Worldwide Tax Summaries

Egypt
Last reviewed - 01 February 2023

Corporate - Significant developments

Expected upcoming tax updates
There are discussions ongoing on the final draft amendments to the Egyptian Income Tax Law, and such amendments are expected to be finalised
soon.

Those amendments are expected to affect the permanent establishment (PE) definition, capital gains tax (CGT), dividends, the debt-to-equity ratio,
and the personal income tax (PIT) brackets and exemption.

Post COVID-19 updates

Post the COVID-19 pandemic, updates/changes have been announced by the Egyptian government to several articles in the Egyptian income tax
law derived with the intention to stimulate the economy.

Such changes mainly cover the withholding tax (WHT) imposed on the dividend distributions made by an Egyptian company, CGT realised upon
disposing of Egyptian listed shares on the Egyptian Exchange (EGX), along with the stamp tax imposed, as explained below.

In addition to the above, the unified tax procedures law has been issued, which mainly covers the procedures for the filing of different taxes,
registration for tax purposes, and the penalties for non-compliance, as well as other tax topics.

In addition, a decree has been published abolishing the 20% stamp tax that has been imposed on advertisements and adding a 14% value-added tax
(VAT) instead.

E-invoicing system in Egypt

As part of the digital transformation for the tax government practice in Egypt and following the introduction of the e-filling mechanism, the Ministry of
Finance has released Decree no. 188 of 2020 for introducing the new e-invoicing system.

In July 2021, Ministerial Decree no. 1206 of 2021 was issued obligating all governmental bodies not to accept any paper invoices from any of their
suppliers as of 1 October 2021. Therefore, any company dealing with any governmental body must apply the e-invoicing system before that date.

As of 1 April 2023, paper invoices will not be considered in proving costs or expenses when submitting tax returns for income tax, as well as when
deducting or refunding VAT, and only electronic invoices will be considered.

Dividends distributed by a listed Egyptian company

A flat rate of 5% WHT is to be imposed on dividend distributions from shares listed on the EGX, whether to resident or non-resident
shareholders.

Please note that the company’s shares should be registered and also traded on the EGX in order to be considered as listed shares.

Dividends distributed by a non-listed Egyptian company

A flat rate of 10% WHT is to be imposed on dividend distributions from an Egyptian unlisted company, whether to resident or non-resident
shareholders.

CGT imposed on the gains realised from the disposal of shares/securities listed on the EGX
Capital gains realised by resident shareholders should be subject to CGT at the rate of 10%.

On the other hand, capital gains realised by non-resident shareholders should permanently be exempt from CGT, including the T-bonds.

Stamp tax imposed on the proceeds realised upon disposing of shares/securities listed on the
EGX
Resident investors trading in or holding shares listed on the EGX (i.e. whether buyers or sellers) should be exempt from stamp tax starting 1
January 2022 (abolishing the 0.05% that has been applied on the transactions involving less than 33% of the shares).

As for non-resident investors, the stamp tax should be 0.125% for transactions involving less than 33% of the shares.
 In addition, spot EGX transactions should be totally exempt from stamp tax.

T-bonds are not subject to stamp tax.

Stamp tax imposed on the proceeds realised upon disposing of unlisted shares/securities
Resident investors trading in or holding shares unlisted on the EGX should be subject to a 0.05% stamp tax on the total proceeds realised
without deducting any costs (for transactions involving less than 33%).
As for non-resident investors, the stamp tax should be 0.125% imposed on the total proceeds realised upon disposing of unlisted shares (for
transactions involving less than 33%).

T-bills are not subject to stamp tax.

Corporate - Taxes on corporate income

Resident companies are taxed on worldwide income. Non-resident corporations and partnerships pay tax on income derived from their PEs in Egypt.

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%.

Local income taxes

There are no governorate or local taxes on corporate income in Egypt.

Corporate - Corporate residence

Foreign corporations and partnerships are classified as residents of Egypt if they meet one of the following conditions:

The entity is established according to the Egyptian law.

The government or a public authority owns more than 50% of the capital of the entity.

The effective place of management is in Egypt.

The executive regulations of the law indicate that Egypt is considered as the effective place of management if the entity meets any two of the
following conditions:

Daily managerial decisions take place in Egypt.

Members of the board of directors hold their meetings in Egypt.

At least 50% of the board members or managers reside in Egypt.

The major shareholders (owners of more than 50% of the shares or voting rights) reside in Egypt.

Permanent establishment (PE)

The PE concept is defined in the Income Tax Law as follows:

Headquarters.

Branch.

Building used as sale outlet.

Office.

Factory.

Workshop.

Places of extraction of natural resources.

Farms.

Building site, construction or assembly point, installations, supervisory activities of the same.

An agent who has the power to ratify contracts on behalf of a foreign company.
An independent broker or agent who is proven to have dedicated most of one's time during the year to the interest of a foreign company.
A foreign company that is deemed to have a PE risk, according to the Egyptian Companies Law, should incorporate a legal vehicle in Egypt.
There are several legal forms existing under the Egyptian Companies Law from which a foreign company can choose to incorporate, and these are a
joint-stock company, limited liability company, branch, or representative office.

Corporate - Other taxes

Value-added tax (VAT)
The standard VAT rate is 14% as of the financial year 2017/18 (i.e. as of 1 July 2017; previously 13%). The standard rate is applicable to all goods and
services; however, the reduced VAT rate of 5% is applied to the machinery and equipment that are necessary for producing goods or providing
services. As per the amended VAT law no. 3 for the year 2022, the 5% reduced rate of the machinery and equipment that was used for the purpose
of industrial production activities is suspended for one year from the importation date and might be extended for a further one year. Then, such
machinery and equipment may be exempt from VAT in case it has been proved that they are only used for industrial production activities; otherwise,
the due VAT should be paid alongside the due additional tax.

It's important to note that the exported goods and services are to be subject to 0% VAT.

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).

Further, the VAT law includes a reverse-charge mechanism, whereby transactions involving non-residents providing services/royalties to Egyptian
resident entities are subject to VAT in Egypt.

Also based on the newly issued updates, VAT at the rate of 14% is imposed on the advertisements services that were exempted before.

It’s worth noting that the new amendments to VAT issued by virtue of law no. 3 include new concepts to VAT, such as the simplified vendor
registration system, which every non-resident and unregistered person who does not perform through a PE in Egypt to sell a good or provide
services is required to apply for. The executive regulation has not been issued yet specifying the registration process and the requirements.

This simplified system should be enforced within six months for services and within two years for commodities from the effective date of the law.

Also, for the reverse-charge concept, it’s critical to mention that the physical representative concept is no longer required based on the new
amendments clarifying the reverse-charge concept.

Electronic filing of VAT returns

The Egyptian tax authority (ETA) has introduced a new e-filing system for the submission of the VAT returns; consequently, taxpayers will be required
to submit their VAT returns (i.e. monthly VAT and/or schedule returns) electronically through the ETA’s website, starting from January 2019.
Accordingly, the manual filing of VAT returns will not be accepted as of the mentioned date.

The account created by taxpayers for the e-filing of CIT returns shall be used to access the ETA’s website. Such an account will provide taxpayers
access for the e-filing of all relevant taxes, including VAT. Taxpayers will be required to register on the ETA’s website to create an online account for
the e-filing procedures. Upon filing the online VAT return, taxpayers should pay the VAT amount due through regular bank transfers and then enter
the details of the payment on the ETA’s website to finalise the VAT e-filing process.

E-invoicing
As per the unified tax law article no. 35, taxpayers are required to use the e-invoicing system with regard to all the performed transactions whether
by issuing an e-invoice/e-receipt.

As per the Ministry of Finance decree no. 188 on 26 March 2020, taxpayers are required to issue their invoices electronically as per the technical and
legal requirements that were issued by the head of the ETA.

In November 2020, the ETA started applying the e-invoicing system gradually in phases. The decision includes the steps and conditions needed to
be followed by the taxpayers. The decree also mentioned that the non-selected companies can voluntarily join the phase in order to apply the new e-
invoicing system, provided that the required conditions and steps declared in the decision are fulfilled. Recently, it was announced that all Egyptian
entities should be applying the e-invoicing system before the end of financial year 2022.

Customs duties
The liability for customs duty rests with the person who is importing the goods from abroad.

Customs duties are imposed on imported goods at rates that vary according to official categories. Average rates of duties range between 0% and
60% of the cost, insurance and freight (CIF) value.

Higher rates (up to 135%) are applied for passenger cars, nonessential and luxury consumer goods, and alcoholic beverages.

With regard to the importation of machines and equipment to be used for industrial purposes, the rate of customs duty that applies in this case
ranges from 0% to 5% depending on the exact type of the good (determined according to its customs code). However, it is worth noting that trucks
and heavy equipment are generally subject to customs duty between the rates of 10% and 20%.

In Egypt, the government is flexible with importing second-hand equipment, with an aim to encourage foreign investment.

VAT applies on such imported products at 14% of the customs/import duty paid (the VAT base will be based upon the invoice value CIF, the customs
duty, and other taxes).
A contractor who intends to re-export plants and equipment after expiration of a contract may import the plant and equipment into Egypt free of
customs duties if certain requirements were met.

Under all circumstances, a fee at a rate of 2% monthly and up to 20% annually of the amount of customs duty due is imposed for each year or partial
year the plant or equipment remains in Egypt before re-export. Note that it is effective for a period of one year and may be renewed after the
approval of the Customs Authority.

Also, customs tax amounting to 1% of the stipulated customs tax on the date of the temporary release shall be collected for every month or part
thereof with a maximum of 10% annually for equipment, new and renewable energy components, and their spare parts.

Excise taxes
Under the Egyptian VAT law no. 67 for the year 2016, an excise tax was introduced as special tax rates imposed on certain products and services.

The excise tax (which is also called schedule tax or table tax) should be imposed only once on the listed products and services (e.g. professional
services, construction services, processed potatoes), and it should only be imposed once more if there was a change in the product status. The
excise tax is solely applied on specific listed items while it could be applicable in addition to the normal 14% VAT on some other items (e.g. air
conditioners).

The excise tax should not be considered as a recoverable input tax, nor should it be deducted against incurred input VAT, with very limited
exceptions.

Real estate taxes

The Real Estate Tax Law takes into consideration the different variables that can affect the value of a property, such as location, value of similar
buildings, and the economic situation of the district in which the property is located. This is to be updated every five years (most recently in August
2014).

Real estate tax is levied annually on all constructed real estate units, with the exemption of schools, orphanages, charitable organisations, and
private residences with a market value of less than 2 million Egyptian pounds (EGP). This tax covers land and buildings, excluding plant and
machinery.

Such tax is assessed based on the rental value of the land and building, and these value assessments are set by the committees, after approval of
the Minister or whomever the Minister delegates, and published in the Official Journal. Based on the announcement, any taxpayer can appeal the
rental value assessment.

The real estate tax rate is 10% of the rental value, and the calculation of the rental value differs for residential units and non-residential units. Specific
percentages of deductions are provided by the law to account for all the expenses incurred by the taxpayer, including maintenance costs.

The real estate's definition was recently amended to replace the original land spaces’ provision by the following: 'Actually exploited lands, whether
independent or attached to buildings, fenced or not (as determined by the relevant executive regulations).'

In addition, a new article was recently introduced to the Real Estate Tax Law, allowing by means of a decision from the Egyptian Cabinet, real estate
tax exemption for the real estate actually exploited in the production and services activities stated by the Egyptian Cabinet, provided that the
decision includes the below, for each production or service activity:

The percentage of exemption.

Its duration.

Stamp tax
There are two distinct types of stamp tax, which are imposed on legal documents, deeds, banking transactions, company formation, insurance
premiums, and other transactions, as follows:

The nominal stamp tax is imposed on documents, regardless of their value. The tax rate for items such as contracts is approximately EGP 1 for
each paper (per each copy of the document).

Percentage or proportionate stamp tax is levied based on the value and nature of the transactions.
An annual proportional stamp tax at the rate of 0.4%, shared by the bank and the client, is imposed on a bank's loans. This stamp tax is due on a
quarterly basis on the beginning balance of each quarter of credit facilities and loans and advances provided by Egyptian banks or branches of
foreign banks during the financial year in addition to the amounts utilised within the quarter.

Loans from other establishments are not subject to this tax.

Stamp tax on the disposal of financial securities

Stamp duty is enacted on the disposal of shares as per the publication number 24 in the official gazette published on 19 June 2017. As per the
publication, such stamp duty is imposed on the total proceeds (i.e. value of the transaction) from buying or selling any kind of stocks/securities (with
very limited exceptions for the T-bills and T-bonds), regardless of whether they are Egyptian or foreign, listed or non-listed, without deducting any
costs, where buyer and seller should each apply the stamp duty on the total proceeds realised.

This type of stamp tax has also been among the changes announced by the Egyptian government, as explained in the Significant developments
section.
Based on the law, resident investors trading in or holding Egyptian shares/securities unlisted on the EGX and whether buyers or sellers should be
subject to 0.05% stamp tax on the total proceeds realised without deducting any costs (for the transactions involving less than 33% of a company's
shares). On the other hand, resident investors trading in or holding Egyptian shares/securities listed on the EGX are exempt from the stamp tax for
the transactions involving less than 33% of a company's shares (the 0.05% that used to apply on listed shares has been abolished starting 1 January
2022).

On the other hand, non-resident investors trading in or holding Egyptian shares/securities (whether listed or unlisted on the EGX and whether buyers
or sellers) should be subject to 0.125% stamp tax on the total proceeds realised without deducting any costs (for the transactions involving less than
33% of a company's shares).

On the other hand, in case any of the below-mentioned conditions are met, then the rate of the stamp duty to be imposed in such case should be
0.3%:

If the sale and purchase transaction involves 33% or more of the value or the number of shares or voting rights in a resident company, or

If the sale and purchase transaction involves 33% or more of the assets or the liabilities of a resident company by another resident company in
return of shares in the acquiring company.
In both cases above, the buyer and seller (i.e. the party exceeding the threshold) should each pay the 0.3% stamp duty on the gross transaction
value without deducting any costs.

Payroll taxes
There is no payroll tax other than the employer’s social insurance contribution (see below).

Social insurance (employer’s contribution)

The social insurance contribution of the employer is 18.75% of the total social insurance salary.

Comprehensive health insurance system contributions

Egypt is embarking on implementing a new comprehensive health insurance system, starting from 2019. The law behind the new health insurance
system entered into force on the 12 July 2018. This new system will be implemented within a 15-year period and over six phases. Each phase will
comprise five governorates at a time, whereby Cairo and Giza governorates, among others, will be in the final phase of implementation. The new
health insurance system will be financed through several sources and among them are the following:

A contribution of 0.25% of total annual revenues to be paid by all entities, and such contribution cannot be deducted as an expense for CIT
purposes.

EGP 0.75 of the value of each pack of cigarettes sold (local/ foreign), and such value shall be increased every three years until it reaches EGP
1.50.

10% of the value of each unit sold from tobacco cut-filler products (other than cigarettes).

Fees, ranging between EGP 1,000 and EGP 15,000, paid by hospitals, medical clinics, treatment centres, pharmacies, and pharmaceutical
companies to subscribe to the new health insurance system.
Individuals who wish to benefit from the new health insurance system will be required to pay a subscription fee, depending on the category they fall
in, as detailed below:

The employer will pay a subscription of 4% of the employee’s portion of the salary subject to social insurance and the employee will pay 1% of
that portion to reach a total of 5%.

The employee will pay a subscription of 3% of the above-mentioned portion of the salary to insure one's spouse in case of their unemployment
(or no stable fixed income).

The employee will pay a subscription of 1% of the portion of the salary subject to social insurance to insure each dependant.

Business owners or self-employed professionals or Egyptians working abroad will pay a subscription of 5% of the portion of salary/wage
subject to social insurance or of their income reported in the income tax return, whichever is greater.

The foreign expatriates residing in Egypt may also be allowed to subscribe in the new health insurance system, according to certain conditions
and in case of reciprocal treatment by their home country.

The above-mentioned subscription fees will only be paid when the new health insurance system is applied in the relevant governorate (e.g. no fees
should be paid by Cairo citizens/individuals until the last phase of implementation of the system). The party collecting such subscription fees will be
required to submit them within 30 days from the date of collection.

It is important to mention that any non-compliance with the new health insurance system may result in financial or imprisonment penalties.

Corporate - Branch income

Branches of foreign corporations operating in Egypt receive tax treatment identical to that of corporate entities for the results of their activities in
Egypt.
A branch, but not a subsidiary, may deduct a 'head office charge' of an amount of up to 10% of its taxable income.

According to law no. 53 of 2014, which imposed WHT on dividend payments, a PE's profits will be deemed dividend payments (and thus subject to
10% WHT according to law no. 199 of 2020, such rate is updated from the previous 5% WHT) if not repatriated within 60 days of the following
financial year-end.

Corporate - Income determination

Inventory valuation
Egyptian generally accepted accounting principles (GAAP) should be applied to inventory valuation, and all methods that are acceptable by Egyptian
GAAP can be used. The methods acceptable are almost the same as those acceptable under International Financial Reporting Standards (IFRS).

Capital gains
The law defines capital gains as the difference between the acquisition cost and the fair market value/selling price of the share. However, for listed
shares acquired before 1 July 2014 and sold after that date, the capital gain will be calculated as the difference between either the acquisition price
or the closing price on 30 June 2014 (whichever is higher) and the selling price.

CGT treatment applicable to resident companies

Capital gains realised by resident shareholders from the disposals of listed shares on the EGX should be subject to CGT at the rate of 10%.

On the other hand, capital gains realised from the sale of unlisted shares/securities should be subject to 22.5% CGT.
Foreign shares/securities (invested abroad): Capital gains realised from shares invested abroad would be subject to a capital gains tax at the
rate of 22.5%, with a credit to be given for the foreign tax paid.

Capital gains tax treatment applicable to non-resident companies

Capital gains realised by non-resident shareholders from the disposals of listed shares on the EGX should not be subject to CGT, including the
T-bonds.

Capital gains realised from the sale of unlisted shares/securities should be subject to 22.5% CGT with the exception of the T-bills that are not
taxable.

Capital gains realised from shares invested abroad should not be taxed in Egypt.

Capital losses
A capital loss can be offset against a capital gain arising during the same tax year, provided that they both arise from the sale of shares (i.e. gain and
loss of listed shares are in a separate pool from the gain and loss of unlisted shares, so the loss from the sale of listed shares can only be offset
against the gain from the listed shares and cannot be offset from the gain of unlisted ones). Excess capital losses that are not utilised during a tax
year can be carried forward for a period of three years and should be offset against capital gains from the sale of shares.

Dividend income
Dividend income treatment applicable to resident companies
A 10% WHT will be imposed on dividends paid by Egyptian companies unlisted on the EGX to resident corporate shareholders. The 10% WHT will be
reduced to 5% if the dividends are paid by Egyptian companies listed on the EGX.

Dividends received by resident companies from other resident companies should not be added to taxable income, provided that the
related/associated costs are not deductible from the recipient companies' taxable profit (only 10% of the dividends received should be added to the
taxable pool subject to CIT at the rate of 22.5%), provided that the company receiving the dividends holds more than 25% of the shares or the voting
rights of the subsidiary company and holds or is committed to hold those shares for at least two years.

Dividend income treatment applicable to non-resident companies

A 10% WHT will be imposed on dividends paid by Egyptian companies unlisted on the EGX to non-resident corporate shareholders. The 10% WHT
will be reduced to 5% if the dividends are paid by Egyptian companies listed on the EGX.

Participation exemption
90% of the dividends distributed by a non-resident corporate shareholder to a resident one will be exempt from tax (i.e. only 10% of the amount of
the dividends will be subject to tax). Such exemption can be benefited from if both of the following conditions are met:

The shareholder holds at least 25% of the share capital or the voting rights of the subsidiary company.
The company holds or commits to hold the shares of the subsidiary for at least two years.

Permanent establishments (PEs)

A PE's profits should be deemed dividend payments, and thus subject to the above treatment, if they were not repatriated to the parent company
within 60 days of the PE's financial year-end.

Stock dividends
Stock dividends are not subject to tax in Egypt.

Interest income
Interest expenses are deducted from interest income when calculating the interest income to be included in taxable income, provided certain
conditions are met.

Generally, interest income is not taxed separately; it is considered as part of the company's income and taxed accordingly (i.e. at the 22.5% CIT
rate).

Rent/royalty income
Rent/royalty income are not taxed separately; they are considered as part of the company's income and taxed accordingly (i.e. at the 22.5% CIT
rate).

Foreign income
Income from any source, domestic or foreign, received by a corporation within Egypt is subject to CIT. The scope of tax covers the activities carried
out inside and outside Egypt, which are administered or managed within Egypt.

There is no provision for deferring income earned abroad.

Corporate - Deductions
In order for expenses to be acceptable for tax deduction, such expenses must be:

actual and supported by documents

business related, and

necessary for performing the company’s activity.

Depreciation and amortisation

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.

Goodwill
According to Article 25 of the Egyptian Income Tax Law, goodwill is amortised at the rate of 10% using the straight-line method.

Start-up expenses
Start-up expenses are tax deductible, and the whole amount can be amortised for the first year.

Interest expenses
Interest expenses are deductible for tax purposes after offsetting any tax-exempt interest income.

Interest expense deductions are only allowed if the following conditions are fully met:

The interest rate does not exceed twice the discount rate as determined by the Central Bank of Egypt at the beginning of the calendar year in
which the tax year ends.

The interest expense is in return for loans complying with the local thin capitalisation rule: 4:1 debt-to-equity ratio.
 The Egyptian transfer pricing rules (i.e. arm’s-length principle) are being followed (see Transfer pricing in the Group taxation section for more
information). In case of a tax audit, if the interest rate isn’t proven to be at arm’s length, the tax authority has the right to adjust this price to
arrive at the 'arm's-length price' and re-calculate the taxes due accordingly.

The loan is business related.

Bad debt
According to Article 28 of the Egyptian Income Tax Law, deduction of bad debts shall be allowed, subject to submitting a report from the external
auditor indicating the fulfilment of the following conditions:

The company is maintaining regular books and records.

The debt is related to the company activities.

That debt value was previously included within the company accounts and records.
The company has taken serious procedures for settlement of such debt and has been unable to collect it after 18 months from its due date.

Charitable contributions
Donations to the government are tax deductible. Donations to Egyptian charities are also deductible, but only up to 10% of taxable income.

Fines and penalties

Financial fines and penalties paid by the taxpayer because they or one of their subordinates has committed a deliberate felony or misdemeanour are
not deductible.

Taxes
Income tax payable according to the Income Tax Law is not deductible.

Other significant items

The following other items are not deductible:

Reserves and appropriations of all different types.

Profit shares, distributed dividends, and the attendance fees paid to shareholders for attending the general assembly’s meetings.

Compensation and allowances obtained by the chairmen and board members.

Workers profit share to be distributed according to the law.

Net operating losses

A company may carry losses forward for a period not to exceed five years. Nevertheless, if a change occurs in the ownership of its capital exceeding
50% of the shares, stocks, or the voting rights, if the company is either a joint-stock company or a company limited by shares whose shares are not
listed on the Egyptian Stock of Exchange, and if the company changes its activity, the company cannot carry the losses forward.

In general, companies cannot carry losses back, except for contracting companies (i.e. in case of long-term projects), which are allowed a loss
carryback for an unlimited period of time (to the extent of the duration of the contract).

Payments to head office

A branch may deduct head-office charges of up to 10% of its taxable income. Moreover, the branch or subsidiary should withhold taxes before the
payment of interest, royalties, and service fees to non-resident foreign corporations or affiliates.

Corporate - Group taxation

The Egyptian tax law treats every company in a group of companies as a separate legal entity. Thus, affiliated companies or subsidiaries cannot shift
the profits/losses within the group.

Transfer pricing
Transfer pricing rules follow the arm’s-length principle, specifying that any transaction between related parties should be at arm’s length (i.e. market
value).

The law states that the Egyptian Tax Authority (ETA) may adjust the pricing of transactions between related parties if the transaction involves
elements that would not be included in transactions between non-related parties, and whose purpose is to shift the tax burden to tax exempt or non-
taxable entities. Where this is the case, the tax authorities may determine the taxable profit on the basis of the neutral price.

On 29 November 2010, the ETA launched the Egyptian Transfer Pricing Guidelines (‘EGTP Guidelines’). The EGTP Guidelines are being issued as a
series of parts, the first part of which was issued in final version to the public and provides guidance on the arm’s-length principle, how to establish
comparability, choosing the most appropriate transfer pricing method(s), and documentation requirements.

The Egyptian Minister of Finance has issued a Ministerial Decree published in the official Gazette on 22 May 2018, amending some provisions of the
executive regulations of the income tax law that relate to the Egyptian regulations. Such amendments were a prelude to the final EGTP Guidelines,
which were released on 23 October 2018.

The headline changes presented in the updated EGTP Guidelines are the three-tiered approach to TP documentation and the introduction of the
Advance Pricing Arrangement (APA) programme.

The three-tiered approach

The updated EGTP Guidelines introduced the three-tiered approach to TP documentation and include the mandatory filing of namely, the master file,
local file, and the country-by-country (CbC) report. Prior to these updates, taxpayers were not required to submit TP documentation, but from now
on, the filing of TP documentation would be mandatory on an annual basis.

The CbC report facilitates the reporting process for multinational enterprises (MNEs). The CbC report provides a template for MNEs to report
annually and for each jurisdiction the necessary information relating to the MNEs' global allocation of income, taxes paid, and other indicators
regarding the economic activity in order to assess the overall related-party transactions taking place between affiliated enterprises within the same
group. The thresholds for CbC report filing are as follows:

Egyptian parented groups with a foreign subsidiary(s) with an annual consolidated group revenue of equal to or exceeding EGP 3 billion will be
required to prepare and file a report with the ETA.
Egyptian subsidiaries of foreign parented groups will be subject to the Organisation for Economic Co-operation and Development's (OECD’s)
threshold of 750 million euros (EUR) and required to file a report with the jurisdiction in which the ultimate parent entity is resident of.

Filing deadlines
The master file should be prepared in accordance to the taxpayer group's ultimate parent's tax return filing date and made available to the ETA in
'due course'. In case the ultimate parent is not required to file a tax return in its country, then the master file should be submitted to the ETA along
with the local file.

The entity-by-entity local files must be submitted to the ETA within two months following the date of filing the tax return.

The CbC report should generally be submitted one year following the close of the relevant financial year that it covers, and the CbC
report notifications are due before the end of the fiscal year to which the CbC report relates.

Note that free zone entities are required to prepare and submit the CbC report notifications.

Advance Pricing Arrangements (APAs)

The APA system provides Egyptian taxpayers with the benefit of agreeing in advance with the ETA on the methods to be followed by the taxpayer to
determine arm's-length arrangements acceptable for tax purposes when it comes to related-party transactions.

Such APA programme should deliver benefits to the taxpayers such as certainty on TP methods, tax outcomes, increased transparency and reduced
risks of audits, price adjustments, and penalties.

The APA programme is introduced for the first time in Egypt and, accordingly, the ETA decided to restrict its application to the unilateral APA(s) at
this stage and to introduce the bilateral and multilateral APA(s) in the future. In addition, the option to apply for the APA is open to all the taxpayers,
subject to the provisions of the law including PEs.

The guidance on the APA programme is contained within a new part two of the EGTP Guidelines, which describes the mechanisms, procedures, and
implementation of the programme in Egypt. The process of applying for and concluding the unilateral APA may take between three to six months and
this may vary according to the case at hand.

Acceptable TP methods as per the updated EGTP Guidelines

As per the updated EGTP Guidelines, the acceptable methods are listed as follows:

Comparable uncontrolled price method (CUP).

Cost plus method (C+).

Resale price method (RPM).

Profit split method (PS).

Transactional net margin method (TNMM).

Following the updated Guidelines, the hierarchy is no longer applicable in applying TP methods. In addition, the updated EGTP Guidelines allow
taxpayers to use other methods in the event that none of the listed methods can be applied on the considered transactions.

However, the ETA expects the taxpayers to first maintain and prepare sufficient documentation to explain the reason why those methods cannot be
reliably applied on the transaction. Moreover, the updated EGTP Guidelines include a statement illustrating that the ETA considers the 'Global
Formulary apportionment' as the least reliable method to be used in determining the arm's-length price of the controlled transaction. In any case, the
comparability analysis should be performed to select the appropriate transfer pricing method in accordance with the arm's-length principle.
Unified Tax Procedures Law
On 19 October 2020, the Egyptian government issued the Unified Tax Procedures Law No. 206 of 2020. Under the Law, taxpayers engaged in
commercial or financial related-party transactions of EGP 8 million or more should prepare and submit the master and local file (applicable as of
2018, according to the EGTP Guidelines). For the CbC report threshold, please refer to the above section.

The law has introduced a financial penalty of EGP 3,000 up to EGP 50,000 applicable in case of non-compliance with the transfer pricing three-tier
filing requirements, such penalty could be doubled or tripled in case of recurrence.

Taxpayers who fail to disclose their related-party transactions (in the relevant section of the corporate tax return) will be subject to a penalty of 1%
imposed on the total value of related-party transactions in the respective year.

In addition to the aforementioned penalty on non-disclosure, non-submission of the master file will be subject to 3%, non-submission of the local file
will be subject to 3%, and non-submission of the CbC report and CbC report notifications will be subject to 2% of the total related-party transactions.

The law also depicted that the total amount of penalties that could be imposed on a taxpayer shall not exceed / is capped at 3% of the total value of
the related-party transactions in case there are multiple non-submissions.

Thin capitalisation
The Egyptian thin capitalisation rule provided by the Egyptian Income Tax Law dictates that the debt-to-equity ratio is 4:1. Accordingly, the Law
disallows the deductibility of debit interests of Egyptian companies on loans and advances if such loans and advances are in excess of fourfold the
equity average (which is calculated according to the financial statements prepared pursuant to the Egyptian accounting standards). In other words,
the excess amount of interest would not be deducted.

Debt includes loans and advances, including bonds and any form of financing by debts, even if through securities with fixed/variable interest.

With respect to the debit interest, it includes all amounts paid by a taxpayer in return for the loans, advances of any kind obtained, bonds, and bills.

For determining the equity, the following items represent the basis for the calculation: the paid-up capital in addition to all reserves and retained
earnings reduced by retained losses. In addition, revaluation gains should be excluded from the equation, in case they were not subject to tax. In
case of retained or carryforward losses, they must be used to reduce retained earnings and reserves solely; the percentage is calculated on the basis
of total loans and advances in proportion to the remaining equity amount, after deducting the retained losses with a minimum of the paid-up capital
(in other words, they should be deducted from the retained earnings and reserves, where in case of a net loss balance, debt should be compared to
the paid-up capital).

For the purpose of calculating the debt-to-equity ratio, average debt and equity balances are used.

It’s worth noting that the following types of loans should be excluded from the above calculation:

Interest-free loans.

Loans with non-taxable interests.

Loans with a grace period for settling the interest payment solely until the end of the loan period.

Controlled foreign companies (CFCs)

Egypt currently does not define specific rules for CFCs; however, in an effort to exert similar CFC provisions, investments are evaluated according to
the Egyptian Accounting Standards and the equity rights method, where the profits generating from the disposal of such investments are determined
on the basis of the difference between the cost of investment acquisition and its sale value.

Corporate - Tax credits and incentives

Egypt offers no specific tax incentives unless a company is a free zone entity, which is considered tax exempt for the permitted and
licensed activities, or an entity that is established under the special economic zones law.

Certain incentives may be provided under the investment law for certain and specific types of activities.

Foreign tax credit

The foreign tax paid by a resident company on its profits earned abroad is deductible from the tax payable in Egypt; however, losses incurred abroad
are not deductible.

Corporate - Withholding taxes

A 10% or 5% WHT is imposed on dividends paid by Egyptian companies to resident corporate shareholders. See Dividend income in the Income
determination section for further information.

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 from shares unlisted on the EGX (see
Dividend income in the Income determination section for further information).

A flat rate of 5% WHT is to be imposed on dividends paid to non-resident corporate shareholders from shares listed on the EGX.

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 (based on each DTT).

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.

Tax treaties
Egypt has concluded DTTs with over 50 countries, which could change the tax treatment of transactions carried out between Egyptian entities and
residents of a treaty country.

WHT (%)
Recipient
Dividends Interest Royalties

Non-treaty 5/10 (12) 20 20

Treaty:

Albania 10 10 10

Algeria 10 5 10

Austria 15 15 -

Bahrain 5/10 (2) 10 10

Belarus 15 10 15

Belgium 15/20 (1) 15 15

Bulgaria 10 12.5 12.5

Canada 15/20 (1) 15 15

China 8 10 8

Cyprus 5/10 (9) 10 10

Czech Republic 5/15 (2) 15 15

Denmark 15/20 (2) 15 20

Ethiopia 5/10 (2) 10 10

Finland 20 15 25
 15% franchise

10% research and consultancy

France 0 15 services

15% for other royalties

Georgia 10 10 10

Germany 15/20 (1) 15 15

Greece 10 15 15

Hungary 15/20 (1) 15 15

India (3) 20 20

Indonesia 15 15 15

Iraq (3) 20 10

Ireland 5/10 (2) 10 10

Italy 20 20 15

Japan 20 20 15

Jordan 15 15 20

Korea 10/15 (2) 10/15 (10) 15

Kuwait 5/10 (11) 10 10

Lebanon 10 10 5

Libya (3) 20 10

Macedonia 10 10 10

Malaysia 0 15 15

Malta 10 (1) 10 12

Mauritius 5/10 (2) 10 12

Morocco 10/12.5 (2) 20 10

Netherlands 0/15 (4) 12 12

Norway 15 20 15

Oman 12.5 12.5 15

Pakistan 15/30 (5) 15 15

Palestinian Territories 15 15 15

Poland 12 12 12

Romania 10 15 15

Russia 10 15 15

Saudi Arabia 5/10 (8) 10 10

Serbia & Montenegro 5/15 (5) 15 15

Singapore 15 15 15
 South Africa 15 12 15

Spain 9/12 (2) 10 12

3 cinematographic film
Sudan 5/15 (4) 10
10 all other cases

Sweden 5/20 (2) 15 14

Switzerland - 15 12.5

Syria 15 15 20

Tunisia 10 10 15

Turkey 5/15 (2) 10 10

Ukraine 12 12 12

United Arab Emirates 5 (6) 10 10

United Kingdom 10 15 15

United States 10 15 15

Uzbekistan 5/10 (9) 10 12

Yemen 5/10 20 10

Notes

1. Dividends paid out by a company resident of Egypt to an individual of the other contracting state shall not be taxed more than the maximum
amount mentioned. 15% in all other cases.

2. Reduced rate of the gross amount of dividends is applied if the beneficial owner is a company that holds at least 25% of the company’s capital.
Higher rate applies in all other cases.

3. In the absence of specific provisions, dividends may be taxed under the local law at 10% in case of unlisted shares, or a flat rate of 5% in case
of listed shares.
4. Lower rate applies if the foreign company holds more than 25% of the capital in the company.

5. Lower rate applies if the beneficial owner is a company.

6. This rate is based on the new DTT that is signed and that came into effect in January 2022. This rate should apply under certain conditions
mentioned by the DTT (e.g. owning at least 10% of the shares during 365 days including the date of dividends distributions).

7. The reduction in the rate does not apply if the recipient is engaged in a trade or business in the United States through a PE that is in the United
States. However, if the income is not effectively connected with a trade or business in the United States by the recipient, the recipient will be
considered as not having a PE in the United States to apply the reduced treaty rate to that item of income.

8. Reduced rate of the gross amount of dividends is applied if the beneficial owner is a company that holds at least 20% of the company’s capital.
Higher rate applies in all other cases.

9. Reduced rate is applied if the beneficial owner is a company that holds at least 20% of the company’s capital for a duration of 365 days. Higher
rate applies in all other cases.

10. Reduced rate in case the gross amount of such interest is related to a loan or debt claim for a period exceeding three years. Higher rate applies
in all other cases.

11. Reduced rate is applied if the beneficial owner is a company that holds at least 10% of the company’s capital. Higher rate applies in all other
cases.

12. See Dividend income in the Income determination section for descriptions of instances when the 5% rate applies.

Procedures for applying the WHT on payments to non-residents

Ministerial decree no. 771 for 2009 dictates that the reduced rate of WHT on interest or royalties provided by an applicable DTT should not be
automatically applied. The rate of 20% (Egyptian tax rate) should be imposed upon deduction. However, under certain conditions, the foreign
recipient of payments will be able to get a refund for the amount resulting from the variance between the normal rate of 20% and the reduced treaty
rate.

Certain documents should be submitted to the tax authority along with the refund claim.
A special unit responsible for interest and royalty WHT refunds is tasked with reviewing each refund case and with issuing refund letters (subject to
compliance with the requirements of the 2009 ministerial decree). A refund letter is required to be able to get a refund of excess WHT from the tax
office to which the taxes were actually paid.

Please note that free zone entities are obligated to withhold tax when dealing with non-resident entities and shall remit the tax to the tax authority.

In 2015, amendments were made to certain articles of the executive regulations of the Egyptian Income Tax Law no. 91 of 2005, among which was
amending the article that forms the basis of the ministerial decree no. 771, whereby some provisions of this article were abolished.

However, it is still a controversial issue whether (i) the decree is abolished and so the reduced rate of the DTT should apply automatically or (ii) the
decree stands and the refund mechanism should apply. Practically, the ETA still applies the pay refund mechanism and the resident companies
would still need to deduct the 20% WHT as applied by the domestic law and the non-resident party should request the refund from the ETA.

We are of the opinion that taxpayers must have the necessary documents available at all times, as the ETA, upon tax audit, may seek to ensure that
the recipient of the income is the beneficial owner of it and is a tax resident of the relevant state, to approve benefiting from a relevant DTT's
privileges.

WHT on local payments

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 should not represent an additional cost.

Corporate - Tax administration

Taxable period
The tax year is the financial year of the taxpayer.

Tax returns
The taxpayer is required to assess taxes due for every financial year and settle them with the tax return.

The CIT return is due within four months from the end of the financial year; consequently, if a company’s financial year ends 31 December, then the
tax return has to be filed before the end of April of the following year.

Other returns, such as the VAT return, would be submitted on a monthly basis.

For the dividends, the party executing the transaction (Misr for Central Clearing, Depository and Registry or MCDR, broker, custodian, or any other
party) should withhold the tax due and remit it to the ETA on form no. 44 (dividends’ payments). This form can be submitted either electronically (via
the ETA’s website) or manually.

Under the current law, in regards to CGT, the party settling/executing the transaction (i.e. MCDR or the broker) is required to notify the ETA of the
transaction no later than the fifth business day of the following month of the transaction. Furthermore, CGT should be remitted by the taxpayer to the
ETA no later than the fifth business day of the following month of the transaction.

As for the CGT filing for non-residents, there are administrative/compliance procedures that should be followed in order to be able to apply the
DTT exemptions (if any) based on the newly released CGT Guidelines.

Electronic filing of CIT returns

The ETA has decided to apply the electronic filing (e-filing) of income tax returns starting from this financial year, hence the e-filing of tax returns by
taxpayers on the ETA’s website has become mandatory.

Taxpayers will accordingly be required to register on the ETA’s website to create an account and to obtain a user name, password, and a specific
code that will be provided to their tax adviser. Following the registration process, taxpayers shall prepare their annual income tax returns on the
ETA’s website, and then have them reviewed/verified by their tax adviser. Prior to electronically submitting the return, both the taxpayer and the tax
adviser will be required to sign-off on the income tax return.

Upon submission of the tax return, the taxpayer will be required to pay the tax due through one of the following methods:

Bank transfer through the taxpayer’s own bank

Using smart card to pay/transfer the tax due to the ETA, or

Through the banks/the National Post Authority with which the ETA has specific agreements.

Payment of tax
Advance payments are deducted from taxes assessed per the tax return, and the balance is payable in a lump sum at the date of submitting the tax
return.

The advance payment (i.e. WHT) is submitted on a quarterly basis.

Penalties
Please note that taxpayers have the opportunity to reduce the penalty rates by 50% if they can reach an agreement with the ETA before referring the
case to the Appeal Committee.

Unified Tax Procedures Law

The Egyptian government issued the Unified Tax Procedures Law, amending certain articles of the income tax law and mainly focusing on the filing
procedures and imposing financial penalties.

The Law has stated a range of financial penalties for non-compliance with the tax laws as follows:

Penalty of EGP 3,000 up to EGP 50,000 applicable in the following cases:

Non-compliance with the deadlines of submitting the different types of tax returns (e.g. CIT, payroll tax, VAT, and state development tax)
for a period not exceeding 60 days from the tax return due date.

Including false information in the tax returns.

Non-cooperation during tax audits.

Non-compliance with the transfer pricing three-tier filing requirements.

The above-mentioned penalty could be doubled or tripled in case of recurrence.

Penalty of EGP 50,000 up to EGP 2 million applicable in the following cases:

Non-submission of tax returns for a period exceeding 60 days following their due date.

The above-mentioned penalty could be doubled or tripled in case of recurrence within a three-year period.

Penalty of EGP 20,000 up to EGP 100,000 applicable in the following cases:

The taxpayer not notifying the ETA of change(s) in the company's tax registration information within a period of 30 days of such change.

Tax audit process

The audit cycle proceeds as follows:

Inspection
The tax authority inspects the company based on its documents and records in order to assess the total tax due on the company and determines the
difference in tax due as per the company declaration and the tax authority assessment. The authority issues an assessment including the total tax
due on the company. If the company objects to the inspection result, the dispute is transferred to the Internal Committee.

Internal Committee
The dispute is transferred to the Internal Committee to discuss the dispute points that arose from the inspection further to issue a modified
assessment based on its opinion. If the company objects to the Internal Committee result, the dispute is transferred to the Appeal Committee to
review the dispute points arising from the Internal Committee.

Appeal Committee
The Appeal Committee’s decision is final and binding on the company and the tax department unless a case is appealed by either of them at the
court within 30 days of receiving the decision. Based on the fact that the total taxes due on the assessment as per the Appeal Committee are
considered final if they are not paid within the appropriate period, there will be penalties for the late payment.

Court
If the decision of the Appeal Committee is not satisfactory for either party, the case will be transferred to the court system, which is considered the
final stage of the disputes. Normally, the court will appoint an expert witness to investigate the case and prepare a report. The court process usually
takes a long period of time.

Statute of limitations
The statute of limitations is five years according to the Egyptian Income Tax Law and is extended to be six years in case of tax evasion.

Topics of focus for tax authorities

The most important topics for tax authorities is transfer pricing and the base erosion and profit shifting (BEPS) project. In addition, Egypt has signed
and ratified the MLI and opted for the principal purpose test (PPT), which is also in line with the GAAR (see the Other issues section for details).

General anti-avoidance rule (GAAR)

A GAAR is applicable to arrangements entered into on or after 1 July 2014. The primary objective of the GAAR is to deter taxpayers from entering
into abusive arrangements for the purpose of obtaining an abusive tax advantage. The law stipulates that the tax effect of any transaction whose
main purpose, or one of the main purposes thereof, is tax avoidance shall not be reckoned with. In this case, the crucial factor when making tax
assessments is the real economic substance of the transaction in question. The burden of proving that the main purpose, or one of the main
purposes, of conducting a transaction has been to avoid taxation lies with the tax authority.

Corporate - Other issues

Base erosion and profit shifting (BEPS)
Egypt signed an inclusive framework agreement with the OECD, to become a member to the BEPS Project. Accordingly, Egypt has signed the
multilateral instrument (MLI) agreement with the BEPS member countries, which is currently enforced. Such agreement requires the implementation
of the four minimum standards action points of the BEPS Project in order to cope with the dramatic changes being introduced to the tax
environment. The four minimum standard actions address the following:

Harmful tax practices.

Transfer pricing documentation.

Treaty abuse.

Dispute resolution.
As mentioned earlier, Egypt signed the MLI on 7 June 2017 and opted to apply the principal purpose test (PPT) to its covered tax agreements. As the
MLI has been ratified in March 2021, this entails that any covered tax agreement under Egypt's MLI has automatically changed to reflect the
MLI provisions.

In turn, any DTT that is covered under Egypt's MLI should be modified to include a PPT denying treaty benefits where the principal purpose of a
structure is to secure a tax advantage.

In effect to the ratification of the MLI and once it becomes integrated in the Egyptian income tax law provisions, the ETA would most likely impose
stricter substance requirements on the claimants of DTTs’ benefits in order to apply the relevant DTT’s benefits. There is no guidance yet on what the
ETA would require as a proof of sufficient substance. In any case, it is recommended to have a solid business and economic substance in the
country where the DTT benefit claimant is resident in order to mitigate the risk of denying the DTT benefits in Egypt.

Egypt contacts
Sherif Shawki
Lead Tax Partner, PwC Egypt

+202 27 597887

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