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New Amendments To Real Estate Disposition Tax

Real estate disposition tax falls under the category of income tax, which is imposed directly on real estate at a rate of 2.5 percent of the value of the disposition. This tax is paid once the property has been disposed of, and is only applicable on natural persons, notwithstanding the fact that companies and legal persons, are still subject to other payments to the Egyptian Tax Authority. 

Real estate disposition tax has seen a legislative revival, as evidenced by Law No. 11 of 2013, amending Income Tax Law No. 91 of 2005, to state that real estate disposition tax is imposed once the disposition of the property is declared in the Real Estate Registry, and not upon the signing of the transfer documents, as is often misconstrued. Built real estate, land to be used for construction in villages and inherited real estate are all exempt from this tax.

The above reformations caused a rise in registration, declaration fees and tax payments, which in turn prevented a huge category of buyers from registering such property in the real estate registry.

 The Income Tax Act No. 158 of 2018 was later issued, amending Income Tax Act No. 91 of 2005, implementing penalties for non-payment of such tax upon the registration of property in the real estate registry, imposing fines for delayed payment, and exempting inherited the real estate from disposition tax.

The Law also prohibited real estate registration offices, electricity and water companies, local administration units and other similar entities from registering the property, or providing any services to it until proof of tax payment is submitted.

Since the declaration of the real estate plays an essential role in the real estate stock, The Income Tax Law, and the Real Estate disposition Law, in particular, have seen many amendments, in order to facilitate property registration procedures, and reduce the financial burden related to real estate transaction tax.

This year, the government has submitted a draft law to Parliament, including amendments to Article 42 of Law 91 of 2005, concerning the real estate disposition tax, changing it to a specified, set amount of the disposal value of the transfer contracts. This is applicable to contracts concluded before the implementation of Law No. 11 of 2013, on May 19th, 2013, so that only the last seller pays the tax, regardless of the number of the ownership contracts that they have. 

The real estate disposition tax which was built before May 19, 2013, consists of the following sections:

  • Section one: real estate valued at an amount of 250 thousand pounds will be taxed a set amount of 1500 pounds
  • Section two: real estate valued at amounts ranging from 250 thousand pounds to 500 thousand pounds, shall be charged a set amount of 2000 pounds.
  • Section three: real estate valued at amounts ranging from 500 thousand pounds to one million pounds, shall be charged a set amount of 3000 pounds.
  • Section four: real estate valued at an amount exceeding one million pounds shall be charged a set amount of 4000 pounds *

*All figures are in Egyptian Pounds*

Without the application of delay fines, the real estate disposition tax will remain to be applied at a rate of 2.5%, regardless of the value of the real estate transactions which took place during the enforcement period of law, after May 19th  2013.

To conclude, the aim of the article is that the disposition tax on real estate must be in accordance with the above-mentioned categories, without consideration for the value of the disposition as it previously stood which encourages and facilitate ownership procedures and reduces the tax burden on individuals.

Reference

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Written By

Noor Mahdy - Attorney at Law

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