New Tax Incentives in Egypt: Impact on SMEs in 2025

As part of the Egyptian government’s efforts to develop the tax system and improve the business environment, Issue No. 6 (Supplement) of the Official Gazette, dated February 12, 2025, was published. It includes a package of new tax laws aimed at encouraging tax compliance, supporting small and medium enterprises (SMEs), and reducing disputes between taxpayers and the Tax Authority. These laws include:

• Law No. 5 of 2025: Settlement of the Status of Certain Taxpayers and Assesses.
• Law No. 6 of 2025: Tax Incentives and Facilitations for Small Enterprises.
• Law No. 7 of 2025: Amendments to the Unified Tax Procedures Law

These reforms represent a significant shift in Egyptian tax policy, focusing on simplifying compliance, reducing the tax burden on small businesses, and enhancing transparency in tax transactions. This article highlights the key provisions of the new laws, their expected impacts, and the potential challenges in their implementation.

Law No. 5 of 2025: Settlement of the Status of Certain Taxpayers and Assesses

This law aims to integrate the informal economy into the formal tax system by offering facilities to unregistered taxpayers. It includes:

• Voluntary Registration Window: A 3-month period for voluntary registration, with the possibility of extension by a decision from the Minister of Finance.
• Exemption from Fines and Penalties: Provided that the required tax returns are submitted within the specified period.
• Tax Dispute Settlement: The opportunity to submit revised tax returns without incurring late penalties, provided corrections are made within 6 months.

Expected Impact:

• Encouraging Voluntary Registration and increasing tax revenues.
• Reducing Financial Burdens on unregistered businesses, facilitating their integration into the formal economy.
• Minimizing Pending Tax Disputes between taxpayers and the Tax Authority.

Law No. 6 of 2025: Tax Incentives and Facilitations for Small Enterprises

This law aims to support small and medium enterprises (SMEs) by offering tax exemptions and a simplified accounting system. The key provisions include:

A. Reduced Tax Rates Based on Business Revenue:

• 0.4% for businesses with annual revenues of less than 500,000 EGP.
• 0.5% for businesses with revenues between 500,000 and 2 million EGP.
• 0.75% for businesses with revenues between 2 and 3 million EGP.
• 1% for businesses with revenues between 3 and 10 million EGP.
• 1.5% for businesses with revenues between 10 and 20 million EGP.

B. Additional Tax Exemptions:

• Exemption from stamp duty and financial resource development fees.
• Exemption of capital gains from the sale of fixed assets and equipment.
• Dividend distributions are exempt from taxes, encouraging businesses to reinvest their profits.

C. Simplified Accounting and Administrative Procedures:

• A simple tax return form that facilitates compliance for small businesses.
• Adoption of simplified electronic accounting systems, eliminating the need for complex bookkeeping.

Expected Impact:

• Boosting the Growth of SMEs, as they are the main driver of the economy.
• Reducing the Tax Burden on Startups, encouraging investment and expansion.
• Lowering Tax Evasion Rates by promoting voluntary registration.

Amendments to the Unified Tax Procedures Law (Law No. 7 of 2025)

These amendments introduce regulatory measures to reduce tax disputes and improve tax collection efficiency. The key highlights include:

• Capping Late Payment Penalties: The penalty for late payments will not exceed 100% of the original tax due.
• Settlement of Tax Offenses: Tax offenses can be settled by paying compensation of no less than 50% of the minimum fine.
• New Rules for Withholding Tax: A 12.5% compensation rate is set for uncollected or withheld amounts.

Expected Impact:

• Reducing Tax Disputes between taxpayers and the Tax Authority.
• Flexible Settlement Mechanisms, minimizing tax-related cases in courts.
• Enhancing Transparency in tax transactions and promoting voluntary compliance.

The Impact of Tax Reforms on the Business Environment and Investment

These laws represent a significant development in the Egyptian tax system, positively affecting investors and taxpayers through:

1. Improving the Investment Climate:

The tax amendments make Egypt a more attractive investment destination by offering exemptions and facilitations for investors and entrepreneurs, encouraging more investments in the Egyptian market.

2. Enhancing Tax Compliance:

By offering tax exemptions and simplified registration processes, these laws will encourage taxpayers to voluntarily comply with the tax system, boosting government revenues without the need for strict enforcement.

3. Supporting Small and Medium Enterprises (SMEs):

Since SMEs account for more than 80% of Egypt’s economic activity, reducing their tax burden will lead to rapid growth in this sector and create new job opportunities.

4. Reducing Tax Disputes:

With flexible settlement mechanisms, these reforms will reduce the number of pending tax cases, speeding up litigation processes and improving relations between taxpayers and the Tax Authority.

Conclusion

SMEs in 2025 stand to benefit significantly from the tax reforms, representing a key step toward improving Egypt’s business environment by offering incentives to taxpayers and enhancing tax collection mechanisms.

To find out more, please fill out the form or email us at: info@eg.Andersen.com

Contact Us