Tax Guide for US Expats Living and Working in Egypt
Who Is Liable For Income Taxes in Egypt
Income tax is imposed on the following sources of income:
- Worldwide income from employment or dependent services paid by the Egyptian government or any Egyptian public organization, regardless of the employee’s residence, the place services are rendered or the place of payment
- Egyptian-source income paid by Egyptian or foreign companies or by private sector enterprises to any employee resident in Egypt or resident abroad, in return for services rendered in Egypt (pension payments are excluded)
Under the law, persons are deemed to be residents of the country where they have permanent homes. A person who resides in Egypt for a period exceeding 183 days during a calendar year is deemed to be resident in Egypt for tax purposes.
Nonresident individuals and expatriate experts (as defined) are generally taxed on Egyptian-source income only.
Income subject to tax. Income tax is levied on the following types of income:
- Employment income
- Business profits, noncommercial profits (self-employment income) and income from immovable properties (including the assessed rental values of agricultural lands and buildings)
Employment income. Income tax is levied on salaries, wages, compensation awards, overtime pay and all cash and in-kind fringe benefits.
The following rules apply to the taxation of employment income:
- Casual workers are also subject to tax.
- Tax is imposed on income generated from Egyptian sources, regardless of whether the work is performed in or outside Egypt.
- Tax is also imposed on income generated from foreign sources for work performed in Egypt.
- Tax is imposed on all salaries, remunerations and bonuses paid to managing directors, board members and managers of corporations for the performance of administrative duties.
In addition to other tax exemptions prescribed in special laws, the following types of income are exempt from tax:
- Certain collective allowances in-kind for employees, which are meals distributed to the workers, collective transportation of workers or equivalent transportation costs, health care, tools and uniforms necessary for performing work and housing provided by the employer to workers for performing their work.
- Workers’ share in the profits distributed according to the law.
- All compensation received by members of diplomatic and consular corps, international organizations, and other foreign diplomatic representatives in the context of their official work.
This exemption is conditioned on reciprocity of treatment and is granted within the limits of such treatment.
Self-employment and business income. Income tax is levied on non-commercial profits derived by professionals or in dependent persons practicing other noncommercial activities in Egypt if work is the primary element of the activity (for example, lawyers, accountants, artists and writers). This tax applies to any income derived from professions or activities not otherwise subject to tax in Egypt. Graduates and members of a professional association about to practice for the first time enjoy certain exemptions.
Taxable noncommercial income consists of net noncommercial profits from various operations after deduction of all related costs. If no proper books are kept, gross revenue is estimated using indicators and guidelines issued by the tax authorities.
Income tax is levied on the net profits of business in come from all activities carried on by commercial and industrial entities operating as sole traders, partnerships and limited partnerships in Egypt, and on profits derived from certain other categories of income as specified by law.
Nonresidents with commercial and industrial activities are taxed only on income earned from an establishment in Egypt or from operations carried on in Egypt.
Taxable commercial and industrial income consists of net commercial and industrial profits derived within a calendar year from all business transactions, including sales of assets (after deduction of all business charges, expenses and personal allowances).
Investment income. Dividends and interest received by residents from shares, bonds and debentures of companies that are officially listed on the Egyptian stock exchange are exempt from income tax. See Capital gains and losses for the taxation of capital gains on these investments.
Dividends received by residents from foreign sources are not subject to tax.
Certain interest is exempt from tax, including interest derived from securities listed on the Egyptian stock exchange.
Commission payments unrelated to a resident taxpayer’s profession and royalties received by residents are taxed on gross income as commercial and industrial profits (business income; see Self-employment and business income).
Payments by domestic corporations to foreign or nonresident persons are subject to final withholding taxes in accordance with the following rules:
- Dividends are not subject to withholding tax because the domestic corporation’s profit has already been subject to corporate tax.
- Royalties are taxed on gross income at a rate of 20%. Several tax treaties concluded between Egypt and other countries have specific rates for taxes on royalties, varying from complete exemption to a tax of up to 20% of gross royalties.
Capital gains and losses. Capital gains derived from transfers of real estate are not subject to tax unless the real estate is used in a trade or business. However, a 2.5% tax is levied on the gross proceeds from the disposal of urban land and buildings, regardless of whether used in a trade or business or whether gains are realized.
Tax on capital gains realized by business entities from the sale of other capital assets, including machinery and vehicles, is calculated in the same manner and at the normal rates that apply to commercial and industrial profits. Trading losses and capital losses on the sale of these assets are deductible from taxable capital gains.
Capital gains on sales of personal property, including automobiles, jewelry and shares, owned by an individual are not taxed in Egypt, unless used in a trade or business. Capital gains realized on the sale of shares, bonds and debentures of companies that are listed on the Egyptian stock exchange are not taxed.
Deductions. The following deductions may be claimed:
- Social insurance and other contributions that may be deducted in accordance with the measures in the social insurance law and under alternative systems
- Employees’ contributions to private insurance funds established according to the provisions of the Private Insurance Funds Law, as promulgated by Law No. 54 for 1975
- Premiums paid for life and health insurance for the benefit of the individual or the individual’s spouse or minor children, and insurance premiums paid with respect to pensions
The total deduction for the last two items mentioned above may not exceed 15% of the net income or EGP 3,000, whichever is higher.
For purposes of computing taxable commercial and industrial income, all costs generally are deductible. In particular, the following specific deductions are allowed:
- Costs for rental of premises
- Tax depreciation and accelerated depreciation for new machines
- All taxes except taxes on business income
- Social insurance contributions
- Contributions to pension and savings funds
- The deductions described in the first paragraph of this section
Relief for losses. A taxpayer may offset losses against profits of a business and may carry losses forward for a period up to five years. Losses may not be carried back. Losses incurred in long-term projects may be carried back within the same project.
B. Inheritance tax
Egypt does not impose inheritance tax.
C. Social security
Social insurance contributions are levied on full-time employment. An employee pays 14% on monthly base salary up to EGP 850, and 11% on monthly amounts exceeding this amount or on other payments, including overtime up to EGP 900.
To provide relief from double social security taxes and to assure benefit coverage, Egypt has concluded totalization agreements with Cyprus, Greece, the Netherlands and Sudan, which usually apply for an unlimited period of time.
To learn more about the history, culture, economy and other information about Egypt
We have been preparing US income tax returns for US Citizens and permanent residents living in Egypt for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Egypt and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the Indian tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Indian Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working in Egypt, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Egypt.
We have helped hundreds of expats around the world catch up because they have failed to fille US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email