Maximizing Tax Efficiency: Small and Medium Enterprises in Egypt
Small projects in Egypt have faced challenges due to the lack of a clear and defined definition, resulting from different perceptions regarding planning, implementation, statistics, and financing. To address this issue, the Small and Medium Enterprises Development Law No. 141 was issued in 2004. In 2020, the previous law was repealed and replaced by a new law, No. 152, followed by the issuance of the executive regulations in 2021, No. 654. Amendments to this law were made in 2023 to facilitate investors, small and medium-sized industries, and professions in dealing with the tax system in Egypt and to reduce burdens on them. The law provided definitions for medium-sized projects, small projects, and micro projects.
With the issuance of Law 30 of 2023, which stipulates in Article 3 the establishment of an alternative legislative framework for the accountability and resolution of disputes for funded entities whose annual turnover does not exceed 10 million pounds, in accordance with the proportional or fixed tax system prescribed in Articles 93 and 94 of the Small and Medium Enterprises Development Law issued under Law No. 152 of 2020.
With the issuance of Law 30 of 2023, which stipulates in Article 3 the establishment of an alternative legislative framework for the accountability and resolution of disputes for funded entities whose annual turnover does not exceed 10 million pounds, in accordance with the proportional or fixed tax system prescribed in Articles 93 and 94 of the Small and Medium Enterprises Development Law issued under Law No. 152 of 2020.
Medium-sized projects
This category includes projects with an annual size of operations ranging from 50 million to 200 million pounds. It also includes newly established industrial projects with a paid-up or invested capital ranging from 5 million to 15 million pounds, or newly established non-industrial projects with a paid-up or invested capital ranging from 3 million to 5 million pounds.
Small projects
Small projects have an annual size of operations less than 50 million pounds. For industrial projects, the paid-up or invested capital must range from 50 thousand to 5 million pounds. For non-industrial projects, the paid-up or invested capital must range from 50 thousand to 3 million pounds.
Micro Projects
Micro projects are defined as those with an annual turnover of less than 1 million pounds. Additionally, newly established projects with paid-up or invested capital below 50,000 pounds are considered micro projects.
Newly established projects refer to those that have not been established, registered, or operational for more than two years.
Considering the potential benefits, these projects can contribute to economic and social development in the following ways:
1. Developing and increasing export volume: Small and medium-sized companies play a crucial role in export development and reducing the trade deficit due to their ability to access foreign markets with diverse and cost-effective products.
2. Contributing to employment and increasing opportunities: Small projects are known for their ability to provide employment opportunities, especially in developing countries with low savings rates. These projects can efficiently absorb labor due to the low costs of job creation.
The law provides special tax rates and exclusive treatment for small, micro, and medium-sized projects according to Articles 93 and 94 of that law:
For micro-enterprises, the annual revenues determine the tax amount:
Business size Business size
(Project revenues/sales) | The tax due annually according to
Law 152 of 2022 |
| Less than 250 thousand pounds | 1000 pounds |
| From 250 thousand pounds and less than 500 thousand pounds | 2500 pounds |
| From 500 thousand and less than one million pounds | 5000 pounds |
For small and medium-sized companies, the annual revenues determine the income tax rate:
Business size Business size
(Project revenues/sales) | The tax due annually according to
Law 152 of 2022 |
| From 1 million and less than 2 million pounds | 0.5% of revenue during the period |
| From 2 million and less than 3 million | 0.75% of revenue during the period |
| From 3 million to 10 million pounds | 1% of revenue during the period |
The law also exempts small, micro, and medium-sized projects from submitting their financial books and records when filing tax returns, a requirement under the Income Tax Law No. 91 of 2005.
Conclusion
the challenges faced by small projects in Egypt due to the lack of a clear definition were addressed by the enactment of various laws, most notably Law No. 152 of 2020 and its subsequent amendments. These laws provide clear definitions for medium-sized projects, small projects, and micro projects, establishing parameters based on annual turnover and invested capital. The legislation aims to facilitate investment and reduce burdens on small and medium-sized enterprises (SMEs) by providing special tax rates and exclusive treatment. Furthermore, the laws exempt SMEs from certain financial reporting requirements, streamlining their tax obligations. By providing a conducive regulatory environment, these legislative measures are expected to promote the growth of SMEs, stimulate economic development, and enhance employment opportunities in Egypt.
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