The tax year is the financial year of the taxpayer.
The taxpayer is required to assess taxes due for every financial year and settle them with the tax return.
The CIT return is due within four months from the end of the financial year; consequently, if a company’s financial year ends 31 December, then the tax return has to be filed before the end of April of the following year.
Other returns, such as the VAT return, would be submitted on a monthly basis.
For the dividends, the party executing the transaction (Misr for Central Clearing, Depository and Registry or MCDR, broker, custodian, or any other party) should withhold the tax due and remit it to the ETA on form no. 44 (dividends’ payments). This form can be submitted either electronically (via the ETA’s website) or manually.
Under the current law in regards to CGT, the party settling/executing the transaction (i.e. "MCDR or the broker) is required to notify the ETA with the transaction no later than the fifth business day of the following month of the transaction. Furthermore, CGT should be remitted by the taxpayer to the ETA no later than the fifth business day of the following month of the transaction.
As for the CGT filing for non-residents, there administrative/compliance procedures that should be followed in order to be able to apply the DTT exemptions (if any) based on the newly released CGT Guidelines.
Electronic filing of CIT returns
The ETA has decided to apply the electronic filing (e-filing) of income tax returns starting from this financial year, hence the e-filing of tax returns by taxpayers on the ETA’s website has become mandatory.
Taxpayers will accordingly be required to register on the ETA’s website to create an account and to obtain a user name, password, and a specific code that will be provided to their tax adviser. Following the registration process, taxpayers shall prepare their annual income tax returns on the ETA’s website, and then have them reviewed/verified by their tax adviser. Prior to electronically submitting the return, both the taxpayer and the tax adviser will be required to sign-off on the income tax return.
Upon submission of the tax return, the taxpayer will be required to pay the tax due through one of the following methods:
- Bank transfer through the taxpayer’s own bank
- Using smart card to pay/transfer the tax due to the ETA, or
- Through the banks/the National Post Authority with which the ETA has specific agreements.
Payment of tax
Advance payments are deducted from taxes assessed per the tax return, and the balance is payable in a lump sum at the date of submitting the tax return.
The advance payment (i.e. WHT) is submitted on a quarterly basis.
Please note that taxpayers have the opportunity to reduce the penalty rates by 50% if they can reach an agreement with the ETA before referring the case to the Appeal Committee.
Unified Tax Procedures Law:
The Egyptian Government issued the Unified Tax Procedures Law ("UTP Law"), amending certain articles of the income tax law and mainly focusing on the filing procedures and imposing financial penalties.
The Law has stated a range of financial penalties for non-compliance with the tax laws as follows:
1. Penalty of EGP 3K up to EGP 50K applicable in the below cases:
- Non-compliance with the deadlines of submitting the different types of tax returns (such as: corporate income tax, payroll tax, VAT, and state development tax) for a period not exceeding 60 days from the tax return due date.
- Including false information in the tax returns.
- Non-cooperation during tax audits.
- Non-compliance with Transfer Pricing three-tier filing requirements.
- The above mentioned penalty could be doubled or tripled in case of recurrence.
2. Penalty of EGP 50K up to EGP 2 million applicable in the below cases:
- Non submission of tax returns for a period exceeding 60 days following their due date.
- The above mentioned penalty could be doubled or tripled in case of recurrence within a three year period.
3. Penalty of EGP 20K up to EGP 100K applicable in the below cases:
- The taxpayer not notifying the ETA of change(s) in the company's tax registration information within a period of 30 days of such change.
Tax audit process
The audit cycle proceeds as follows:
The tax authority inspects the company based on its documents and records in order to assess the total tax due on the company and determines the difference in tax due as per the company declaration and the tax authority assessment. The authority issues an assessment including the total tax due on the company. If the company objects to the inspection result, the dispute is transferred to the Internal Committee.
The dispute is transferred to the Internal Committee to discuss the dispute points that arose from the inspection further to issue a modified assessment based on its opinion. If the company objects to the Internal Committee result, the dispute is transferred to the Appeal Committee to review the dispute points arising from the Internal Committee.
The Appeal Committee’s decision is final and binding on the company and the tax department unless a case is appealed by either of them at the court within 30 days of receiving the decision. Based on the fact that the total taxes due on the assessment as per the Appeal Committee are considered final if they are not paid within the appropriate period, there will be penalties for the late payment.
If the decision of the Appeal Committee is not satisfactory for either party, the case will be transferred to the court system, which is considered the final stage of the disputes. Normally, the court will appoint an expert witness to investigate the case and prepare a report. The court process usually takes a long period of time.
Statute of limitations
The statute of limitations is five years according to the Egyptian Income Tax Law and is extended to be six years in case of tax evasion.
Topics of focus for tax authorities
The most important topics for tax authorities is transfer pricing and the base erosion and profit shifting (BEPS) project. In addition, Egypt has signed and ratified the MLI and opted for the principle purpose test ("PPT") which is also in line with the GAAR. (see the Other issues section for details).
General anti-avoidance rule (GAAR)
A GAAR is applicable to arrangements entered into on or after 1 July 2014. The primary objective of the GAAR is to deter taxpayers from entering into abusive arrangements for the purpose of obtaining an abusive tax advantage. The law stipulates that the tax effect of any transaction whose main purpose, or one of the main purposes thereof, is tax avoidance shall not be reckoned with. In this case, the crucial factor when making tax assessments is the real economic substance of the transaction in question. The burden of proving that the main purpose, or one of the main purposes, of conducting a transaction has been to avoid taxation lies with the tax authority.