2015/16
FOREWORD A country's tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed? Since 1994, the PKF network of independent member firms, administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. As you will appreciate, the production of the WWTG is a huge team effort and we would like to thank all tax experts within PKF member firms who gave up their time to contribute the vital information on their country's taxes that forms the heart of this publication. The PKF Worldwide Tax Guide 2015/16 (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of the world's most significant trading countries. In compiling this publication, member firms of the PKF network have based their summaries on information current on 1 January 2015, while also noting imminent changes where necessary. On a country-by-country basis, each summary such as this one, addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country's personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments. While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice. Services provided by member firms include: Assurance & Advisory; Financial Planning / Wealth Management; Corporate Finance; Management Consultancy; IT Consultancy; Insolvency - Corporate and Personal; Taxation; Forensic Accounting; and, Hotel Consultancy. In addition to the printed version of the WWTG, individual country taxation guides such as this are available in PDF format which can be downloaded from the PKF website at www.pkf.com PKF Worldwide Tax Guide 2015/16 1
IMPORTANT DISCLAIMER This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication. This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances. PKF International is a family of legally independent member firms administered by PKF International Limited (PKFI). Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member firm or firms. PKF INTERNATIONAL LIMITED JUNE 2015 PKF INTERNATIONAL LIMITED All RIGHTS RESERVED USE APPROVED WITH ATTRIBUTION PKF Worldwide Tax Guide 2015/16 2
STRUCTURE OF COUNTRY DESCRIPTIONS A. TAXES PAYABLE CORPORATE INCOME AND GAINS TAX ADMINISTRATION DIVIDENDS CORPORATE TAX RATES OTHER TAXES B. DETERMINATION OF TAXABLE INCOME DEBIT INTEREST DEBT-TO-EQUITY RULES INVENTORIES PROVISIONS BAD DEBTS DEPRECIATION AND AMORTISATION ALLOWANCES REAL ESTATE TAX C. FOREIGN TAX RELIEF D. CORPORATE GROUPS E. RELATED PARTY TRANSACTIONS F. WITHHOLDING TAX G. EXCHANGE CONTROL H. PERSONAL TAX I. TREATY WITHHOLDING TAX RATES PKF Worldwide Tax Guide 2015/16 3
MEMBER FIRM For further advice or information please contact: City Name Contact information Cairo Hany Rashed +20 2 2354 7340 rashed@pkf.com.eg BASIC FACTS Full name: Arab Republic of Egypt Capital: Cairo Main languages: Arabic Population: 84.6 million (2013 PRB) Major religion: Islam, Christianity Monetary unit: Egyptian pound (EGP) Internet domain:.eg Int. dialling code: +20 KEY TAX POINTS Egyptian resident companies are taxable on their worldwide income, except for profits derived from permanent establishments abroad. Non-residents are only taxed on Egyptian sourced income. Dividends paid to residents and non-residents are not subject to withholding tax. Companies and individuals are not taxed on dividends received from resident companies but are taxed on dividends and other payments from non-residents. A credit system is available to relieve double taxation on foreign source income. The credit is subject to a maximum of the Egyptian tax paid on the overseas income concerned. There are provisions which limit the tax deductibility of interest based on the rate of interest charged and the debt to equity ratio of the company concerned. Transfer pricing rules are based on arm's length principles. An advance pricing arrangement is available. Domestic tax law provides for a 20% withholding tax applicable to the payment of interest and royalties to non-residents. Treaties with various countries reduce the rate of withholding tax applying. General sales tax is payable on the supply of goods and services and imports. The standard rate of tax is 10% although rates vary from 0% to 30%. Resident individuals are subject to income tax on their worldwide income whereas nonresidents on taxed on Egyptian sourced income. PKF Worldwide Tax Guide 2015/16 4
A. TAXES PAYABLE CORPORATE INCOME AND GAINS TAX Egyptian corporations are subject to corporate profits tax on their profits derived from Egypt, as well as on profits derived from abroad, unless the foreign activities are performed through a permanent establishment located abroad. Foreign companies resident in Egypt are subject to tax only on their profits derived from Egypt. Oil prospecting and production companies are subject to tax on their profits at a rate of 40.55%. The Suez Canal Company, Egyptian General Petroleum Company (EGPC) and Central Bank of Egypt are subject to tax on their profits at a rate of 40%. ADMINISTRATION Companies must file their annual tax returns, together with all supporting schedules and the original financial statements, before 1 May each year or four months from the financial year end. The tax return should be signed by the taxpayer. Taxpayers can file a request to extend the due date of filing the tax return provided they pay an estimated amount of tax. The request must be filed at least 15 days before the due date and the estimated tax due must also be paid before the due date. The extended period can be up to 60 days. An amended tax return can be filed within 30 days from the due date. Any tax due must be paid when the tax return is filed. A late penalty is applied at the rate of 2% plus the credit and discount rate issued by the Central Bank of Egypt as of January each year. The law has set up appeals committees at two levels - the Internal Committee and the Appeal Committee. The Appeal Committee's decision is final and binding on the taxpayer and the tax department unless a case is appealed by either to the court within 30 days of receiving the decision, which is usually in the form of an assessment. DIVIDENDS Dividends distributed by an Egyptian company are not subject to withholding tax because they are paid out of corporate profits that are taxed under the normal rules. Dividends received by residents from foreign sources are not taxed in Egypt. Dividends are exempt from tax. Interest on bonds listed on the Egyptian stock exchange is exempt from tax if certain conditions are satisfied. Certain exemptions may be provided in some cases. CORPORATE TAX RATES Nature of Tax Rate Corporate income tax 25% Capital gains tax 20% Branch tax 20% Withholding tax: Dividends 0% Interest 20% 1 Royalties from patents, know-how, etc. 20% 1 PKF Worldwide Tax Guide 2015/16 5
Nature of Tax Certain services provided from non-resident entities Rate 20% 1 Branch remittance tax 0% Net operating losses (years) Carry back 3 years Losses incurred in long-term projects can be carried back within the same project with no limits. Carry forward 5 years NOTES: 1 Final tax imposed on gross payments. The rate may be reduced under a tax treaty. OTHER TAXES The table below summarises other significant taxes. Nature of Tax Rate General sales tax 0% to 30% Customs Duties: General, ad valorem Various On value of machinery needed for investments by companies 5% Stamp duties on bills, promissory notes and letters of guarantee as well as most types of documents, contracts, checks and receipts (shares and bonds listed on the Egyptian Stock Exchange are exempt) Various The amounts paid become credits available for income tax purposes at the end of the period. SOCIAL INSURANCE On monthly base salary, up to EGP 987.5 paid by: Employer 26% Employee 14% On amount in excess of EGP 987.5 of the base salary, with a maximum excess amount of EGP 1,520 a month, paid by: Employer 24% Employee 11% PKF Worldwide Tax Guide 2015/16 6
B. DETERMINATION OF TAXABLE INCOME Corporate income tax is based on taxable profits computed in accordance with generally accepted accounting and commercial principles, modified for tax purposes by certain statutory provisions primarily concerning depreciation, provisions, inventory valuation, inter-company transactions and expenses. Start-up and formation expenses may be capitalised and amortised in the first year. The deductibility of a branch's share of head office overhead expenses is limited to approximately 3% to 5% (according to practice) of turnover. Head office expenses other than overhead and general administration expenses are subject to negotiation with the tax authorities. They are fully deductible if they are directly incurred by the branch and are necessary for the performance of the branch's activity in Egypt. Such expenses must be supported by original documents and approved by the head office auditors. DEBIT INTEREST Debit interest of loans/overdraft used in the company's activity is a deductible item after offsetting the interest income. Interest expense paid to individuals who are not subject to tax or exempted from tax is not deductible. Interest expense is limited to the interest rate which will not exceed twice the discount rate determined by the central bank of Egypt. DEBT-TO-EQUITY RULES The tax law has determined the maximum debt to equity ratio to be 4:1. In the event the debt exceeds such ratio, the excess interest is not considered by the Tax Authority to be a deductible expense. INVENTORIES Inventories are normally valued for tax purposes at the lower cost or market value. Cost is defined as purchase price plus direct and indirect production costs. Inventory reserves are not permissible deductions for tax purposes. For accounting purposes, companies may elect to use any acceptable method of inventory valuation such as first-in, first-out (FIFO) or average cost. The method should be applied consistently and the reasons for such change should be stated if the method is changed. PROVISIONS Provisions are not considered as deductible costs except for the following: 80% of loan provisions made by banks (required by the Central Bank of Egypt); Insurance companies provision determined by Law No 10 of 1981. PKF Worldwide Tax Guide 2015/16 7
BAD DEBTS Bad debts are a deductible cost if the company provides a report from an external auditor certifying the following: The company is maintaining regular accounting records; The debt is related to the company's activity; The debt appears in the company's records; and, The company has taken the necessary actions to collect the debt. DEPRECIATION AND AMORTISATION ALLOWANCES Depreciation is deductible for tax purposes and may be calculated using either the straight-line or declining-balance method. Depreciation rates are as follows: Type of Asset Rate Method of Depreciation Buildings 5% Straight-line Intangible assets 10% Straight-line Computers 50% Declining-balance Heavy machinery and equipment 25% Declining-balance Small machinery and equipment 25% Declining-balance Vehicles 25% Declining-balance Furniture 25% Declining-balance Other tangible assets 25% Declining-balance Accelerated depreciation is allowable only once at a rate of 30% on new machines and equipment in the year they are placed into service. Normal depreciation is calculated after considering the accelerated 30% depreciation on the net value of new assets, provided that proper books of account are maintained. Tax losses may be carried forward for five years. Losses incurred in long-term projects can be also carried back within the same project. REAL ESTATE TAX Egypt introduced a new tax law No 196 of 2008 with effect from 23 June 2008 to be applied with effect from 1 January 2009. Tax Rate: 10% of the annual rental value after excluding the following representing an assumed maintenance expenses: 30% of the rental value for properties used for living accommodation; PKF Worldwide Tax Guide 2015/16 8
32% of the rental for properties used for other purposes. C. FOREIGN TAX RELIEF Foreign tax paid by a resident entity outside Egypt can be deducted provided there is supporting documentation. Losses generated outside Egypt cannot be offset against the taxable amount in Egypt. Treaties concluded between Egypt and other countries regulate the credit for taxes paid abroad on income subject to corporate income tax in Egypt. D. CORPORATE GROUPS Associated or related companies in a group are taxed separately for corporate income tax purposes. Egyptian law does not contain a concept of group assessment under which group losses may be offset against profits within a group of companies. E. RELATED PARTY TRANSACTIONS The Egyptian tax law contains provisions for transfer pricing. The transfer pricing provisions are based on the arm's length pr1nciple. Under these provisions, the tax authorities may adjust the income of an enterprise if its taxable income in Egypt is reduced as a result of contractual provisions that differ from those that would be agreed to by unrelated parties. However, it is now possible to enter into arrangements with the tax department to agree a transfer pricing policy in advance (Advance Pricing Arrangement). This provides assurances that transfer prices will not be challenged after the tax return is submitted, with the consequent exposure to penalties and interest on late paid taxes. F. WITHHOLDING TAX No withholding tax is levied on dividends distributed by resident companies, regardless of the residence status of the recipient. Interest derived by non-resident legal persons is subject to a final withholding tax at the rate of 20% on the gross amount, unless a lower treaty rate applies. Royalties derived by non-resident legal persons are subject to a final withholding tax at the rate of 20% on the gross amount, unless a lower treaty rate applies. G. EXCHANGE CONTROL Egypt has a free market exchange system. Exchange rates are determined by supply and demand without interference from the central bank or the Ministry of the Economy. H. PERSONAL TAX Income tax is imposed on the worldwide income of Egyptian residents. Non-residents are subject to tax on income earned or realised in Egypt. An individual is deemed to be a resident of Egypt if: The individual is present in Egypt for more than 183 days in a fiscal year; PKF Worldwide Tax Guide 2015/16 9
The individual's principal place of residence is Egypt. Article 2 of the Executive Regulations states that an individual is considered to have a permanent residence in Egypt if: (a) The taxpayer stays in Egypt for the majority of the year, either in his own property, in a rented property or in any other place; (b) The taxpayer has a local commercial presence, professional office, industrial site or any other place where he carries on his activities in Egypt; (c) The individual is an employee who performs his duties abroad and receives a salary from an Egyptian public or private source. Income tax is assessed each year on the aggregate of the net amounts from each category of income realised during the preceding year. There are four recognised categories of income, namely: (1) Employment income; (2) Business income (which includes income from commercial and industrial activities); (3) Non-commercial income; (4) Income from real estate assets. Graduated rates apply with effect from 1 July 2005 to the aggregate of the four categories of income, as follows: Income (EGP) Rate Up to 5,000 0% 5,001 to 30,000 10% 30,001 to 45,000 15% 45,001 to 25,000,000 20% Over 25,000,000 25% Individuals are not subject to a tax on capital gains except in the case of the disposal of real estate or building sites within the boundaries of Egyptian cities. Such gains are not subject to income tax but are taxed at the rate of 2.5% on the value of the property. I. TREATY WITHHOLDING TAX RATES Dividends paid to non-residents are not subject to withholding tax under Egyptian domestic law. Consequently, the following table sets forth maximum withholding rates provided in Egypt's tax treaties for interest and royalties only. Egypt has signed double tax treaties with Armenia, Bangladesh, Greece, Ireland, Kazakhstan, Mongolia, Norway, Oman, Senegal, Seychelles, the Slovak Republic, Spain, Sri Lanka, Tanzania, Thailand, Uganda and Vietnam but these treaties have not yet been ratified. PKF Worldwide Tax Guide 2015/16 10
Tax treaty negotiations are underway with Congo, Macedonia and North Korea. Interest (%) Royalties (%) Non-treaty countries 20 20 Treaty countries: Albania 10 10 Algeria 5 10 Austria 15 0 Bahrain 1 1 Belarus 10 15 Belgium 15 15/20 Bulgaria 12.5 12.5 Canada 15 15 China 10 8 Cyprus 15 10 Czech Republic 0 10 Denmark 15 20 Finland 1 - From Finland 0 20 - From Egypt 20 20 France 20 15/20 3 Germany 15 15/20 3 Hungary 15 15 India 20 1 Indonesia 15 15 Iraq: - From Iraq 10 15 - From Egypt 20 15 Italy 20 15 Japan 20 15 Jordan 15 20 Korea (South) 10/15 15 PKF Worldwide Tax Guide 2015/16 11
Kuwait Lebanon Interest (%) 10 10 Royalties (%) 10 5 Libya 20 20 Malaysia 15 15 Malta 10 12 Morocco 20 10 Netherlands 12 12 Norway: - From Norway 0 0 - From Egypt 20 15 Pakistan 15 15 Palestine 15 15 Poland 12 12 Romania 4 15 15 Russia 15 15 Singapore 15 15 South Africa 12 15 Sudan 20 10/3 5 Sweden 15 14 Switzerland 15 12.5 Syria 15 20 Tunisia 10 15 Turkey 10 10 Ukraine 12 12 United Arab Emirates 10 10 United Kingdom 15 15 United States 15 15 Yemen 10 10 Yugoslavia 6 15 15 NOTES: PKF Worldwide Tax Guide 2015/16 12
1. According to domestic law in each country. 2. A final draft of a new tax treaty with Finland was initialled on 17 September1997, but the new treaty has not yet been ratified. 3. The higher rate applies to trademarks. 4. The treaty with Romania is being renegotiated. 5. Films, otherwise 10%. 6. The treaty with Yugoslavia applies to the republics that formerly comprised Yugoslavia. PKF Worldwide Tax Guide 2015/16 13