In recent years, the Egyptian economy has encountered notable instability, affecting the government's developmental goals and expectations. The Egyptian pound's repeated devaluation, combined with challenges from international incidents like the COVID-19 pandemic and the conflict between Russia and Ukraine, has compelled the Egyptian Tax Authority, under the Ministry of Finance, to implement various strategies to alleviate economic setbacks across different industries and introduce initiatives to reduce emerging financial strains.
The ETA and MoF are spearheading efforts to navigate through this economic turmoil, especially with the ongoing depreciation of the Egyptian pound, which suffered a significant decline again this year after its initial drop in 2016. Amid these circumstances, the ETA is advancing in providing tax relief and exemptions for certain industries to propel economic growth. However, some sectors still await prioritization by the ETA and are grappling with tax pressures.
A critical area of focus in Egypt's taxation landscape is the application and controversy of double taxation treaties . These treaties are recognized internationally for promoting foreign investment by preventing investors from facing taxation in multiple jurisdictions. Nonetheless, the effectiveness of the ETA's handling of has sparked debates, which will be explored further.
Additionally, the process by which the ETA conducts tax assessments and the avenues for investors to contest these assessments is a growing concern. To streamline the tax appeal procedure, the ETA has established an independent Tax Appeal Committee tasked explicitly with managing such appeals.
Facing the Economic Crisis
Egypt's economy has been significantly impacted by a severe currency devaluation, intensifying the current economic crisis. The aftermath of the Egyptian revolution saw a downturn, driven by a decline in tourism and exports, prompting the government to seek financial aid from global institutions. A notable event was the 2016 agreement with the International Monetary Fund for a USD12 billion loan, contingent on Egypt adopting a floating exchange rate policy. This shift led to a dramatic depreciation of the Egyptian pound, marking the start of a currency devaluation phase that continues to affect the economy.
With the currency's value plummeting again by nearly 17% in March 2023, future devaluations are anticipated due to ongoing global crises and their effects on Egypt's critical sectors. The ETA is contemplating establishing a distinct USD exchange rate for tax purposes, separate from the Central Bank of Egypt's policy, to simplify tax calculations for businesses earning in USD. This proposal includes potential implementation in the hospitality sector, aiming to collect taxes in USD to accommodate the economic situation.
The upcoming Five-Year Tax Policy by the MoF is anticipated to address these issues, aiming to stabilize Egypt's tax system amidst these challenges. It remains uncertain how the policy will dictate the payment of taxes in USD for local and foreign businesses.
Accordingly, the MOF issued the amendment of law 91 by giving another way of tax treating as solving these files on the basis of the total Revenues as tax pool considering the tax bracket given in law 30 of 2023. However, this new tax regime is considered for the tax files with revenue less than 10 million of Egyptian pounds only for all the examination period opened before June,2023.
As per the law 30 we can show the tax brackets as follows:
| 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 |
| From 1 million and less than 2 million pounds | From 1 million and less than 2 million pounds |
| From 2 million and less than 3 million pounds | 0.75% of revenue during the period |
| From 3 million to 10 million pounds | 1% of revenue during the period |
Sectorial Discrepancies
To mitigate economic hardships in specific industries, the ETA plans to introduce tax reductions and exemptions. Notably, the nuclear energy sector may receive tax breaks to support growth and timely project completion. Preliminary legislative amendments have been approved, offering tax relief to all stakeholders within nuclear projects.
Efforts to rejuvenate the tourism sector include the proposal of tourism free zones, offering tax incentives to attract investment. Despite the approval of a tourism free zone in Nwaba, progress and operational details remain uncertain.
The automotive industry, however, has not received similar attention. Despite some tax exemptions for imported vehicles, local manufacturing faces tax and duty pressures, exacerbating the impact of currency devaluation. The formation of the Supreme Council for Vehicle Manufacturing aims to address these challenges by fostering local production and adjusting tax policies.
Implementation of DTTs
The reliance on is growing in Egypt, offering foreign investors potential tax benefits based on their residency and existing treaties with Egypt. However, the complex and lengthy procedure for applying poses challenges for investors, suggesting a need for a more streamlined and possibly digitalized process to enhance foreign investment.
Tax Assessments in Egypt
The procedure for issuing and appealing tax assessments has been problematic, leading to the establishment of a special committee to expedite the appeal process. Since its inception in 2018, the committee has addressed numerous investor appeals, reflecting the ETA's efforts to modernize and resolve tax disputes efficiently.
Conclusion
While Egypt's tax system has evolved, with advancements in digitalization and various tax incentives, critical areas still demand improvement. Addressing the economic crisis requires tailored tax incentives for sectors like the automotive industry and a revised approach to DTT assessments. The ETA's initiative to streamline the tax appeal process through the Tax Appeal Committee is a positive step towards enhancing the efficiency of Egypt's tax regime for investors.
It is worth noting that we appreciate the issuance of Law No. 30 of 2023, which provided alternative tax treatment for the tax examination of establishments and companies whose turnover is less than 10 million Egyptian pounds, in order to reduce the tax burden on companies and government agencies concerned with tax examination alike.
However, the Egyptian tax system still needs more and more development to achieve a tax system that befits Egypt's status and value and to be one of the factors encouraging investment in Egypt.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
