Tax Reforms in Egypt: 30 Years of Exemptions and Reductions

Over the past thirty years, Egypt has undergone significant development in its tax system, aiming to foster an investment-friendly environment and achieve sustainable development. From tax exemptions for economic zones to new incentives for small and medium-sized enterprises (SMEs) and entrepreneurship, the government has continuously sought to improve the economic landscape through various tax reforms. In this article, we will discuss the most important tax exemptions, the challenges faced in their implementation, and provide recommendations for both businesses and the government to ensure a trust-based relationship between taxpayers and tax authorities.

Evolution of Tax Exemptions Over the Decades

1990-2000: Encouraging Investment in Special Economic Zones
In the 1990s, the Egyptian government focused on stimulating investment in special economic zones by offering tax exemptions that lasted up to ten years in certain sectors. Law No. 83 of 2002 was a key legislation supporting this direction, but it was later replaced in 2015 with non-tax incentives under Law No. 27 of 2015, reducing the scope of tax benefits and shifting focus to indirect support.

2001-2010: Supporting Infrastructure and Long-Term Investments

During this period, Egypt provided tax incentives to investors in critical infrastructure projects, such as energy and transportation. This helped attract more foreign direct investment and strengthened the national economy.

2011-2020: Supporting SMEs and Renewable Energy

At the start of the new decade, there was an increased focus on SMEs, with tax incentives provided for renewable energy projects as part of Egypt’s vision to promote sustainable development.

2021: Supporting Entrepreneurship and Environmental Projects

In recent years, as Egypt transitioned towards a green economy, the government has introduced tax reductions and exemptions for startups and environmental projects, making Egypt a more attractive destination for investors in these sectors.

2023: New Incentives for Foreign Investors

In 2023, the Egyptian government introduced attractive tax incentives for foreign investors under Decree No. 77. These incentives were categorized into three tiers based on the percentage of foreign funding in the projects, offering tax reductions as follows:

• First Tier: A 35% reduction in taxes due on income generated from project activities if more than 50% but less than 75% of the project’s funding came from foreign currency transferred from abroad.
• Second Tier: A 45% reduction in taxes due on income generated from project activities if more than 75% but less than 90% of the project’s funding came from foreign currency transferred from abroad.
• Third Tier: A 55% reduction in taxes due on income generated from project activities if more than 90% of the project’s funding came from foreign currency transferred from abroad.

These incentives included specific conditions for eligibility, which many investors found difficult to meet.

2024: Stimulus Package for Small Investors

In 2024, the Ministry of Finance announced a new stimulus package aimed at supporting startups, freelancers, and small investors. The package included:

• The first tax audit would take place after five years, with payroll tax returns submitted as part of the annual settlement.
• Encouraging small businesses, startups, entrepreneurial activities, freelancers, and professionals.
• New incentives and exemptions covering all tax brackets (income, VAT, stamp duty, and resource development fees).
• Exemption from applying the withholding or advance payment system, with only four VAT returns required annually.
• Introduction of a central clearing system allowing taxpayers to electronically offset their government receivables and debts, improving cash flow.
• Setting a cap on late penalties, not exceeding the original tax amount.
• Encouraging unregistered taxpayers to register without looking into their past.
• Offering taxpayers, a new chance to regularize their status before audits, promoting voluntary compliance with tax laws.
• Allowing tax returns from 2020 to 2023 to be filed or amended without penalties.
• Doubling the threshold for Transfer Pricing documentation between “related parties” to EGP 30 million annually.
• Expediting VAT refunds and quadrupling the number of beneficiaries annually to improve liquidity for businesses.
• Forming an advisory council to unify tax rulings and issue reference guides for established principles.
• Reactivating the permanent advance ruling unit to prepare, review, and approve tax research.
• Strengthening the role of the Investor Support Unit following international best practices.
• Phasing out unsupported tax returns for corporations by 2025 and for individuals by 2026.
• Expanding sample-based tax audits to all tax centers, regions, and offices to reduce burdens on taxpayers.
• Emphasizing the submission of required documents only once without repeating them across all tax brackets.
• Unifying and publishing tax audit rules and mechanisms by activity across all centers, regions, and offices.

Challenges in Implementing Tax Exemptions

Despite the substantial incentives, the government has faced several challenges in implementing these measures:

• Complex Laws: Many businesses struggled to understand the legal framework and implementation regulations.
• Lack of Trust: There has been tension between taxpayers and tax authorities due to discrepancies between legal provisions and practical application.
• Political Factors: A focus on revenue collection rather than fostering an investment-friendly environment has affected the continuity of tax policies, making them less appealing to investors.

Recommendations to Improve the Relationship Between Taxpayers and Tax Authorities

Given the economic and political changes, the government needs to rebuild trust with taxpayers through the following measures:

• Enhancing Transparency and Clarity:
  • Clarify tax laws by issuing detailed implementation regulations and simplifying procedures to make them more understandable for taxpayers.
  • Provide a transparent tax system with modern digital platforms to facilitate communication between taxpayers and authorities.

• Shifting Focus Away from Revenue Collection:
  • Establish partnerships with taxpayers by positioning them as development partners rather than just sources of revenue.
  • Support voluntary compliance by offering attractive incentives, reducing the need for enforcement pressure.

• Building Investor Confidence:
  • Maintain tax policy stability over longer periods to build investor confidence.
  • Coordinate with international bodies to ensure the adoption of global best practices in taxation.

Recommendations for Businesses

To fully benefit from the available incentives, businesses should consider the following:

• Avoiding Common Mistakes:
  • Hire qualified tax advisors to ensure proper understanding of tax laws and avoid legal issues.
  • Emphasize tax awareness within the organization and encourage teams to take tax matters seriously.

• Implementing Proactive Measures:
  • Attract skilled tax professionals capable of making informed tax decisions.
  • Apply best practices in tax transparency to ensure compliance with laws and regulations.

Strengthening Implementation and Ensuring Full Benefit

To ensure that taxpayers and businesses benefit from the incentives, the government must:

• Improve the clarity of implementation regulations.
• Increase transparency and communication between government agencies and taxpayers to build trust.
• Ensure better cooperation between the Ministry of Finance and other ministries to apply policies effectively and efficiently.

Conclusion

Egypt’s tax reform over the past thirty years has been marked by significant achievements but has also encountered major challenges. To ensure continued success, the government and businesses must work together to build a relationship based on transparency and trust, which will strengthen the investment climate and promote sustainable development for all.

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