New regulations: Tax guidelines are undergoing a transformation

Politically and socially, Egypt is moving into new territory after the election of its first civilian president. The economy has felt the strain of this transition, with governmental budgets requiring additional infusions of cash. One response to this has been the introduction of several changes to Egypt’s tax regime aimed at maximising tax revenues. The Egyptian Tax Authority aims to use these amendments to increase tax income as well as broaden the scope of potential taxpayers.

CORPORATE TAX: Law No. 101 of 2012 was announced in the Official Gazette on December 8, 2012. The law set out several amendments to the Income Tax Law No. 91 of 2005. However, 24 hours later in a press release, the president’s spokesman announced the law would be placed on hold for further public discussion. As a result, the law was neither formally cancelled nor implemented, and tax returns for 2012 were filed based on the old law, qualifying many entities’ financial statements due to uncertainty over which law would be applied.

Eventually, the president issued Law No. 11 of 2013 in May 2013, setting out the sections of Law No. 101 that would officially go into effect and which would be amended or cancelled. Law No. 11 and the remaining subsections of Law No. 101 now make up a complete body of tax law amendments.

The major amendments include a change in the corporate tax rate to 25%, classification of banks’ provisions as non-deductible and adjustment of the salary tax bracket for the highest tax rate of 25%, which will now apply to annual salaries of LE250,000 ($35,575) rather than LE10m ($1.4m). The scope of applicable tax has widened as well – the new law states that mergers and demergers are now considered to be taxable transactions (with certain opportunities to defer or postpone the tax due indefinitely), and the cost of finance and investment related to exempted income are considered to be non-deductible. In addition, capital gains realised on the sale of more than 33% of shares or voting rights, or of assets and liabilities for a resident company are considered to be taxable as well.

SALES TAX: Law No. 102 of 2012 set out changes to the General Sales Tax Law No. 11 of 1991. However, since it was immediately announced that the law would be placed on hold, it is still unknown when these changes will be formally implemented. The general sales tax rate for most goods and services is 10%, unless the relevant sales tax rate is referred to separately by executive regulations. As a result of the announced changes, the sales tax for cigarettes, alcohol, tobacco, cement and scrap metal have all increased.

STAMP TAX: On April 29, 2013 the office of the Egyptian president issued Law No. 9 of 2013, which amends certain provisions of the Stamp Tax Law No. 111 of 1980. The main amendments state that certain transactions will be subject to stamp tax or that the applicable stamp tax rates are subject to an increase. The new stamp tax will be levied at a rate of 0.1% quarterly on loan balances with banks, and at a rate of 20%, an increase from 15%, on the value of advertisements. Other previously exempted advertisements are now subject to the stamp tax. Moreover, a stamp tax of 0.1% will be levied on the buyer and seller in any transaction involving the purchase or sale of securities (local or foreign).

REAL ESTATE TAX: Law No. 103 of 2012 has superseded the Real Estate Tax Law No. 196 of 2008 and was set to go into effect in July 2013. Major amendments were made to the previous law; however, since the law was immediately placed on hold, its effects have neither been cancelled nor implemented.

SUKUK LAW: The Egyptian president has also issued the first law governing the use of sukuk, or Islamic bonds, which went into effect in May 2013. Sukuk Law No. 10 of 2013 is intended to be in accordance with sharia. Executive regulations setting out the details of its application have not yet been issued. As a sharia-compliant financial instrument, charging or paying interest on sukuks is prohibited. Transactions are also considered to be exempt from the relevant taxes on capital gains arising from trading the instrument and dividends distributions to owners of the instrument.