Analysis
Following the first package, which focused on building trust and integrating the informal economy, the second package marks a pivot towards establishing a framework for sustainable compliance. Incentives such as accelerated VAT refunds for Whitelist taxpayers and the replacement of capital gains tax on listed securities with a stamp tax indicate a more cooperative approach by the MoF. However, the practical impact of these measures will largely depend on how key details are addressed.
From a taxpayer’s standpoint, several questions remain open. The distinction between listed and unlisted companies continues to raise concerns, particularly in relation to capital gains taxation. In addition, greater clarity is needed around the criteria and ongoing requirements for inclusion in the Whitelist. Similarly, while separating TP inspections from corporate tax audits is a positive signal, taxpayers will be looking for clearer guidance on how this change will be implemented in practice.
Key pillars of the second package
The second package is structured around four main pillars, with specific actions under each.
Dispute resolution and procedural simplification
The package prioritises closing open disputes and aims to make tax procedures simpler and less time-consuming.
The key measures include:
- Renewing the Law – The government will renew the application of Tax Dispute Resolution Law No. 79 of 2016. This measure aims to provide taxpayers with an additional opportunity to settle outstanding tax disputes before legal proceedings begin.
- SME Dispute Resolution – Legislation will be issued to apply the flat/proportional tax system (Article 3 of Law No. 30 of 2023) to settle disputes for SMEs for the years 2023/2024. This measure seeks to promote tax fairness and address gaps not covered by prior legislation.
- Corporate audit and TP audit – Corporate audit procedures will be separated from transfer pricing audit procedures, and a new stage will be introduced to review taxpayer appeals on TP audit results. This reform is intended to build trust between taxpayers and the Egyptian Tax Authority (ETA), simplify procedures, and reduce the need to escalate disputes outside the ETA.
- Real Estate Tax – A fixed 2.5% tax will be introduced on the sale value of residential units by a natural person (provided the activity is not considered professional), with payment facilitated through a mobile application. This aims to simplify and accelerate the payment of real estate disposition tax.
- Legislative Amendments – The law will be amended to allow VAT credit refunds after three to four consecutive tax periods instead of six. This change is designed to improve taxpayers’ cash flow and liquidity.
- VAT Refund Efficiency – Rejected VAT refund requests will be reviewed periodically, with the objective of doubling both the number and the total value of VAT refunds processed.
- Minimum Bad Debt – A minimum threshold will be set for small bad debts to be written off without requiring statutory legal procedures (through an amendment to Article 28 of Law 91 of 2005). This aims to reduce administrative burdens for businesses.
Incentives for compliant taxpayers
The MoF is creating a Whitelist for the most compliant taxpayers, granting them preferential treatment and streamlining procedures.
In support of this objective, the following measures will be introduced:
- Whitelist Creation – A list of highly compliant taxpayers will be established. This aims to provide priority services, immediate VAT refunds (within one week of application, subject to meeting the relevant criteria), and dedicated services.
- Dedicated Services – A specialised hotline will be created, and a Tax Excellence Card will be issued. This aims to provide faster processing of transactions, dedicated support, and priority access to specialised units (e.g., the Advance Ruling Unit).
Supporting investment and economic activity
Targeted legislative changes are proposed to promote investment, particularly in the capital market, for holding companies, and in major national projects.
In this context, the following measures will be introduced:
- Holding Companies (Capital Gains) – Egyptian holding companies will be exempt from capital gains tax on the sale of non-listed securities or shares in Egyptian subsidiaries, subject to certain conditions. This aims to encourage corporate restructuring and the centralisation of investment activities in Egypt.
- Holding Companies (Dividends) – Dividends distributed by Egyptian subsidiaries to a resident Egyptian holding company will be exempt, subject to ownership controls. This measure seeks to ensure tax neutrality for Egyptian holding structures.
- Capital Gains Tax – Tax auditing for sales of listed securities will transition from capital gains tax to stamp duty. This aims to simplify accounting procedures and facilitate the collection of taxes due on such transactions.
- National Projects – Private sector companies participating in national projects will be allowed to deduct loan interest paid to external financing entities (through an amendment to Article 56 of Law 91 of 2005). This is intended to facilitate access to finance and support participation in strategic government initiatives.
Administrative efficiency and technology
Focusing on digital transformation to improve the taxpayer experience and service quality.
In this regard, the following initiatives will be implemented:
- Service Centres – New tax centres offering distinguished services will be launched in New Cairo and New Alamein. This aims to enhance service quality and improve accessibility for taxpayers.
- Online Consultation Platform – An electronic platform will be created to publish drafts of new legislation, regulations, and guidance, while also allowing stakeholders to submit feedback. This initiative seeks to strengthen partnership with the business community and improve the quality and clarity of tax issuances.
Conclusion and actionable next steps
This second package of tax incentives represents a significant milestone in Egypt’s tax reform journey. At present, the MoF and the ETA are actively engaging with stakeholders to gather feedback and discuss implementation details before issuing the laws and regulations necessary to operationalise this package.
The following steps are recommended:
- Whitelist qualification – review current tax compliance status and proactively address any outstanding issues to ensure qualification for the Whitelist upon its activation;
- Dispute review – businesses with lingering tax disputes should urgently evaluate their position and utilise the renewed Tax Dispute Resolution Law to achieve closure;
- Corporate structure review – Egyptian holding companies should analyse the new capital gains and dividend exemption rules to ensure their corporate structure is optimised to benefit from these new tax advantages;
- TP compliance – multinational enterprises operating in Egypt must ensure full compliance in anticipation of updated TP audit procedures; and
- Policy integration – update internal tax and accounting policies to align with the anticipated legislative changes, particularly concerning VAT refunds and bad debt write-offs.