Corporate Tax in Egypt: An Overview

The determination of corporate income and its subsequent taxation, known as corporate tax in Egypt, is a critical aspect of financial management for businesses operating within the country. This article delves into the key elements of corporate income determination, focusing on inventory valuation, capital gains, dividend income, and other relevant income types under the Egyptian generally accepted accounting principles (GAAP) and tax law, including recent updates under Law No. 30.

Inventory Valuation

Egyptian GAAP mandates that inventory must be valued using methods that are also acceptable under International Financial Reporting Standards (IFRS). This alignment ensures consistency and comparability in financial reporting, facilitating the accurate determination of income and financial position for corporations.

Capital Gains

Definition and General Treatment: Capital gains are defined as the difference between the acquisition cost and the fair market value or selling price of a share. For listed shares acquired before July 1, 2014, and sold thereafter, the calculation is based on the higher value between the acquisition price or the market price as of June 30, 2014, versus the selling price.

Resident Companies:

• Listed Shares: Capital gains from the sale of listed shares on the Egyptian Stock Exchange (EGX) are subject to a 10% capital gains tax (CGT).
• Unlisted Shares/Securities: These are taxed at 22.5% CGT.
• Foreign Shares/Securities: Subject to 22.5% CGT, with a credit for foreign tax paid.

Non-Resident Companies:

• Listed Shares: Exempt from CGT, including T-bonds.
• Unlisted Shares/Securities: Taxed at 22.5% CGT, except T-bills, which are not taxable.
• Foreign Shares: Not taxed in Egypt.

Capital Losses

Capital losses can offset gains in the same tax year if they arise from share sales, with specific pooling for listed and unlisted shares. Unused losses can be carried forward for three years.

Law No. 30 Updates on CGT: Incentives include a 50% tax exemption on capital gains from initial public offerings (IPOs) within two years of the law amendment (before June 15, 2025) and a 25% exemption thereafter. Additional share tranches and EGX trading incentives are also highlighted.

Dividend Income

1. Resident Companies: A withholding tax (WHT) of 10% applies to dividends from unlisted companies, reduced to 5% for dividends from listed companies. Dividends from resident companies are generally not added to taxable income, with conditions for substantial shareholdings.

1. Non-Resident Companies: Similar WHT rates apply, with a 90% exemption under participation exemption conditions.

1. Stock Dividends: Stock dividends are not taxed in Egypt, contributing to a more favorable investment climate.

1. Law No. 30 Amendments: These amendments aim to reduce tax leakage in multi-layered structures, providing conditions for WHT deduction and reducing double taxation on dividends.

Other Income Types

1. Interest and Rent/Royalty Income: These incomes are considered part of the company’s overall income, taxed at the standard corporate income tax (CIT) rate of 22.5%, with deductions available under specific conditions.

1. Foreign Income: Corporations are taxed on all income, domestic or foreign, if administered or managed within Egypt, with no deferral provisions for foreign earnings.

Conclusion

This comprehensive approach to corporate income determination and taxation reflects Egypt’s alignment with international standards while addressing specific domestic economic and regulatory considerations. The updates under Law No. 30, particularly regarding CGT and dividends, demonstrate a progressive effort to enhance the investment environment and provide clarity and incentives for businesses operating within the country.

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