December 23, 2020
Long-Awaited Tax Amendments Take Effect
The much-anticipated series of tax amendments have been recently published as part of the Egyptian government’s economic measures to mitigate the repercussions of the COVID-19 pandemic. The series of amendments (the “Amendments”) implement a variety of exemptions and extensions with regards to (i) the income tax, stamp duty tax and capital gains tax by virtue of Law No. 199 of 2020 published in the Official Gazette on 29 September 2020 (the “Law”); (ii) governmental treasury bills and bonds by virtue of Law No. 182 of 2020 published in the Official Gazette on 5 September 2020 (the “Treasury Law”); and (iii) real estate tax by virtue of Prime Ministerial Decree No. 31 of 2020 published in the Official Gazette on 27 August 2020 (the “Real Estate Decree”).
We guide you through the main aspects of each of the abovementioned tax amendments, in turn, as follows:
Stamp Duty Tax
The stamp duty tax applicable on the total sale of securities of all kinds, whether Egyptian or foreign, listed or not listed, have been reduced in an attempt to encourage securities investors to continue with their investment plans and minimize their tax burdens.
In this regard, the previous tax rate of 1.5 per thousand for non-tax-resident sellers and purchasers has been reduced to 1.25 per thousand. Tax-resident sellers and purchasers will benefit from an even lower 0.5 per thousand tax, down from the previous 1.5 per thousand. Additionally, tax-residents will be afforded an exemption of said tax starting from 1 January 2022.
In any case, the Law will not be applicable to intra-day trading.
Capital Gains Tax
The Law has further extended the postponement of the capital gains tax (“CGT”) applicable to corporations and individuals until the end of 2021. CGT is, however, still applicable to gains realized from trading governmental bonds.
As the previous postponement of CGT expired at the end of May 2020, the Law further stipulates that any CGT paid from trading listed securities between May and the effective date of the Law will be waived.
In any case, the CGT rates (once and if reinstated) have remained predominantly unchanged (at a rate of 10% for unlisted securities obtained by resident natural persons, and 5% in the case of listed securities). A notable amendment in this regard concerns the removal of the 5% (reduced) CG tax rate for individuals with shareholding percentages in companies exceeding 25% of the capital or voting rights therein, provided that their period of possession of the shares is not less than two years.
Treasury Bills and Bonds
Institutions investing in governmental treasury bonds and bills have previously benefited from tax exemptions on their returns of said investments. However, the promulgation of the Treasury Law has abolished this benefit on treasury bonds and bills issued by the Ministry of Finance. This includes reinstating CGT and the income tax on profits realized from dealing in the same, without prejudice to any agreements concluded between the Egyptian government and foreign countries or regional or international organizations.
An institution that will benefit significantly from the introduction of the Treasury Law is the National Organization for Social Insurance (“NOSI”), due to it being afforded special rates. In this regard, the NOSI will only be liable for an income tax on 35% of its investment gains in government debt thereby benefitting from a 65% exemption.
In any case, this law will not apply retroactively to treasury bills and bonds issued prior to its enactment.
Real Estate Tax
As one of the industries hard-hit by the coronavirus pandemic, the tourism industry has undoubtedly faced financial difficulties throughout 2020. In an effort to minimize said difficulties, the government exempted hotels and tourist establishments from paying real estate taxes from 1 April 2020 until 31 December 2020. This exemption applies to property in use in productive and service-related activities in the tourism, hotel and civil aviation sectors.
Additionally, the Minister of Tourism and Antiquities and the Minister of Civil Aviation have been tasked with providing the Minister of Finance with a detailed report outlining the real estate properties subject to this exemption.
Market Reaction
Economic expert and member of the Egyptian Tax Association Dr. Mohamed Farouk has, in a public statement, stipulated that the stamp duty tax reduction on stock market transactions would have a positive impact on the financial market, the volume and value of stock exchange trades, and accelerate financial activities in the Egyptian market.
We guide you through the main aspects of each of the abovementioned tax amendments, in turn, as follows:
Stamp Duty Tax
The stamp duty tax applicable on the total sale of securities of all kinds, whether Egyptian or foreign, listed or not listed, have been reduced in an attempt to encourage securities investors to continue with their investment plans and minimize their tax burdens.
In this regard, the previous tax rate of 1.5 per thousand for non-tax-resident sellers and purchasers has been reduced to 1.25 per thousand. Tax-resident sellers and purchasers will benefit from an even lower 0.5 per thousand tax, down from the previous 1.5 per thousand. Additionally, tax-residents will be afforded an exemption of said tax starting from 1 January 2022.
In any case, the Law will not be applicable to intra-day trading.
Capital Gains Tax
The Law has further extended the postponement of the capital gains tax (“CGT”) applicable to corporations and individuals until the end of 2021. CGT is, however, still applicable to gains realized from trading governmental bonds.
As the previous postponement of CGT expired at the end of May 2020, the Law further stipulates that any CGT paid from trading listed securities between May and the effective date of the Law will be waived.
In any case, the CGT rates (once and if reinstated) have remained predominantly unchanged (at a rate of 10% for unlisted securities obtained by resident natural persons, and 5% in the case of listed securities). A notable amendment in this regard concerns the removal of the 5% (reduced) CG tax rate for individuals with shareholding percentages in companies exceeding 25% of the capital or voting rights therein, provided that their period of possession of the shares is not less than two years.
Treasury Bills and Bonds
Institutions investing in governmental treasury bonds and bills have previously benefited from tax exemptions on their returns of said investments. However, the promulgation of the Treasury Law has abolished this benefit on treasury bonds and bills issued by the Ministry of Finance. This includes reinstating CGT and the income tax on profits realized from dealing in the same, without prejudice to any agreements concluded between the Egyptian government and foreign countries or regional or international organizations.
An institution that will benefit significantly from the introduction of the Treasury Law is the National Organization for Social Insurance (“NOSI”), due to it being afforded special rates. In this regard, the NOSI will only be liable for an income tax on 35% of its investment gains in government debt thereby benefitting from a 65% exemption.
In any case, this law will not apply retroactively to treasury bills and bonds issued prior to its enactment.
Real Estate Tax
As one of the industries hard-hit by the coronavirus pandemic, the tourism industry has undoubtedly faced financial difficulties throughout 2020. In an effort to minimize said difficulties, the government exempted hotels and tourist establishments from paying real estate taxes from 1 April 2020 until 31 December 2020. This exemption applies to property in use in productive and service-related activities in the tourism, hotel and civil aviation sectors.
Additionally, the Minister of Tourism and Antiquities and the Minister of Civil Aviation have been tasked with providing the Minister of Finance with a detailed report outlining the real estate properties subject to this exemption.
Market Reaction
Economic expert and member of the Egyptian Tax Association Dr. Mohamed Farouk has, in a public statement, stipulated that the stamp duty tax reduction on stock market transactions would have a positive impact on the financial market, the volume and value of stock exchange trades, and accelerate financial activities in the Egyptian market.
