Egypt Introduces Business-Friendly Tax Relief Measures to Boost Economic Growth

Egypt’s tax relief package aims to reduce burdens on taxpayers, revise transfer pricing requirements, enhance voluntary compliance with the tax system, and achieve tax justice.

Egypt is taking significant steps to reform its tax system, aiming to create a more supportive environment for businesses. Recent announcements [September 11-12, 2024] by Prime Minister Mostafa Madbouly, Finance Minister Ahmed Kouchouk, and Rasha Abdel Aal, Head of the Egyptian Tax Authority (ETA) reveal a series of tax relief measures designed to encourage investment and simplify compliance for small and international businesses.

Simplified tax regime for small businesses

A key component of the reform is the introduction of a simplified tax regime for businesses with an annual turnover of up to EGP 15 million. This new framework targets small and micro enterprises, freelancers, entrepreneurs, and professionals, enabling them to manage their tax obligations with ease. By allowing these businesses to submit or amend tax returns for the years 2021 through 2023 without penalties, the government is promoting voluntary compliance and reducing the administrative burden on small businesses.

This initiative is also part of a broader strategy to encourage the formalization of informal economy projects. By establishing a more accessible tax environment, the government aims to integrate these enterprises into the formal economy, boosting transparency and economic growth.

Revised transfer pricing requirements

For international companies, the government has raised the threshold for the preparation and submission of transfer pricing studies to EGP 30 million. Previously, there was no threshold for the master file, and a local file was required if the value of related-party transactions exceeded EGP 8 million. This change is expected to alleviate compliance challenges for smaller companies engaged in international trade, making Egypt a more attractive destination for foreign investment.

Measures to streamline tax administration

The government has committed to simplifying tax returns and revising penalties to make compliance easier for businesses. A risk management system will be implemented to improve tax inspections, targeting specific areas more effectively. Additionally, a cap on penalties, limiting them to no more than the original tax amount owed, will reduce financial strain on businesses and promote a more compliant business environment.

The new measures also include enhancements to the VAT refund process. The Finance Ministry has already refunded EGP 3 million to businesses through the improved system and aims to increase this significantly in the coming years. These efforts are expected to improve cash flow for businesses and encourage greater compliance with VAT regulations.

Positive economic impact expected

These reforms are anticipated to have a positive impact on Egypt’s economy by enhancing revenue collection, regulatory compliance, and foreign investment. The simplified tax system and reduced penalties are likely to lead to greater business efficiency, while the increased support for international investors and improved VAT refunds are expected to attract more foreign capital.

Despite facing significant economic challenges, including high inflation and a depreciating currency, Egypt is showing signs of recovery. The International Monetary Fund (IMF) recently noted that the previously unmet demand for foreign currency has been addressed, and there are indications of growth in the private sector. With these new tax relief measures, Egypt is positioning itself to strengthen its business climate and stimulate economic activity.

In summary, Egypt’s comprehensive tax reform package is a step forward in creating a more favorable business environment. By easing compliance burdens and supporting small and international businesses, the government is laying the groundwork for sustained economic growth and investment.

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