Cairo

Taxation in Cairo, Egypt

What are the tax rates in Cairo, Egypt? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Cairo, Egypt.

Personal taxation in Cairo

Effective personal income tax rate

Annual income$25,000$40,000$80,000$125,000$200,000
Rate21%23%25%27%28%

Teleport city rankings for personal income tax

Personal taxation puts Cairo in position 73 of all Teleport Cities.
WORSTBEST

Basis

A resident individual is taxable on his/her worldwide income if Egypt is the “center of his/her commercial interests.” A nonresident individual is taxed only on his/her Egyptian-source income.

Residence

An individual is resident if he/she is present in Egypt for more than 183 days in a fiscal year; is deemed to have a permanent abode in Egypt; or is an Egyptian national residing abroad, but derives income from Egyptian sources.

Filing status

Each individual must file a return; spouses are not permitted to file a joint return.

Rates

Progressive rates up to 22.5% are levied on all types of income derived by individuals (including income from employment). Resident employees who derive income from a secondary employer are subject to tax at a flat rate of 10%.

Deductions and allowances

Available deductions depend on the type of income. Various allowances are available for items, such as social security contributions and health insurance premiums.

Taxable income

Taxable income includes income from employment, income from commercial or industrial activities and income from noncommercial activities (i.e. professional services). Mandatory profit sharing, pensions and end-of-service bonuses are not subject to salary tax.

Capital gains

Capital gains realized by a resident or nonresident individual on the sale of listed shares are subject to a 10% income tax in a separate income pool. However, this tax has been suspended for two years as from 17 May 2015.

Other taxes on individuals

Real property tax

Most real property in Egypt is subject to the real estate tax. A 10% rate applies on the annual rental value after allowing a 30% deduction to cover related costs for residential property and a 32% deduction for nonresidential property. Exemptions are provided for residential units with an annual rental value of less than EGP 24,000 and nonresidential property that is used for commercial, industrial and administrative purposes with an annual rental value of less than EGP 1,200. The user of the property pays the tax, which is due in two installments. The annual rental value of real estate is assessed every five years.

Social security

The social security regime applies only to local nationals, unless a social security agreement with another country applies.

Stamp duty

Stamp duty is charged at variable and fixed rates. The rate on banking transactions is 0.1% per quarter; the rate is 20% on commercial advertisements and the rate ranges from 0.08% to 10% on insurance premiums.

Compliance for individuals

Penalties

A penalty of not less than EGP 5,000 and not more than EGP 20,000 is imposed for failure to file a tax return.

Corporate taxation in Cairo

Teleport city rankings for corporate income tax

Corporate taxation puts Cairo in position 110 of all Teleport Cities.
WORSTBEST

Basis

Resident companies are taxed on their worldwide income; nonresident companies are taxed only on Egyptian-source income.

Taxation of dividends

A “dividend exemption” mechanism exists under Egyptian tax law under which dividends received by a resident parent company from another entity (whether or not resident) are exempt from corporate income tax after adding an amount equal to 10% of the distributed dividends to the Egyptian taxable profits. This mechanism will apply where the Egyptian resident parent holds more than 25% of the shares of the subsidiary for at least two years before the distribution or, if the holding period is not met at the time of the distribution, the parent commits to hold the shares for two years.

Residence

A company is resident if it is established according to Egyptian law, if its main or actual headquarters is in Egypt or it is a company in which the state or a public juridical person owns more than 50% of the capital.

Losses

Losses may be carried forward for five years (three years for losses incurred on the trading of shares). The carryback of losses is not permitted, except for losses incurred by a construction company on long-term contracts.

Rate

The standard corporate income tax rate is 22.5%. Companies engaged in the exploration and production of oil and gas are taxed at a rate of 40.55%.

Participation exemption

Under the participation exemption, 90% of dividends received by a resident parent company are exempt from tax if the Egyptian parent holds at least 25% of the share capital or voting rights of the payer for at least two years from the date the shares are acquired, or if the holding period is not met at the time of the distribution, the parent commits to hold the shares for two years.

Foreign tax credit

Foreign taxes paid overseas may be deducted from Egyptian income tax payable, but the deduction may not exceed the total tax payable in Egypt.

Taxable income

Corporate tax is imposed on the total profits of a company after the deduction of expenses incurred for earning the profits.

Capital gains

Capital gains derived by a resident or nonresident company from the sale of shares listed on the Egyptian stock exchange are subject to a 10% corporate income tax in a separate income pool. However, this tax is suspended for two years as from 17 May 2015.

Other taxes on corporations

Real property tax

Most real property in Egypt is subject to the real estate tax. A 10% rate applies on the annual rental value after allowing a 32% deduction to cover related costs for nonresidential property and a 30% deduction for residential property. Exemptions are provided for nonresidential property that is used for commercial, industrial and administrative purposes with an annual rental value of less than EGP 1,200 and residential units with an annual rental value of less than EGP 24,000. The user of the property pays the tax, which is due in two installments. The annual rental value of real estate is assessed every five years.

Social security

The social security regime applies only to local nationals, unless a social security agreement with another country applies.

Other

Statutory payments to employees under profit-sharing regulations may not be deducted for corporate income tax purposes and are not subject to the salary tax.

Stamp duty

Stamp duty is charged at variable and fixed rates: 0.1% per quarter for banking transactions; 20% on commercial advertisements; and rates ranging from 0.08% to 10% on insurance premiums.

Compliance for corporations

Penalties

Various penalties apply for failure to apply the system of withholding, collection and remittance of tax; failure to file a return and other offenses.

Rulings

Taxpayers may apply for an advance ruling by submitting a written request and copies of relevant documents to the tax authorities. The tax authorities will issue a decision on the request within 60 days.

Filing requirements

Companies must file a tax return within four months following the end of the financial year. Tax is assessed on the basis of the information provided in the tax return.

Other taxation in Cairo

Value added tax

Filing and payment

All companies must prepare and file a monthly sales tax return with the relevant tax authorities.

Rates

The standard rate ranges from 10% to 25% on most items.

Taxable transactions

Sales tax applies to the supply of most goods and the provision of services. The sales tax does not operate like a VAT, and input sales tax represents a cost to many businesses.

Registration

Manufacturers and service providers with turnover exceeding EGP 54,000 must register for sales tax purposes. Wholesalers and retailers are required to register if their turnover exceeds EGP 150,000.

Anti-avoidance rules

Controlled foreign companies

Income from investments in nonresident companies is recognized under the equity method of revenue recognition and is taxed in Egypt if: (1) the Egyptian entity owns more than 10% of the nonresident entity; (2) more than 70% of the nonresident company’s income is derived from dividends, interest, royalties, management fees or rental fees; and (3) the profits of the nonresident entity are not subject to tax in its country of residence, are exempt or are subject to a tax rate of less than 75% of the tax rate in Egypt.

Transfer pricing

Related party transactions must be conducted on arm’s length terms. Transfer pricing rules apply to the exchange of goods, services and the licensing of intangibles (brand, technology etc.), as well as to loans (financing, guarantee fees, cash pooling agreements, etc.). Five transfer pricing methods are specified: comparable uncontrolled price, resale price, total cost plus profit margin, profit split and the transactional net margin methods, with priority given to the comparable uncontrolled price method. However, if the information needed to apply this method is unavailable, the other methods are used in a hierarchical order. The transfer pricing rules recommend that taxpayers follow a four-step approach to demonstrate that their controlled transactions are in accordance with the arm’s length principle.

Thin capitalization

A 4:1 debt-to-equity ratio applies. Any interest on debt exceeding this ratio is disallowed.

Other

General anti-avoidance rules have been introduced into Egyptian tax law, under which if an essential purpose of any transaction is tax savings or the deferral of tax, the transaction may be adjusted to eliminate the benefit.

Withholding tax

Dividends

Dividends paid to a resident or a nonresident entity are subject to a 10% withholding tax. The rate on dividends paid to a nonresident is reduced to 5% where the corporate recipient holds at least 25% of the capital or voting rights in the payer company for at least two years, unless the rate is further reduced under a tax treaty.

Technical service fees

Egyptian tax law does not have specific withholding tax rules governing technical service fees, although the tax authorities may treat such payments as royalties for withholding tax purposes (and, thus, taxable at 20%). The tax treatment will depend on the scope of the services provided and will be determined on a case-by-case basis.

Interest

Interest paid to a nonresident is subject to a 20% withholding tax, unless the rate is reduced under a tax treaty. Interest paid on a long-term loan (i.e. a loan with a term of at least three years) is not subject to withholding tax.

Royalties

Royalty payments made to a nonresident are subject to a 20% withholding tax, unless the rate is reduced under a tax treaty.