in Egypt until they are exported.
Under the Egyptian VAT law no. 67 for the year 2016, an excise tax was introduced as special tax rates imposed on a certain products and services.
The excise tax (which is also called schedule tax or table tax) should be imposed only once on the listed products and services (e.g. professional services, construction services, processed potatoes). The excise tax is solely applied on specific listed items while it could be applicable in addition to the normal 14% VAT on some other items (e.g. air conditioners).
The excise tax should not be considered as a recoverable input tax, nor should it be deducted against incurred input VAT, with very limited exceptions.
Real estate taxes
The Real Estate Tax Law takes into consideration the different variables that can affect the value of a property, such as location, value of similar buildings, and the economic situation of the district in which the property is located. This is to be updated every five years (most recently in August 2014).
Real estate tax is levied annually on all constructed real estate units, with the exemption of schools, orphanages, charitable organisations, and private residences with a market value of less than 2 million Egyptian pounds (EGP). This tax covers land and buildings, excluding plant and machinery.
Such tax is assessed based on the rental value of the land and building, and these value assessments are set by the committees, after approval of the Minister or whomever the Minister delegates, and published in the Official Journal. Based on the announcement, any taxpayer can appeal the rental value assessment.
The real estate tax rate is 10% of the rental value, and the calculation of the rental value differs for residential units and non-residential units. Specific percentages of deductions are provided by the law to account for all the expenses incurred by the taxpayer, including maintenance costs.
The real estate's definition was recently amended to replace the original land spaces’ provision by the following: 'Actually exploited lands, whether independent or attached to buildings, fenced or not (as determined by the relevant executive regulations).'
In addition, a new article was recently introduced to the Real Estate Tax Law, allowing by means of a decision from the Egyptian Cabinet, real estate tax exemption for the real estate actually exploited in the production and services activities stated by the Egyptian Cabinet, provided that the decision includes the below, for each production or service activity:
- The percentage of exemption.
- Its duration.
There are two distinct types of stamp tax, which are imposed on legal documents, deeds, banking transactions, company formation, insurance premiums, and other transactions, as follows:
- The nominal stamp tax is imposed on documents, regardless of their value. The tax rate for items such as contracts is EGP 0.9 for each paper.
- Percentage or proportionate stamp tax is levied based on the value of transactions.
An annual proportional stamp tax at the rate of 0.4%, shared by the bank and the client, is imposed on a bank's loans. This stamp tax is due on a quarterly basis on the beginning balance of each quarter of credit facilities and loans and advances provided by Egyptian banks or branches of foreign banks during the financial year in addition to the amounts utilised within the quarter.
Loans from other establishments are not subject to this tax.
Stamp tax is imposed on advertisements at the rate of 20%.
Stamp tax on the disposal of financial securities
Stamp duty is enacted on the disposal of shares as per the publication number 24 in the official gazette published on 19 June 2017. As per the publication, such stamp duty is imposed on the total proceeds (i.e. value of the transaction) from buying or selling any kind of stocks/securities (with very limited exceptions), regardless of whether they are Egyptian or foreign, listed or non-listed, without deducting any costs, where buyer and seller should each apply the stamp duty on the total proceeds realised.
This type of stamp tax has also been among the changes announced by the Egyptian government, as explained in the Significant developments section.
Based on the law, resident investors trading in or holding Egyptian shares/securities (whether listed or unlisted on the EGX and whether buyers or sellers) should be subject to 0.05% stamp tax on the total proceeds realised without deducting any costs (for the transactions not exceeding 33% of a company's shares).
On the other hand, non-resident investors trading in or holding Egyptian shares/securities (whether listed or unlisted on the EGX and whether buyers or sellers) should be subject to 0.125% stamp tax on the total proceeds realised without deducting any costs (for the transactions not exceeding 33% of a company's shares).
This tax was part of the COVID-19 measures announced by the government reducing the rate from 0.15% to 0.05% for resident shareholders and 0.125% for the non-resident shareholders trading in Egyptian shares (for the transactions not exceeding 33% of a company's shares).
On the other hand, in case any of the below-mentioned conditions are met, then the rate of the stamp duty to be imposed in such case should be 0.3%:
- If the sale and purchase transaction involves 33% or more of the value or the number of shares or voting rights in a resident company, or
- If the sale and purchase transaction involves 33% or more of the assets or the liabilities of a resident company by another resident company in return of shares in the acquiring company.
In both cases above, the buyer and seller (i.e. the party exceeding the threshold) should each pay the 0.3% stamp duty on the gross transaction value without deducting any costs.
There is no payroll tax other than the employer’s social insurance contribution (see below).
Social insurance (employer’s contribution)
The social insurance contribution of the employer is 18.75% of the total social insurance salary.
Comprehensive health insurance system contributions
Egypt is embarking on implementing a new comprehensive health insurance system, starting from 2019. The law behind the new health insurance system entered into force on the 12 July 2018. This new system will be implemented within a 15-year period and over six phases. Each phase will comprise five governorates at a time, whereby Cairo and Giza governorates, among others, will be in the final phase of implementation. The new health insurance system will be financed through several sources and among them are the following:
- A contribution of 0.25% of total annual revenues to be paid by all entities, and such contribution cannot be deducted as an expense for CIT purposes.
- EGP 0.75 of the value of each pack of cigarettes sold (local/ foreign), and such value shall be increased every three years until it reaches EGP 1.50.
- 10% of the value of each unit sold from tobacco cut-filler products (other than cigarettes).
- Fees, ranging between EGP 1,000 and EGP 15,000, paid by hospitals, medical clinics, treatment centres, pharmacies, and pharmaceutical companies to subscribe to the new health insurance system.
Individuals who wish to benefit from the new health insurance system will be required to pay a subscription fee, depending on the category they fall in, as detailed below:
- The employer will pay a subscription of 4% of the employee’s portion of the salary subject to social insurance and the employee will pay 1% of that portion to reach a total of 5%.
- The employee will pay a subscription of 3% of the above-mentioned portion of the salary to insure one's spouse in case of their unemployment (or no stable fixed income).
- The employee will pay a subscription of 1% of the portion of the salary subject to social insurance to insure each dependant.
- Business owners or self-employed professionals or Egyptians working abroad will pay a subscription of 5% of the portion of salary/wage subject to social insurance or of their income reported in the income tax return, whichever is greater.
- The foreign expatriates residing in Egypt may also be allowed to subscribe in the new health insurance system, according to certain conditions and in case of reciprocal treatment by their home country.
The above-mentioned subscription fees will only be paid when the new health insurance system is applied in the relevant governorate (e.g. no fees should be paid by Cairo citizens/individuals until the last phase of implementation of the system). The party collecting such subscription fees will be required to submit them within 30 days from the date of collection.
It is important to mention that any non-compliance with the new health insurance system may result in financial or imprisonment penalties.