On 1 May 2017, the cabinet of Saudi Arabian approved the Double Taxation Agreement (DTA) with Egypt for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
MFN clause of the protocol to the Egypt – France Income and Capital Tax Treaty (1980) (as amended through 1999) activated
The Tax Administration of France updated the guidance on 4 November 2016 about activation of the most favoured nation (MFN) clauses concluded by France on certain tax treaties.
As a result, the MFN clause in article II of the protocol to the Egypt – France Income and Capital Tax Treaty (1980) (as amended through 1999) was activated by the France – Uzbekistan Income and Capital Tax Treaty (1996) and the Bahrain – Egypt Income Tax Treaty (1997). Therefore, remuneration related to contracts for studies and consultancy services paid to a resident of Egypt or France will no longer be subject to a withholding tax.
The Egyptian parliament permitted the Bahrain – Egypt Income Tax Treaty of 2016 on 15 November 2016 and the new treaty will replace the Bahrain – Egypt Income Tax Treaty of 1997.
The IMF issued a press release on 11 November 2016 commenting on Egypt’s reform program following the approval of an extended fund facility (EFF) for Egypt.
Egypt has developed a program of structural reform supported by the EFF to boost growth and create employment while protecting vulnerable parts of society. The program aims to restore macroeconomic stability and support inclusive growth. Policies will be introduced to restore competitiveness, reduce the budget deficit and public debt, increase economic growth and boost employment.
As part of reducing the fiscal deficit and bringing down public debt key policy measures include the introduction of a value added tax (VAT) in addition to the reduction of subsidies and rationalizing the public sector wage bill. Tax revenues are projected to increase by 2.5% during the progam, mainly due to the implementation of the VAT which was approved by parliament in August.
The program aims to create an environment that facilitates private sector development. Measures are to include streamlined industrial licensing for businesses; greater access to finance for small and medium enterprises; and new procedures relating to insolvency and bankruptcy. Measures will also be introduced to encourage training schemes for youth and to increase the participation by women in the labor force.
The parliament approved a draft law on tax disputes resolution on 30 August 2016. The purpose of the law is to streamline the settlement of pending tax cases. The law covers ongoing tax disputes related to all types of taxes, including individual income tax and corporate income tax.
The most important features of the law are summarised here:
The resolution of tax disputes will be conducted by one or several committees created by the decision of the Minister of Finance. The disputes resolution committees are led by independent tax experts and must include as members a judge and a technical expert from the Egyptian Tax Authority (ETA). A request to end an existing dispute is to be filed with the ETA by the taxpayer. The ETA must allocate the request to the relevant disputes resolution committee within a maximum period of 1 week. The committee will assess the seriousness of the taxpayer’s request within a maximum period of 30 days and notify the court or appeal committee, as the case may be.
The notification will trigger the suspension of the court (or appeal committee) proceedings for 3 months. The suspension is renewable for an additional 3-month period unless the ETA will inform the court (or appeal committee) that the dispute resolution was not successful. If the taxpayer agrees in writing to the recommendation of the disputes resolution committee, the agreement must be reflected in minutes to be signed by the taxpayer. Once approved by the ETA, the minutes become enforceable. Furthermore, the ETA must inform the court or tax appeal committee about the agreement. If the taxpayer does not agree to the recommendation of the disputes resolution committee before the suspension period expires, the court (or appeal committee) is informed accordingly and the proceedings will be resumed.
The tax disputes resolution law will apply for 1 year as of the day following its publication in the Official Gazette. The draft law will abolish Law No. 163 for 2013 and Law No. 159 for 1997.
Additional formal requirements have been introduced by the Egyptian authorities, for importing goods into Egypt. The purpose of such requirement is to promote local production, reducing reliance on foreign imports and increasing the Egyptian foreign currency exchange position. The same requirement will have an impact on both local importers and foreign exporters to Egypt, who would be required to adopt the new requirements instantly to avoid delays at the borders that can lead to rejection of shipments entering Egypt. Foreign manufacturers are now obliged to register with the General Organisation for Export and Import Control (“GOEIC”) prior to shipping their products to Egypt.
In addition, ‘cash against documents’ can only be exchanged through designated banks, which reduces the flexibility of exchanging customs documents and consequently increases the clearing time and associated costs. There is an increase in import costs owing to the obligation to attest import commercial invoices; and an increase in the import customs duty on a substantial number of goods imported into Egypt.
The Egyptian Tax Authority published Guideline No. 28 for 2015 on 12 November 2015. The Guideline clarifies certain issues with respect to changes introduced by Decree Law No. 96 for 2015 which amended Income Tax Law No. 91 for 2005.
The most important changes with respect to corporate taxation are:
Dividends distributed by resident companies to other resident companies are subject to a final withholding tax. The dividends are excluded from the taxable base at the level of the recipient entity. However, expenses incurred for the production of the dividends are added back to the tax base as a nondeductible investment and financing cost.
Those expenses are determined as a percentage of the overall investment and financing costs of the company in proportion to the value of the dividends. The exclusion of inter-corporate dividends from the taxable base applies to distributions received during the tax year ending after the publication of Decree Law No. 96 for 2015, irrespective of whether the dividends are received before or after the entry into force of the Decree Law.
Decree Law No. 96 for 2015 also specified that, as of 17 May 2015, the capital gains tax on listed shares, which was introduced by Decree Law No. 53 for 2014, would be suspended for a 2-year period. The Guideline clarifies that the suspension will apply to gains derived in the tax year ended after 17 May 2015, irrespective of whether the gains are realized before or after this date.
Furthermore, expenses incurred for the production of capital gains which are exempt from tax are considered a non-deductible investment and financing cost. They are determined as a percentage of the overall investment and financing costs of the company in proportion to the value of the exempt capital gains on listed shares.