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THE MINISTER THE INCOME TAX LAW NO. 91 OF 2005 www.mof.gov.eg The Income Tax Law Promulgated By Law no. 91 of 2005 ــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ In the name of the people, The President of the Arab Republic of Egypt, the People's Assembly has approved the following law, and we have promulgated it: (First Article) The provisions of the attached law shall apply with respect to the income tax. (Second Article) The income tax law promulgated by law no. 157 of 1981 shall be repealed, and Appeal Committees established accordi ng to the provisions of the said st income tax law shall, until December, 31 2005, continue to examine tax disputes related to the years up to the end of 2004. Thereafter, unresolved disputes shall be referred, as they stand, to the committees established under the attached law. Exemptions, for periods which were sp ecified in the above- cited law, will remain valid for those persons whose exemption periods started before the effective date of the current law, until the end of those periods. Clause (i) of Article (1) of law no. 14of 1984, imposing t he State Financial Resources Development Levy shall be repealed. www.mof.gov.eg (Third Article) Articles 16, 17, 18, 19, 21, 22, 23 (b is), 24, 25 and 26 of the Investment Guarantees and Incentives Law promulgated by law no. 8 of 1997 shall be repealed. Exemptions stipulated in the aforement ioned articles shall remain valid for companies and firms whose exempti on periods had started before the effective date of this law until the end of those periods. Companies and firms established under the above-mentioned law, but which have not commenced operation or producti on until the effective date of this law, shall, in order to be entitled to the exemptions prescribed in the above- cited law, be required to start operation or production within three years from the effective date hereof. (Fourth Article) Every person shall be exem pt from payment of all taxes due on their income as well as General Sales Tax amount s due for tax periods preceding the effective date of this law as well as delay fines, penalties, additional taxes and the like associated therewith provided the following two conditions are met: First: The person must not have been register ed or have filed a tax return or have been subject to any form of tax audit by the Income Tax Authority or the Sales Tax Authority. Second: The taxpayer shall file an income tax return for the latest tax period including all pertinent information, and shall apply for registration with the Sales Tax Authority if he has reached the registration threshold, within one year from the effective date of this law. The exemption shall be rescinded if the ta xpayer fails to file income tax returns on a regular basis for the following three tax periods. www.mof.gov.eg (Fifth Article) Litigation in all lawsuits, registered with or being heard by all courts of different degrees before October 1st 2004, between the Tax Authority and taxpayers, whose subject-matter is a disagreem ent over tax assessment shall be rescinded and all claims for unpaid taxes relating thereof shall cease, providing the annual tax base subject to dispute does not exceed ten thousand pounds. In all cases, the rescinding of litigation shall not entitle a taxpayer to recover what he has already paid on account of the tax due against the disputed tax base, unless a taxpayer insists on proceeding with the litigation in the lawsuit by a request submitted to the court hearing the lawsuit within six months from the effective date hereof. (Sixth Article) In lawsuits other than those referred to in the Fifth Article above, taxpayers involved in existing disput es with the Tax Authority registered with or being heard before courts of law of different degrees before October 1st, 2004 shall be entitled to request the termination of such disputes wit hin one year from the effective date of this law agains t payment of a percentage of the tax and other amounts due on the disputed annual tax base according to the following brackets: 1- (10%) of the amount of tax an d other amounts due on the disputed base if the amount does not exceed one hundred thousand pounds; 2- (25%) of the amount of tax an d other amounts due on the disputed base in relation to the portion in excess of one hundred thousand pounds and up to five hundred thous and pounds of that base, after paying the percentage provided for in item (1) above for the portion that does not exceed one hundred thousand pounds; www.mof.gov.eg 3- (40 %) of the amount of tax and other amounts due on the disputed tax base in relation to the portion in excess of five hundred thousand pounds, after paying the two percentages provided for in items (1, 2) for the portion that does not exceed five hundred thousand pounds. Settlement by the taxpayer of the per centages according to the preceding clauses will result in the complete discharge of the disputed tax and other amounts and the litigations in the lawsui ts will be terminated if the taxpayer submits to the court evidence of the settlement. In all cases, the terminati on of litigation will not entit le a taxpayer to recover what has already been paid on account of the disputed tax. (Seventh Article) With exception to item (1) of article 52 of the attached law, debit interest shall be deductible for loans and advances obtai ned by legal persons in excess of four-fold the average ownership rights, and up to eight-fold of that average for the period beginning from tax year 2005 and ending by the end of tax year 2009, according to the following table: 8:1 for the tax year 2005 7:1 for the tax year 2006 6:1 for the tax year 2007 5:1 for the tax year 2008 4:1 for the tax year 2009 (Eighth Article) The Minister of Finance shall issue the Executive Regulation for this law and the attached law within six months from the date of publication in the Official Gazette. Until the Executive Regulatio n is issued, regul ations and decrees www.mof.gov.eg currently in force will remain valid where they do not conflict with the provisions of these two laws. (Ninth Article) This law shall be published in the Offici al Gazette and shall be effective from the day following its publication, subject to the following: 1- Provisions of the attached law s hall apply with respect to salaries and the like from the beginning of the month following its publication date in the Official Gazette. 2- Provisions of the attached law s hall apply with respect to revenues of commercial and industrial activity , revenues of non-commercial professions and revenues from real esta te of natural persons as of tax period 2005. Provisions of the attached law shall also apply to t he profits of legal persons as of the tax period 2005 or the tax period of the legal person that starts after the effective date of this law. This law shall be stamped with the seal of the State and shall be executed as a law thereof. st Issued at the Presidency of the Republic on the 1 of Gamady Al Ula, 1426 th A.H. (corresponding to June 8 , 2005). Hosny Mubarak www.mof.gov.eg The Income Tax Law Book One General Provisions Article (1): In applying the provisions of this law, the following definitions apply: - Tax: the income tax - The Minister: Minister of Finance - Commissioner: Commissioner of the General Income Tax Authority - The Authority: the General Income Tax Authority - Taxpayer: natural or legal persons taxabl e according to the provisions of this law - Corporations: joint stock companies, companies limited by shares, and companies with limited liability - Partnerships: general partnerships and limited partnerships - De Facto Corporation: company established by natural persons without fulfilling the establishment or notarization procedures, except for cases resulting from the inheritance of a sole proprietorship - Project: an economic entity practicing its main activity in Egypt, or a permanent establishment in Egypt affiliated to an economic entity abroad. - Related Person: any person related to a taxpayer in a way that affects the determination of the tax base, including: 1- Husband, wife, descendents, and ascendants 2- A corporation and t he person who directly or indirectly holds therein at least 50% of the number or value of shares, or voting rights 3- Partnerships, active partners, and silent partners 4- Any two or more companies in which another person holds at least 50% of the number or value of shares, or voting rights in each www.mof.gov.eg - Neutral price: the price upon which two or more unrelated persons deal, determined according to market forces and transaction conditions - Royalties: amounts paid, of any kind, in return for using, or the right to use, copyrights related to a literary, artistic, or scientific work, including cinema movies, and the use of any patent, trademark, design, model, plan, formula, or secret process, or in return for using or the right to use scientific, commercial, or industrial equipment, or information related to scientific, commercial, or industrial expertise Article (2): In applying the provisions of th is law, a natural person is an Egyptian resident, in any of the following cases: 1- If having permanent residency in Egypt 2- If residing in Egypt for more than 183 continuous or intermittent days within twelve months 3- An Egyptian working abroad, and re ceiving income from an Egyptian treasury A legal person is deemed a resident of Egypt in any of the following cases: 1- If established according to Egyptian law 2- If its main or effective managing headquarters is in Egypt 3- If its a corporation in which the state or any state-owned legal person hold more than 50% of its capital This law’s executive regulation will define the rules for determining permanent residence and effective managing headquarters. Article (3): Income earned from a source in Egypt includes the following: (a) Income from services rendered in Egypt, including salaries and the like. (b)Income paid by an employer residing in Egypt, even if the work is performed abroad. www.mof.gov.eg (c)Income earned by a sportsman, or an artist for activity performed in Egypt. (d)Income earned by a non-resident, for work undertaken through a permanent establishment in Egypt. (e)Income from the disposal of movable property of a permanent establishment in Egypt. (f) Income from the use and disposal of real estate and the like located in Egypt, and annexed property thereof. (g) Share distributions of a corporation resident in Egypt (h) Dividends paid by a partnership resident in Egypt. (i) Revenue paid by the government, local Authority Un its, state-owned legal persons or any resident in Egypt, and revenue paid by a permanent establishment in Egypt ev en if the owner thereof is not residing therein. (j) Rent payments, licensing fees, and ro yalties paid by a person residing in Egypt or by a permanent establishment in Egypt even if the owner is not resident therein. (k) Income from any other activity carried out in Egypt. Article (4): A permanent establishment, in applying the provisions of this law, means each fixed business place through which some or all works of projects of a non-resident in Egypt is carried out. This particularly includes: (a) A place of management (b) A branch (c) A building used as a sales outlet (d) An office (e) A factory (f) Aworkshop (g)A mine, oil field, natural gas well, quarry, or any other place for extracting natural resources, including timber or any other product from forests (h) A farm or plantation www.mof.gov.eg (i)A building site, construction pr oject, assembly, preparations, or supervisory activities related to any of these There shall be deemed as a permanent es tablishment a person working for an affiliated project who has the authority to conclude and ratify contracts in the name of the project, unless such per son’s activity is restricted to the procurement of commodities or goods for the project. The following are not deemed to be a permanent establishment: 1- Using special facilities only for the storage and display of goods and commodities owned by a project; 2- Maintaining an inventory of commodities and goods owned by a project for storage or display purposes; 3- Maintaining an inventory of comm odities and goods ow ned by a project only for the purpose of reprocessing them by another project; 4- Maintaining a permanent place for an activity that only undertakes the purchase of goods or commodities or the gathering of information for a project; 5- Maintaining a permanent place for an activity that only undertakes work of a preparatory or supporting nature to a project; 6- Maintaining a permanent place of wo rk in which any group of activities referred to in the afor ementioned items is underta ken, provided that the overall activity of the fixed place of work, and the result of the activities, is only of a preparatory or supporting nature. 7- Industrial or commercial works carried out by a foreign company through a broker or a general agent on commission, or any other independent agent, unless it is proved that the broker or agent has dedicated most of its time or effort during the tax period for the interest of the foreign company. Control by a non-resident company over another resident company shall not mean that the resident company is a permanent establishment for the other. www.mof.gov.eg Article (5): A tax period is the fiscal year b eginning the first of January and ending on 31 of December each year, or any period of twelve months which is used as a base for computation of the tax. Tax may be calculated for a period shorte r or longer than twelve months. The executive regulation of this law shall determine the accounting procedures for such period. Tax becomes due on the day following the end of a tax period, and shall also become due on the death of a taxpayer, or cessation of a taxpayer’s residency, or the permanent discontinuance of a taxpayer from practicing the activity. www.mof.gov.eg Book Two Income Tax of Natural Persons Chapter One Tax Scope and Rate Article (6): An annual tax shall be imposed on the total net income of resident and non-resident natural persons in respect of their incomes earned in Egypt. The total net income comprises the following sources: 1- Salaries and the like; 2- Commercial or industrial activity; 3- Professional or non-commercial activity; 4- Realestate. Article (7): Tax is due on the total net me in excess of five thousand pounds earned by a resident taxpayer during the year. Article (8): The tax rates are as follows: First bracket: More than 5,000 up to 20,000 pounds10% Second bracket: More than 20,000 up to 40,000 15% pounds Third bracket: More than 40,000 pounds 20% On computing the tax, the total annunet income shall be rounded to the nearest lower ten pounds. www.mof.gov.eg Chapter Two Salaries and The Like Article (9): The tax applies to salaries and the like as follows: 1- All earnings by a taxpayer resulti ng from work for third parties, with or without a contract, on a regular or irregular basis, regardless of such dues names, forms or reasons, whether they are for works performed in Egypt or abroad, and the consider ation thereof was paid from a source in Egypt, including wages, bonuses, incentives, commissions, grants, additional payments, allowances, dividends or shares in profits and cash and in-kind benefits of all types; 2- All earnings by a taxpayer from a foreign source for work performed in Egypt; 3- Salaries and remunerations of non-shareholding chairpersons and board members of public sector and public business sector companies; 4- Salaries and remunerations of chairpersons, board members and managers of corporations in return for their administrative work. The Executive Regulation of this law shall determine the basis for estimating the value of in-kind benefits. Article (10): Revenues included in the taxabl e base shall be determined for each part of a year in which any ta xable revenue was earned in proportion to a year, based on the monthly revenue after transferring it to annual revenue. If a change occurs in the taxable base, the calculation of the base shall be adjusted from the date of change based on the new or old base, whichever is less, after transferring such to annual revenue. An adjustment must be made every year according to the procedures and rules specified by the Executive Regulation of this law. www.mof.gov.eg Block salaries, wages and the like paid in a single payment in a specific year must be apportioned among the years of entitlement, after excluding payments in lieu of vacations. Income included in the tax base must be recalculated for each year, and the tax due shall be adjusted accordingly. Article (11): As an exception to the provisions of article (8) herein, tax is imposed on all amounts paid to non-resi dents, regardless of the agency or body employing them, for undertaking serv ices under its supervision. Tax is also imposed on amounts earned by resident s from other than their original place of employment at a rate of (10% ) without any reduction to cover costs, and without further deductions. In all cases, the tax shall be withheld and remitted to the competent tax office within the first fifteen days of every month, according to the rules and procedures specified in the Executive Regulation of this law. Article (12): Tax shall not apply on: 1- Pensions 2- Severanceallowances Article (13): Without prejudice to other tax exemptions granted by special laws, the following are tax exempt: 1- An amount of 4000 pounds as the annual personal exemption for the taxpayer; 2- Social insurance contributions and other payments deducted according to the provisions of the social insurance laws or any alternative systems thereto; 3-Employees’ subscriptions in pr ivate insurance funds established according to the provisions of the Private Insurance Funds Law, promulgated by law no. 54 of 1975. www.mof.gov.eg 4- Life and health insurance premiums fo r the taxpayer, or in favor of his wife or minor children; or any insurance premiums for pension entitlement. 5- The following collective in-kind benefits: (a) Meals offered to employees; (b) Collective transportation of employees or the equivalent cost; (c) Health care; (d) Tools and clothing necessary for performing the work. (e)Accommodation provided by an em ployer to employees for the performance of work. 6- Employees' dividends distributed according to the law. 7- Amounts received by members of t he diplomatic and consular corps, international organizations and other foreign diplomatic representatives, in the scope of their official work, on condition and to the extent of reciprocity. For items (3) and (4), the total exempt ion for a taxpayer shall not exceed (15%) of the net revenue or three thousand pounds, whichever is greater. The same contributions and premiums (paid) from any other in come stipulated in article (6) of this law may not be repeatedly exempted. Article (14): Employers and those required to pay taxable revenues, including companies and projects established und er the free zones regime, shall withhold, from the amounts payable and stipulated in article (9) of this law, an amount on account of the due tax, according to the percentage determined by the Executive Regulation of this law. They shall remit to the competent tax office within the first fifteen days of each month the payments withheld in the previous month. Employers and those required to remi t such revenue shall pay any tax differences due, without prejudice to t heir right to claim from the taxpayer what is owed. www.mof.gov.eg Article (15): The person responsible for wit hholding and remitting the tax according to article (14) of this law shall: 1- Submit, to the competent tax office, a quarterly return in January, April, July and October of each year, using the form developed for such purpose. 2- Provide the employee, at the employee’s re quest, with a statement indicating full name, amount and type of income and amount of tax withheld. The Executive Regulation shall s pecify the rules and procedures for implementing the provisions of this article. Article (16): If an employer or a person re quired to pay taxable revenue is a non-resident of Egypt, or does not have a headquarters or an establishment therein, the obligation to remit the tax falls on th e person entitled to such taxable revenue, according to the ru les and procedures determined by the Executive Regulation of this law. www.mof.gov.eg Chapter Three Commercial and Industrial Activity Article (17): Profits from commercial and industrial activity shall be determined based on the revenue resulting from all commercial and industrial operations. This includes profits from the sale of a company’s assets as stipulated in items (1), (2) and (4) of arti cle (25) herein, prof its realized from compensation received by a taxpayer because of depreciation or acquisition of any of such assets, as well as the liquidation proceeds realized during the tax period after allowing all deductible costs. Net profit is determined based on the income statement developed according to the Egyptian Accounting Standards. The tax base is determined by applying the provisions of this law to the net profit. Article (18): The tax accounting rules and the principles and procedures for collecting the tax on profits of small enterprises shall be issued by a Minister’s decree. This shall not conflict with t he provisions of The Small Enterprises Development Law promulgated by Law no. 141 of 2004, and shall be consistent with their nature and facilitate their tax treatment. www.mof.gov.eg Section One Taxable Revenues Article (19): Tax shall apply to the profits of commercial and industrial activity, including: 1- Profits of commercial, industr ial, mining, quarrying and petroleum establishments; 2- Profits of artisans and small businesses; 3- Profits realized from any commercial or industrial activity even if limited to one transaction. The Executive Regul ation of this la w shall indicate the rules of what is deemed to be a single transaction when applying the provisions of this clause. 4- Profits from a transaction or tr ansactions carried out by brokers and agents on commission, and in general, all profit realized by any person who is engaged in the brokerage busi ness to purchase, sell or lease real property or any kind of goods, services or movable assets. 5- Profits from the leasing of a comme rcial or industrial shop, whether the lease includes all or par t of its tangible or int angible elements; as well as profits from leasing mechanical and electrical machinery, excluding farm tractors, irrigation machines and their accessories, and machinery and equipment used in agriculture. 6- Profits from all kinds of transportation activity. 7- Profits by those engaged in the c onstruction or purchase of real property with the intenti on of selling them profe ssionally, whether the profits result from se lling the property as a whole or divided into apartments, rooms, administrative or commercial units or otherwise. 8- Profits from land parceling operations whether for sale or construction. 9- Profits from land recl amation or cultivation establishments, poultry farms or mechanical hatcheries proj ects, cattle and livestock farms of more than 20 head, and fish farms and fisheries projects. www.mof.gov.eg Article (20): Tax shall not apply to profits from the revaluation of the assets of a sole proprietorship when providing this as an in-kind share to the capital of a joint stock company, providing that t he shares corresponding to the in-kind share are nominal, and shall not be disposed of within five years. Article (21): The taxable net income of an establishment is determined, for all long-term contracts it is engaged in, on t he basis of what percentage of each contract is executed during the tax period. The percentage of the part of each contract that has been executed is det ermined on the basis of the actual cost of the works implemented until the end of the tax period prorated to the contract’s total estimated cost. The calculated contract profit is determined by the difference between contract values and cost estimates. The contract’s estimated profit for each tax period is determined by the percentage of the profi t, estimated according to the previous paragraph, prorated to that executed during the tax period; prov ided that the contract profit is adjusted at t he end of the tax period in which the contract was completed. Such profit shall be calc ulated on the actual revenues reduced by the actual costs after deducting the previously estimated profits. If the statement of the tax period in which the contract was completed denotes a loss, the loss shall be deducted from th e profits of previous tax period(s) when the contract was im plemented, providing that the deduction does not exceed the contract profit during the per iod. The tax must be re-calculated on this basis and the taxpayer shall recover the excess that had been paid. If the loss from the contract execution exceeds the limits referred to in the previous paragraph, the residual lo sses shall be carried forward to the following years, according to the provisions of article (29) herein. In applying the provisions of this article, a “long-term contract” means a manufacturing, preparation or constr uction contract, or performance of www.mof.gov.eg associated services thereof, carried out by an establishment for third parties based on a fixed value, and the implementation shall take more than one tax period. www.mof.gov.eg Section Two Determination of the Tax Base Article (22): The taxable commercial and industrial net profit is determined on the basis of the gross pr ofit after deducting all costs and expenses needed to realize such profits. The deductible costs and expenses must be: 1- Related to the commercial or industrial activity of the firm and essential for carrying out the activity. 2- Real and supported by documents, except for costs and expenses which customarily have no supporting documents. Article (23): The following costs and expenses are deductible: 1- Interests on loans used in the acti vity, regardless of their value, after deducting the non-taxable or legally exempted credit interest. 2- Depreciation of the firm's assets, as stipulated in article (25) of this law. 3- Fees and taxes paid by the firm, except for the tax paid by the taxpayer according to this law. 4- Social insurance contributions by employers in favor of their employees and their own personal interest, which are paid to the National Authority for Social Insurance. 5- Amounts deducted annually by firms fr om their finances or profits for the account of the special saving or pension funds or others, whether these firms are established in acco rdance with the Private Insurance Funds Law no. 54 of 1975, or the Alte rnative Private Social Insurance Systems Law no. 64 of 1980, or according to a system that has its own special regulations or terms, prov ided that the amount deducted does not exceed (20%) of the total sala ries and wages of their employees, and provided that the system has its own regulati ons or terms stipulating that the payments made by them under such a system serve as severance or pension, and t hat the funds of the system are www.mof.gov.eg separated or independent from the firm' s funds and are invested for its own account. 6- Insurance premiums taken out by the taxpayer against his disability or death, or to provide for a sum of money or annuity, provided that the amount of the premium is not more than 3000 pounds per annum. 7- Donations to the government, Loca l Authority Units and other public legal entities, whatever their value. 8- Donations and subsidies to Egyp tian non-governmental organizations and foundations registered in accor dance with the provisions of their respective regulatory laws, as well as to educational institutions and hospitals subject to governmental supervision, and Egyptian scientific research institutions, providing they do not exceed 10% of the taxpayer's annual net profit. 9- Financial penalties and indemnities borne by the taxpayer resulting from his contractual liabilities. Article (24): The following costs and expenses are not deductible: 1- Different types of reserves and allowances. 2- Fines, financial penalties and inde mnities ruled against a taxpayer due to his or one of his affiliates’ commission of an intentional felony or misdemeanor. 3- The income tax due according to this Law. 4- Interest paid on loans which exceed double the credit and discount rate declared by the Central Bank at the beginning of the ca lendar year in which the tax period ends. 5- Interest on loans and debts of different types paid to non-taxable or tax exempt natural persons. Article (25): Depreciation of a firm's assets are to be calculated as follows: 1- (5%) of the cost of procuring, constructing, developing, renovating or reconstructing any building, establishment, ships and aircrafts, for each tax period. www.mof.gov.eg 2- (10%) of the cost of procuring, developing, improving or renewing any of intangible assets purchased, including goodwill, for each tax period. 3- The following two categories of a ssets are to be depreciated according to the Depreciable Base System at the rates corresponding to each: (a) For computers, information systems, software and data storage equipment, 50% of the depreciable base for each tax year. (b)For all other assets, 25% of the depreciable base for each tax year. 4- No depreciation shall be calculated for land, works of art, monuments, jewelry and other assets which by nature are not depreciable. Article (26): In applying the provisions of Ar ticle (25) hereof, the depreciable base means the book value of the asse ts as included in the opening balance sheet for the tax period. This base shall increase insomuch as the cost of the assets used and the cost of development, improvement, renewal or reconstruction during the tax period. T he base shall decrease insomuch as the annual depreciation amount, the value of the proceeds of selling the assets and the value of compensation re ceived as a result of their loss or depreciation during the tax period. If the depreciation base is negative, the sale value of the asset or the damages thereof sha ll be added to the taxpayer's commercial and industrial profits. However, if the depreciation base does not exceed ten thousand Egyptian Pounds, the entire depreciation base shall be treated as a due deductible cost. Article (27): 30% of the cost of the ma chinery and equipment used in production shall be deducted, whether they are new or used, at the beginning of each tax period during which such assets are used. The depreciation base stipulated in Article (25) thereof, shall be calculated for that period after the deduction of the said 30% amount. For the provisions of the two precedi ng paragraphs to apply, the taxpayer must maintain proper books and accounts. www.mof.gov.eg Article (28): Deduction of bad debts excluded by the taxpayer from the firm's books and accounts may be permitted if he presents a report by an accountant enrolled on the Accountants and Auditors Register indicating the fulfillment of the following requirements: 1- That the firm keeps proper accounting records. 2- That the debt is associated with the firm's business. 3- That the amount of the debt has been previously included in the firm's accounts. 4- That the firm has taken serious actions to recover the debt, but failed to collect it after 18 months of its due date. Serious actions to recover the debt include the following: a- Obtaining a writ for payment in cases where this is possible. b- Issue of a judgment by a court of first instanc e obliging the debtor to pay the amount of the debt. c- Claiming the amount of the debt during procedur es of implementing a court judgment for the debt or's bankruptcy or concluding a conciliatory agreement preventive of bankruptcy. If the debt or part, is co llected, the amount collected must be included in the firm's revenues in the year in which the collection took place. Article (29): If the final account of a year is closed in a loss, the loss shall be deducted from the succeeding year's profits. If, how ever, part of the loss remains, it shall be carried forward to the succeeding year s up to the fifth, after which no loss can be carried forward. Article (30): If related persons have set c onditions for their commercial or financial transactions other than t hose operative among non-related persons, either to reduce the tax base or to sh ift the tax burden from a taxable person to an exempt or non-taxable one, the Authority is entitled to determine the taxable profit on the basis of the neutral price. www.mof.gov.eg The Commissioner may conclude agreem ents with such related persons to follow one or more ways in determining the neutral price in their transactions. The Executive Regulation of this Law shall determine methods of calculating the neutral price. Section Three Exemptions Article (31): Tax exempted: 1- Profits of land reclamat ion or cultivation enterprises, for ten years from the date of activity inception. 2- Poultry farming, apiculture, livestock husbandry and fattening, fisheries, fish farming enterprises and fishi ng boats enterprises profits, for a period of ten years from the date of activity inception. 3- Physical persons’ income received fr om their investment in securities registered with the Egyptian St ock Exchange Market. Any losses resulting from these transacti ons cannot be deducted or carried forward to succeeding years. 4- Physicalpersons proceeds from: - Securities and financial deeds of different types, registered with the Egyptian Stock Exchange Ma rket, whether issued by the State or shareholding companies. - Dividends from shares in joint stock companies and partnerships limited by shares. - Dividends from equity quotas in limited liability companies, partnerships, and partnerships limited by shares. www.mof.gov.eg - Dividends from investment secu rities issued by investment funds. 5- Interest which physical persons receive from their deposits and saving accounts in banks registered in the Arab Republic of Egypt; investment, saving and deposit certificates i ssued by said banks; deposits and saving accounts in post office funds and securities and deposit certificates issued by the Central Bank. 6- Profitsfromnew projects set up by fundi ng from the Social Fund for Development (SFD) to the extent of such funding for a period of five years from the date of st arting the activity or starting production, as applicable. This exemption will only apply to those whose names were signed in the loans of the Fund. www.mof.gov.eg Chapter Four Revenues of Non-Commercial Professions Section One Taxable Revenues Article (32): The tax shall be imposed on: 1- Net revenues on self-employed professions and other non-commercial professions which the taxpayer pr acticed independently and of which the basic element is work, if they have resulted from the practice of the profession or activity in Egypt. 2- Revenue received by intellectual property rights’ holders from selling or using their rights. 3- Any other revenues from any occupat ion or activity not stipulated in article 6 of this law. Section Two Determination of the Tax Base Article (33): Revenues included in the taxa ble base shall be determined annually on the basis of net revenues during the preceding year. The revenue of non-commercial professions includes proceeds from the disposal of any professional assets and those resulting fr om the transfer of expertise or from the assignment in full or in part of the office of the profession’s practice or any receipts from the closure of the office. The determination of net revenues is t hose revenues from various operations according to the provisions of this law, after deducting all costs and expenses www.mof.gov.eg necessary for carrying out the professi on, including asset depreciation in accordance with the simplified accounting principles issued by a decree from the Minister. The following costs are deductible: 1- Registration fees, annual subscriptions and profession's practice fees. 2- Taxes paid by the taxpayer for t he practice of the profession, other than the tax paid in accordance with this Law. 3- Amounts paid by the taxpayer to his syndicate in accordance with its pension system. 4- Life and health insurance premiums paid by the taxpayer in his own favor or in favor of his wife and minor children. In the application of the provisions of items 3 and 4, the total amount exempted from the taxable revenue cannot exceed 3000 LE per annum. The same deductions cannot be applied to other income stipulated in article 6 of this law. Article (34): Donations to the Government, loca l Administrative Units, Public Legal Persons may be deducted from net rev enues as stipulated in article 32 provided that the amount deducted does not exceed the net annual revenue. Also, donations and assistance grant ed to recognized Egyptian NGOs according to the provisions of their respective regulatory laws and to educational institutions and hospitals that are subject to the supervision of the government as well as Egyptian scientific research institut ions, but not more than 10% of the annual net revenue. The same deductions cannot be applied to other income stipulated in article 6 of this law. Article (35): From the taxpayer's total revenue, all costs and expenses necessary to earn the revenue may be deducted based on the proper www.mof.gov.eg accounts supported with related document s, including costs and expenses which customarily have no supporting documents according to the Executive Regulation of this law; however, in case no proper accounts are maintained, the deduction will be limited to 10%. In applying the provisions of this Part , article 29 of this law will apply if the taxpayer was maintaining proper books. Section Three Tax Exemption Article (36): The following shall be tax exempt: 1- Educational institutions, subject to the supervision of the government, public legal persons, Public Sector or State-Owned Enterprises (SOE). 2- Revenues of editing and transla ting books and religious, scientific, cultural and literary articles, except for proceeds from the sale of printed work or translation with a vi ew to producing it in an audio or visual format. 3- Revenues received by teaching staf f at universities and institutes for their books and teaching notes authored for distribution among students according to the regulations and prices set by the universities and institutes. 4- Revenues of members of the Forma tive Artists Syndicate pursuing the production of photography, sculpture and engraving artworks. 5- Revenues of self-employed prof essionals registered as members of their professional syndicates in their fields of specialization, but only for three years from the date of practice. They shall not be liable to tax until the beginning of the mont h following the lapse of the aforementioned exemption period, added to which is the training period required by the profession's practice law, public service period, military service or reserve service period if it is subsequent to the date the www.mof.gov.eg practice commenced. The period of exemption will be limited to one year for whoever practices the prof ession for the first time if fifteen years have elapsed since graduation. For the exemption to be valid, the taxpayer must practice t he profession indi vidually, without partnership with others, unless they are also tax-exempt. www.mof.gov.eg Chapter Five Real Estate Revenues Section One Taxable Revenues Article (37): Taxable revenues include the following: 1- Revenues from agricultural land. 2- Revenues from constructed real estate. 3- Revenues from furnished units. Section Two Determining Taxable Revenues Article (38): 1- Agricultural land revenue is determi ned as the rental value taken as a base for assessing the tax imposed according to law no. 113 of 1939 concerning agricultural land tax, after deducting 30% for all costs and expenses. 2-Revenues from horticultural cr ops from productive orchards are determined on areas exceeding th ree feddans, and from ornamental, medicinal and aromatic plants on an area exceeding one feddan, and nurseries, regardless of their crop areas, unless those nurseries are for the personal use of their owners, and based on a value equivalent to the rental value considered as a base for imposing the tax according to law No. 113 of 1939 above-cited, if the nursery owner is a tenant. If the nursery owner is the landlord hims elf, the revenues are determined on the basis of twice the rental va lue aforementioned. The taxable revenues stipulated in item (1) of this article shall not be included in the www.mof.gov.eg taxable base. The taxable bases are determined after deducting 20% of these revenues for all costs and expenses. The Minister shall, in consultation with the Minister of Agriculture, issue a decree specifying the age at which fruit trees are considered productive, together with a list of horticultural crops. The net taxable revenues are determined in the name of the landholder, whether he was the landowner or a tenant of the land. No other agreement or condition shall be binding to the tax authority. The taxpayer, his spouse and his minor children are considered one landholder in applying the provisions of item (2) of this article. Revenues shall be determined in his own name, unless ownership has been transferred to his wife or minor children from other than the husband or t he father according to each case. The landholder, either as the landlord or a tenant, is obliged to submit data about the crop areas to the competent ta x authority for each species of fruit trees grown, within thirty days from the date those trees were considered productive. He is also obliged to subm it information about the crop areas of ornamental, medical or arom atic plants, or nurseries of horticultural crops, within sixty days from the date of planting. If the plants ar e removed, the holder must notify the com petent tax authority about t he removal within thirty days of its occurrence. Article (39): Revenues from constructed real estate are determined on the basis of the gross rental value considered as the base for the tax imposed by law no. 56 of 1954, after deducting 40% for all costs and expenses, in addition to the rental value of the private re sidence of the taxpayer and his family. Revenues from the right of usufruct report are treated the same as revenues from wholly owned property. www.mof.gov.eg The taxable revenue is determined on t he actual rental value, reduced by 50% for all costs and expenses, for thos e revenues from t he lease of real estate or part of it, according to the civil law provisions. Article (40): The taxpayer may request that the taxable income of real property, stipulated in article 38 and the first paragraph of article 39 of this law, be calculated on the basis of the actual revenue, provided that his application includes all his agricultural lands and constructed real estate. An application must be filed within the period set for the filing of annual returns, and the taxpayer must be maintaining proper books fulfilling the requirements stipulated in the Executive Regulation of this law. Article (41): The tax shall apply on revenues from renting any furnished unit or part thereof, whether it was int ended for housing or for practicing a commercial or industrial activity or a non-commercial profession, or any other purpose. The taxable revenue is determined on the bas is of the actual rental value, reduced by 50% for all costs and expenses. Article (42): A tax of 2.5% is imposed without any furt her reduction, on the gross revenues from the disposal of constructed real estate or lands within the cities’ boundaries, whether the disposal commenced on the land parcel as it exists or after constructing buildings thereon, whether the disposal is inclusive of the entire real estate or part of it or a residentia l unit thereof or a unit for any other purpose, and whether the bu ildings were constructed on land owned by the taxpayer or by third parties. Exceptions to this tax on disposals are those disposals by an heir of the real estate transferred to hi m through inheritance, and al so when the property is offered as an in-kind share in the c apital of shareholding companies, on the condition that the equivalent shares shall not be disposed of for five years. www.mof.gov.eg Notary offices must notify the tax author ity of the taxable notarized disposals, according to the provisions of this la w, within thirty da ys from the date of notarization. In applying the provision of this article, a taxable acti on of disposal implies a gift to other than descendents or hus bands and wives or ascendants, or a right of usufruct assigned for the real prope rty, or renting it for a period is less than fifty years. Compulsory sales, whether administrativ e or judicial, and dispossession or appropriation for public interest or im provement are not considered taxable actions of dis posal. Likewise treated are donations or grants to the government, local Authorit y Units, public legal persons, or projects of public benefit (utility). Section Three Tax Exemption Article (43): The following are exempt from tax: 1- Revenues of agricultural activity except those stipulated herein. 2- Revenues of areas planted in dese rt lands for a period of ten years starting from the date the land is considered productive. The Minister shall, in agreement with the Minister of Agricu lture, issue a decree specifying guidelines for the determination of the date on which land is considered productive. Section Four Miscellaneous Provisions Article (44): Whoever owns one or more real estate or agricultural lands and whose total net revenues accrued from rent al value, stipulated in clause 1 of article 38 and clause 1 of article 39 of this law, exceed the exempt bracket www.mof.gov.eg stipulated in article 7 thereof, is requir ed to file a statement of the owned real estate and agricultural lands and their rental values to a competent real estates and agricultural lands tax collec tion office within the jurisdiction in which the real estates are located and on the form to be defined by the Executive Regulation of this law. Article (45): Amounts paid by the taxpayer for the real estate taxes imposed by law no. 113 of 1939 on agricultural la nds tax and law no. 56 of 1954 on real estates tax, as applicable, sha ll be deducted from the tax due according to the provisions of Part Five of B ook Two of this law, provided that the amount deducted does not exceed this tax. Article (46): The provisions of articles 38 a nd 39 of this law do not apply to agricultural lands and real estate included in the assets of an establishment or company. www.mof.gov.eg Book Three Tax on Profits of Legal Persons Chapter One Scope of the Tax Article (47): An annual tax shall be levied on the net aggregate profits of legal persons whatever their objectives. Tax shall apply to: 1- Legal persons residing in Egypt, with respect to all profits whether realized in Egypt or abroad, with ex ception of the Agency of National Service Projects of the Ministry of Defense. 2- Non-resident legal persons, wit h respect to the profits through a permanent establishment in Egypt. Article (48): In applying the provisions of Arti cle 47, the following are treated as legal persons: 1- Capital associations and partner ships whatever t he law they are subject to, as well as corporations de facto. 2- Cooperatives and their unions, taki ng into consideration exemptions stipulated by law. 3- Public authorities and other public l egal persons in relation to activity exercised by them that is subject to tax, without prejudice to exemptions provided in the laws establishing them. 4- Banks, companies and foreign fi rms even if their head offices are based abroad and their branches are in Egypt. 5- Units established by the local Authority with respect to their activity that is subject to tax. www.mof.gov.eg Article (49): The tax base is rounded to nearest lower ten pounds and it shall be subject to tax at the rate of 20% of the net annual profits. With exception to the rate mentioned in the preceding paragraph, the profits of Suez Canal Authority, the Egyptian General Petr oleum Corporation and the Central Bank are subject to tax at the rate of 40%, and the profits of oil and gas exploration and production companies are subject to tax at the rate of 40.55%. Article (50): The following are exempt from tax: 1- Ministries and government bodies. 2- Educational establishments subject to the supervision of the State, and which are basically not-for-profit entities. 3- Non-governmental organizations and institutions established under the provisions of the Non- governmental Organizations and Institutions law promulgated by law no. 84 of 2002, within the limits of the purpose for which they were established. 4- Non-profitmakingbodies that carry out activities of a social, scientific, sports or cultural nature as long as those activities are not of a commercial, industrial or professional nature. 5- Profits of private insurance funds subject to the provisions of law no. 54 of 1975. 6- International organizations, techni cal cooperation b odies and their representatives, for which inter national agreements provide their exemption from tax. 7- Profits and dividends of investment funds established according to the Capital Market Law promulgated by law no. 95 of 1992 and the revenue of bonds registered in the official schedules at the stock exchange. 8- Returns received by resident legal persons for their investments in securities registered on the Egyp tian stock exchange market with the loss resulting from such transactions not to be deducted or carried over to subsequent years. www.mof.gov.eg 9- Returns received by legal persons on securities issued by the Central Bank of Egypt or revenues from tr ansactions involving them; with an exception from provision of Article 56 of this law. 10-Dividends, profits and s hares, which resident legal persons receive for their participation in other resident legal persons. 11-Profits of land reclamation and cultivation companies for a period of ten years from the date of starting the business or of starting production as applicable according to the rules to be determined by the Executive Regulation of this law. 12-Profits of companies engaged in poultry production, bee breeding, cattle breeding and fattening pens and t he companies of fisheries and fish farms for a period of ten years from the date of exercising the activity. www.mof.gov.eg Chapter two Determining Taxable Income Article (51): Net taxable income is determined according to the provisions applicable to the profits ofcommercial and industria l activity mentioned in Section Three of Book Two of this la w, where no special provision regarding them is included in this part. Article (52): The following are not deductible costs: 1- Debit interest paid by legal persons stipulated in Article 47 hereof on loans and advances they have obtained and that are more than four times the average of equity rights a ccording to the financial statements prepared according to the Egyptian accounting standards. This provision does not apply to banks and insurance companies as well as those companies engaged in financin g activity that are to be determined according to a ministerial decree. 2- Amounts that are set aside for t he purpose of forming or funding different types of allocations, with the exception of the following: (a) 80% of the provisions for loans that banks are committed to form according to the rules of the preparation and presentation of financial statements and the asse ssment principles issued by the Central Bank. (b)Technical provisions which in surance companies are obliged to form in applying the provisio ns of the Supervising and Monitoring Insurance Law in Egypt promulgated by law no. 10 of 1981. 3- Distributed shares of profits and dividends and attendance fees paid to shareholders for attending the general assembly. 4- Membership remuneration and allo wances received by Chairmen and members of the boards of directors. www.mof.gov.eg 5- Employees' profit shares, which are distributed according to law. 6- Other costs stipulated in Article 24 of this law. Article (53): In the case of a change in the legal form of one or more legal persons, the capital profits and losses resu lting from the revaluation shall not be included in the profit and loss a ccount, provided that the assets and liabilities are registered with their book value at the time of the change in the legal form for the purpose of tax co mputation. The calculation of the depreciation of assets and the carry over of the provisions and reserves must be according to the set rules before making such change. The following are deemed in particular to be a change in legal form: 1- The merger of two or more resident companies. 2-The splitting of a resident com pany into two or more resident companies. 3- The transforming of a partnership into a Shareholdi ng Corporation or the transformation of a Shareholding Corporation into another one. 4- The purchase or acquisition of 50% or more of the shares or the voting rights, whether in terms of number or value, of a resident company against shares in the purchasing or acquiring company. 5- The purchase or acquisition of 50% or more of the assets and liabilities of a resident company by another resident company in exchange for shares in the purchasing or acquiring company. 6- The transformation of a legal person into a Shareholding Corporation. Article (54): The foreign tax paid by a resi dent company on its profits abroad shall be deducted from the tax due accord ing to the provisions of this law, provided that the relevant supporting documents are presented. A loss incurred abroad cannot be deducted fr om the tax base in Egypt for the same tax period or any subsequent period. www.mof.gov.eg The deduction mentioned in the first clause may not exceed the tax payable in Egypt that may have been due with res pect to the profits from works performed abroad. Article (55): The provision of Article 29 does not apply to a loss suffered by a company in the tax period and the previ ous periods if a change occurs to its capital ownership by a percentage of mo re than 50% of stocks, shares or voting rights provided that it is accompanied with a change in activity. The preceding paragraph may only be applied by joint stock companies and companies limited by shares provided that their shares are not be offered for circulation on the Egyptian stock exchange market. www.mof.gov.eg Book Four Tax Withheld at Source Article (56): Tax at the rate of 20% is du e on amounts, paid by owners of individual firms, legal persons residing in Egypt and non-resident bodies which have permanent establishments in Egypt, to non-resi dents in Egypt without deducting any costs from them. The said amounts include the following: 1- Yields and interest. 2- Royalties,excludi ng amounts paid abroad for a design or know-how rights for serving the industry. The Minister, in agreement with the minister concerned with industry, shall specify the cases in which there shall be know-how rights for serving the industry. 3- Service charges; there shall not be a service charge on administrative, supervisory and control expenses borne by a head office abroad on the share of the permanent establishment operating in Egypt. 4- Sportsmen or artist activity char ges, whether paid directly or through any entity. The interest on loans and credit facilities that Government, Local Authority Units and other Public Legal Persons re ceive from sources outside Egypt are exempt from the tax stipulated in this article. Pub lic sector companies, public business sector and private sector are also exempt from this tax provided that the loan or facility term is for at least three
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