Simple Tax Guide for Americans in Egypt
US Expat Taxes - Egypt
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Egypt for over 8 years. Our clients hail from all parts of the country - Cairo and Alexandria, Giza and Subra al-Haymah, Port Said and Suez.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Egypt and know how to integrate your U.S. taxes into the local income taxes you pay. Any Egyptian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Egypt for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Individual Income Tax Rates in Egypt
Below we include information on the Egyptian Tax System for the American Expatriates.
Individual income tax rates in Egypt are progressive, up to 22.5%.
Income tax is imposed on the worldwide income of Egyptian residents. Non-residents are subject to tax on income earned or realised in Egypt.
|Earned income (EGP)||Tax rate|
|From 0 to 8,000||0%|
|8,000 to 30,000||10%|
|30,000 to 45,000||15%|
|45,00 to 200,000||20%|
|More than 200,000||22,5%|
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.
Basis – Resident individuals are taxed on their worldwide income; nonresidents are taxed only on their Egyptian-source income.
Residence – An individual is resident if he/she: (1) is present in Egypt for more than 183 days in a fiscal year; or (2) is deemed to have a permanent residence or a local commercial presence in Egypt under Executive Regulations; or (3) resides abroad but maintains income from Egyptian sources.
Tax Filing status – Employers generally are responsible for withholding and paying the salary tax due to the relevant tax authorities on a monthly basis. However, if the employee is paid from an offshore source, the individual is required to declare it to the relevant authorities at the end of the year.
Taxable income – This includes income from employment, commercial or industrial activities and non-commercial activities (i.e. the exercise of a profession). Mandatory profit sharing, pensions and end-of-service bonuses are not subject to salary tax.
Capital gains – Individuals are subject to tax on capital gains if the assets are sole proprietorship assets (including real estate). If not classified as sole proprietorship assets, real estate gains are subject to a separate tax of 2.5% on the gross gains.
Tax Deductions and Tax allowances – Available deductions depend on the type of income. Various allowances are available for items such as social security contributions and health insurance premiums.
Tax Rates – Progressive rates up to 20% on income over EGP 40,000 per year. Nonresident and resident employees who derive income from sources other than their original place of employment are subject to tax at a flat rate of 10%.
Other taxes on individuals
Capital duty – No
Stamp duty – Stamp duty applies at various rates depending on the type of document.
Capital acquisitions tax – No
Real property tax – All real property in Egypt is subject to the real estate tax. The tax rate is 10% on the annual rental value after allowing a 30% deduction from the rental value to cover related costs for residential property and a 32% deduction for nonresidential property. A residential unit with an annual rental value less than EGP 6,000 is exempt. The property owner pays the real property tax, which is due in 2 instalments, one in January and one in July. The annual rental value of real estate is assessed every 5 years by the tax authorities.
Inheritance/estate tax – No
Net wealth/net worth tax – No
Social security – The social security regime applies to local nationals.
Administration and compliance
Tax year – Calendar year
Filing and payment – Individuals must submit a declaration of income before 1 April following the end of the tax year and must pay tax based on the declaration. Employment income is taxed by withholding at source.
Tax Penalties – A penalty of EGP 10,000 applies in cases of tax evasion.
Egypt Corporate Income Tax Rates
The corporate income tax (CIT) rate in Egypt is 22,5% on the net taxable profits of a company.
The above rate applies to all types of business activities except for oil exploration companies, whose profits are taxed at 40.55%. In addition, the profits of the Suez Canal Authority, the Egyptian Petroleum Authority, and the Central Bank of Egypt are taxable at a rate of 40%.
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.
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.
Residence – A company is resident if it is established according to Egyptian law, its main or actual headquarters is in Egypt or it is a company in which the state or a public juridical person owns more than 50% of the capital.
Basis – Resident companies are taxed on their worldwide income; nonresident companies pay tax only on Egyptian-source profits.
Taxable income – Corporation tax is imposed on a company's profits, which consist of manufacturing, services and trading activities and for the exploration and production of oil and gas.
Taxation of dividends – Dividends received from an Egyptian company are not taxable; dividends received from abroad are included in taxable profits and subject to tax at a rate of 20%, with a deduction allowed for foreign taxes paid abroad up to the amount of tax payable in Egypt. Income from investments in nonresident companies is taxed on the basis of equity accounting.
Capital gains – Gains of companies are treated as ordinary income and taxed at a rate of 20%.
Losses – Losses may be carried forward for 5 years. No carryback of losses is permitted.
Tax Rate – The standard rate of corporate tax is 20% for manufacturing, trading and services companies, and 40.55% for companies engaged in the exploration and production of oil and gas. The Suez Canal Authority, the Egyptian Petroleum Authority and the Central Bank are taxed at 40%.
Surtax – No
Alternative minimum tax – No
Foreign tax credit – Foreign tax paid abroad may be deducted from Egyptian income tax payable, but the deduction may not exceed the total tax payable in Egypt. Credit for foreign tax paid is permitted only for countries that have concluded a tax treaty with Egypt.
Participation exemption – No
Holding company regime – No
Tax Incentives – Projects established under the Free Zone System of the 1997 Investment Law No. 8 enjoy a corporate income tax exemption for the term of the specified project.
The rates of WHT applicable to local payments against local services and supplies in excess of EGP 300 have recently been updated as follows:
- Contracting and supplying: 1.0%
- All types of services: 3.0%
- Commissions: 5.0%
This type of WHT is considered as an advance payment of the CIT and thus, should not represent an additional cost.
A 10% WHT is imposed on dividends paid by Egyptian companies to resident corporate shareholders.
Payments of dividends, interest, royalties, and services by a domestic corporation to foreign or non-resident bodies are subject to WHT as follows.
Dividends to non-residents A 10% WHT is imposed on dividends paid by Egyptian companies to non-resident corporate shareholders. However, an applicable double tax treaty (DTT) between Egypt and the foreign country may result in the reduction/elimination of such tax rate.
Interest to non-residents Interest on loans with more than a three-year term entered into by private sector companies is exempt from WHT, while loans of less than three years are subject to 20% WHT on interest. However, an applicable DTT between Egypt and the foreign country may result in the reduction of such tax rate. Please see below for the ministerial decree affecting the treatment of interest and royalty payments.
Royalties to non-residents Royalty payments are subject to 20% WHT. However, an applicable DTT signed between Egypt and the foreign country may result in a reduction in this rate. Please see below for the ministerial decree affecting the treatment of interest and royalty payments.
Service payments to non-residents Service payments are subject to the 20% WHT. However, an applicable DTT signed between Egypt and the foreign country may result in the exemption of these payments if the services are performed abroad and not through PE in Egypt.
For payments withheld on behalf of non-resident entities, tax shall be remitted to the tax authority the day following the withholding of the amount.
Other taxes on corporations
Capital duty – No
Payroll tax – No
Real property tax – All real property in Egypt is subject to the real estate tax. The tax rate is 10% on the annual rental value after allowing a 30% deduction from the rental value to cover related costs for residential property and a 32% deduction for nonresidential property. A residential unit whose annual rental value is less than EGP 6,000 is exempt. The property owner pays the real property tax, which is due in 2 instalments, one in January and one in July. The annual rental value of real estate is assessed every 5 years by the tax authorities.
Social security – The social insurance contribution of the employer is 26% of the basic salary (up to EGP 1,370) and 24% of the variable salary (up to EGP 2,800).
Stamp duty – Stamp duty is charged at a wide range of rates and fixed charges. The rate on banking transactions is 0.04%, 15% on commercial advertisements and from 0.08% to 10% on insurance premiums.
Transfer tax – No
Other – Employees are entitled to 10% of cash dividends paid to shareholders. Amounts distributed under profit sharing may not be deducted for corporate income tax purposes and are not subject to salary tax.
Transfer pricing – Taxpayers are required to comply with the arm's length standard in related party transactions. There are 3 methods to determine the transfer price: (1) the comparative free price method; (2) the total cost plus profit margin method; and (3) the resale price method. The comparative free price method has priority, but if the information needed to apply this method is unavailable, either of the two other methods may be used. If none of the methods are deemed suitable by the taxpayer, any method specified under the OECD transfer pricing guidelines will be accepted.
Thin capitalization – A 4:1 debt-to-equity ratio applies. Any interest exceeding this ratio is nondeductible.
Controlled foreign companies – An Egyptian company will be required to pay corporate tax on its share of a CFC's income if the following conditions are satisfied: (1) the income is not subject to tax in the country where the nonresident company is registered or is otherwise exempt from tax, or the tax rate in that country does not exceed 75% of the tax rate levied in Egypt; (2) the ownership in the nonresident company exceeds 10%; and (3) more than 70% of the nonresident company's income is from dividends, interest, royalties or management fees or rental fees.
Disclosure requirements – No
Administration and compliance
Tax year – Accounting year
Consolidated returns – Consolidated returns are not permitted; each company must file a separate return.
Tax Filing requirements – Companies must file a tax return before 1 May or within 4 months following the end of the financial year. Tax is assessed on the basis of the information provided in the tax return.
Tax Penalties – A penalty of EGP 10,000 is imposed in cases of tax evasion.
DEPRECIATION AND AMORTISATION ALLOWANCES
The tax law set the depreciation and amortisation rates for tax purposes to the following:
- 5% of the cost of purchasing, establishing, developing, and renovating buildings and establishments is deductible based on the straight-line method.
- 10% of the cost of purchasing, developing, and improving intangible assets is deductible based on the straight-line method.
- Computers, information systems, software, and data storage sets are depreciated at a 50% rate on a declining-balance method.
- All others assets are depreciated at a rate of 25% of the depreciation basis for each fiscal year, on a declining-balance method.
Accelerated depreciation A company may have the option to deduct 30% accelerated depreciation from the value of the machines and equipment used in industries during the first fiscal year of their employment. This should be done by submitting a request to the tax authority prior to deducting the 30% accelerated depreciation.
Egypt GST Value-Added Tax (VAT) Rates
The standard VAT rate is 14% as of financial year 2017/18 (i.e. as of 1 July 2017; previously 13%). The standard rate is applicable on all goods and services, except for machinery and equipment used for the purpose of producing a commodity or rendering a service, which are subject to a 5% VAT (although buses and passenger cars are subject to different tax rates).
The VAT law exempts a number of basic goods and services that affect low-income earners (in addition to other exemptions listed within the law). It also includes a reverse-charge mechanism, whereby transactions involving non-residents providing services/royalties to Egyptian resident entities are subject to VAT in Egypt.