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Income Tax Law Amendments

 

Highlights

Law No. 26 of 2020 was issued on 7 May 2020 amending some provisions of the Income Tax Law No. 91 of 2005 (the “Amendment”), including adding new tax rates and tax brackets as well as increasing the annual personal exemption to EGP 9,000.

 Scope of Amendment

The Amendment introduces the following new tax rates: 2.5% on the income bracket ranging between 15,001 and EGP 30,000 and 25% on annual income above EGP 400,000. It also puts an end to tax reductions and introduces new tax brackets in order to reduce the tax burden on low-income earners. In addition, lower tax rates no longer apply to annual income above EGP 600,000, increasing the tax burden on higher income earners.

 

Current Tax Rates and Brackets

  

 

Tax Brackets

Tax Rate

Application on Higher Income

1

EGP 1 – EGP 15,000

0%

 

The tax rate of 0% does not apply to taxable income ranging between EGP 600,000 and EGP 700,000.

 

2

EGP 15,001 - EGP 30,000

2.5%

 

The tax rates of 0% and 2.5% do not apply to taxable income ranging between EGP 700,000 and EGP 800,000.

 

3

EGP 30,001 - EGP 45,000

10%

 

The tax rates of 0%, 2.5% and 10% do not apply to taxable income ranging between EGP 800,000 and EGP 900,000.

 

4

EGP 45,001 - EGP 60,000

15%

 

The tax rates of 0%, 2.5%, 10% and 15% do not apply to taxable income ranging between EGP 900,000 and EGP 1,000,000.

 

5

EGP 60,001 – EGP 200,000

20%

 

The tax rates of 0%, 2.5%, 10%, 15% and 20% do not apply to taxable income above than EGP 1,000,000.

 

6

EGP 200,001 – EGP 400,000

22.5%

 

 

7

Above EGP 400,000

25%

 

 

 

 

 

Previous Tax Rates and Brackets

 

 

Income

Tax Rate

Tax Reduction

1

EGP 1 – EGP 8000

0%

-

2

EGP 8001 - EGP 30,000

10%

85%

3

EGP 30,001 - EGP 45,000

15%

45%

4

EGP 45,001 - EGP 200,000

20%

7.5%

5

Above EGP 200,000

22.5%

-

 

 

Case Study

 

Previous Tax Rates and Brackets

 

Current Tax Rates and Brackets

 

 

If the annual taxable income was equivalent to EGP 100,000,  the tax value would have been EGP 15,450.

 

 

 If the annual taxable income is equivalent to EGP 100,000, the tax value would be EGP  12,125.

 

 

If the annual taxable income was equivalent to EGP 1,200,000,   the tax value would have been EGP 260,450.

 

 

 If the annual taxable income is equivalent to EGP 1,200,000, the tax value would be EGP 295,000.

 

 

The above-mentioned tax rates and brackets shall enter into force as of 1 July 2020. It is worth noting that employers shall prepare and submit two tax reconciliation statements for the financial year 2020 (1 January - 30 June and 1 July – 31 December).

 Facilitation of Tax Settlement

The Amendment re-regulates the application of the additional tax and facilitates the tax settlement process by applying a 50% reduction on the tax penalty to encourage taxpayers to settle their disputes with the Egyptian Tax Authority prior to referring them to the Appeal Committee. Taxpayers are obliged to pay an additional amount above the final tax, depending on the difference between the final tax value and the value of the tax indicated in the tax return as follows:

 

  • If the difference is under 50% of the final tax value, the penalty shall be set at the amount of 20% of the value of such difference;
  • If the difference is equal or above 50% of the final tax value, the penalty shall be set at the amount of 40% of the value of such difference;
  • If the taxpayers have not submitted their tax return, the penalty shall be set at the amount of 40% of the final tax; and
  • If an agreement is reached with the Egyptian Tax Authority before referral to the Appeal Committee, the taxpayer is entitled to a 50% reduction on the imposed penalties.