New Income Tax Law amendments – Natural Persons Tax and Penalties Of Tax Returns Differences For All Taxpayers
- Income Tax Law No. 91 of 2005 was introduced on the 9th of June 2005, and its Executive Regulation issued on the 27th of December 2005.
- This law has been subjected to many additions and amendments over the last period.
- The recent amendment of income tax law No. 91 of 2005 with the issuance of law No. 26 of 2020 on the 7th of May 2020 included replacement of articles No. 8, 13 – item 1 and 87 (BIS) of such law as follows:
Firstly: New Salary Tax Rates and Brackets
Article No. 8 before amendment – Old Applicable Rates and Brackets Up till June 30, 2020:
| Bracket | The brackets EGP – Annually | Tax rate | Tax Discount |
| First bracket | Zero up to 8,000; | Exempted | N/A |
| Second bracket | 8,001 up to 30,000; | 10% | 85% |
| Third bracket | 30,001 up to 45,000; | 15% | 45% |
| Fourth bracket | 45,001 up to 200,000; | 20% | 7.5% |
| Fifth bracket | More than 200,000. | 22.5% | N/A |
The total annual net income is rounded to the nearest ten EGP when calculating the tax.
Article No. 8 after amendment – New Applicable Rates and Brackets Starting from July 1, 2020:
| Bracket | The brackets EGP – Annually | Tax rate |
| First bracket (Exempted bracket) | One up to 15,000; | 0% |
| Second bracket | 15,001 up to 30,000; | 2.5% |
| Third bracket | 30,001 up to 45,000; | 10% |
| Fourth bracket | 45,001 up to 60,000; | 15% |
| Fifth bracket | 60,001 up to 200,000; | 20% |
| Sixth bracket | 200,001 up to 400,000; | 22.5% |
| Seventh bracket | More than 400,000. | 25% |
The total annual net income is rounded to the nearest ten EGP when calculating the tax.
Important Notes for The Above:
| Net Income EGP Annually | Regulation |
| Up to 600,000 | The above mentioned brackets and rates are applicable |
| From 600,001 up to 700,000 | First bracket is not applicable so 2.5% will be applicable for net income up to 30,000 and next brackets are to be applied onwards |
| From 700,001 up to 800,000 | First & Second brackets are not applicable so 10% will be applicable for net income up to 45,000 and next brackets are to be applied onwards |
| From 800,001 up to 900,000 | First, Second & Third brackets are not applicable so 15% will be applicable for net income up to 60,000 and next brackets are to be applied onwards |
| From 900,001 up to 1,000,000 | First, Second, Third & Fourth brackets are not applicable so 20% will be applicable for net income up to 200,000 and next brackets are to be applied onwards |
| More than 1,000,000 | First, Second, Third, Fourth & Fifth brackets are not appliable so 22.5% will be applicable for net income up to 400,000 and next bracket is to be applied onwards |
Secondly: Amendment in Annual Personal Exemption
Article no. 13 – Item 1 has been amended to replace the old annual personal exemption from EGP 7000 to be EGP 9000 starting from July 1, 2020:
Thirdly: Amendment on Applicable Penalties
Article 87 (BIS) before the amendment.
If the taxpayer includes the tax amount in the tax return with less than the value of the final assessed tax, whether with the consent of the taxpayer or after related normal appeal procedures, the taxpayer shall be liable to pay additional amount (penalty) based on the following:
- 5% of the tax that was not included, if the difference between the tax included in the tax return and the final assessed tax is equal to 10% and up to 20% of the final assessed tax amount;
- 15% of the tax that was not included, if the difference between the tax included in the tax return and the final assessed tax is more than 20% and up to 50% of the final assessed tax amount;
- 40% of the tax that was not included, if the difference between the tax included in the tax return and the final assessed tax is more than 50% of the final assessed tax amount;
*The provisions of this article do not apply to cases where the tax inspection is based on sample base and not applied as per article no. 94 of the income tax law.
Article 87 (BIS) after the amendment.
Taxpayer shall be liable to pay additional amount (penalty) based on the following:
- 20% of the tax that was not included, if the difference between the tax included in the tax return and the final assessed tax is less than 50% of the final tax amount;
- 40% of the tax that was not included, if the difference between the tax included in the tax return and the final assessed tax is equal to or more than 50% of the final assessed tax amount;
- 40% of the final assessed tax if the tax return has not been submitted.
The above is applicable after related normal appeal procedures. These applicable rates are to be reduced by 50% in case of an agreement between the taxpayer and the tax authority before transferring the dispute to the Appeal Committee.
Dates of application for all above amendments are as follows:
- As for salary tax is to be applied starting from July 1, 2020
- As for taxpayer of Commercial & Industrial Activities, Professional or Non-Commercial Activity, or Real Estate Wealth related to natural persons, this is to be applied from the tax period ending after the issuance of this law (i.e. the tax period ends on December 31, 2020).
Based on the above, we can summarize the amendments as follows:
1. Increasing the first bracket (exemption) from EGP 8,000 to be EGP 15,000 annually;
2. Introduce a new tax bracket (social bracket) of 2.5% for the taxable amount from EGP 15,000 to EGP 30,000 annually Or for the taxable amount up to EGP 30,000 in higher net income;
3. Introduce a new high tax bracket of 25% for the taxable amount more than EGP 400,000 annually;
4. Cancelling the Tax Discount;
5. Increasing the Personal Exemption from EGP 7,000 to EGP 9,000 annually.
6. Employers should prepare and present 2 separate salary tax reconciliations covering 2020 (i.e. from 1 Jan. to 30 June and from 1 July till 31 Dec.)
7. Encouraging the taxpayers to resolve the tax disputes within inspection or internal committee rather than transferring the dispute/s to the Appeal Committee.
Responsibility and Commitment:
Andersen Tax & Legal Egypt’s tax team has prepared this summarized tax report to introduce Law No. 26 for the year 2020. Efforts have been combined to produce this report with clear and accurate content however this report aims only to spread general information and should not be treated as a legal document or a document that can be used for decision making, or for issuing specialized consultations.
Please contact Andersen Egypt for tailor-made solutions.
