Egypt: Changes to income tax law raise top rate to 25%

In brief

One of the governmental measures that has been publicly discussed for several weeks to combat COVID-19 consequences was a change to the income tax rate


Contents

On Thursday, 7 May 2020, the amendments to the income tax law were revealed under Law No. 26 of 2020 ('Law') to:

  • increase the income tax cap to 25% instead of 22.5%;
  • set the above tax cap (25%) to the annual income that exceeds EGP 400,000;
  • increase the annual personal exemption from EGP 7,000 to EGP 9,000;
  • introduce new limits making taxpayers subject to new tax rates depending on different annual income tranches;
  • apply the new limits and rates pursuant to this amendment apply to: (i) individual income as of July 2020;  and (ii) income realized from commercial or industrial activities, non-commercial professions or earnings from real estate wealth, as of the tax period that ends following the issuance of the Law;
  • compel tax payers to pay additional amounts calculated at percentage that varies between 20%-40% from the difference between the submitted tax return and the final tax due depending on the difference parentage whether below 50% equal or more and
  • increase the penalty for failing to file the tax return to be calculated at 40% of the final due tax amount.

What it means for you

These amendments entail that your HR departments should start applying new tax rates to employees' income as of July 2020, changing the employees' net salaries.

This change implicitly means that the corporate tax rate, at the present time, will remain unchanged (i.e. settling now at 22.5%.)

Actions to take

To be prepared for the effect of such amendments, you should:

  • engage your tax counsel to provide an assessment of the Law's effects on your business and
  • make sure to start implementing the new tax percentages on your employees July income salary.

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