Law No. 91 of 2005 violated the previous tax system and subjected all types of companies regardless of their purposes and legal forms, to tax on the profits of juridical persons. In this case, the company is taxed for its profits, not the — | fee Net profit |___Partnerships |__| The company’s net profit | “The company's net profit Since several amendments were made to Law 91 of 2005, the most recent of which was Law No. (26) of 2020 , we will discuss in the following pages the provisions relating to the tax on the profits of juridical persons in terms of its concept, characteristics , price, and bases for determi base, according to the Latest amendments issued on Law 91 of 2005 until the date of this publication According to the Egyptian Civil Code, economic establishments are divided into two main groups, according to the ownership of the persons managing them. Th The Egyptian legislator excluded reality companies arising from the inheritance of a sole proprietorship from being considered as juridical persons, and therefore if a sole proprietorship passes by inheritance to one or more heirs, each of them is treated as a natural person, each of them is treated as an individual taxpayer stipulated in the law. 16 participation takes a financial or in-kind form, by providing the partner a share of the money or participating in the work. In this case, from the point of view of the Egyptian civil law whether it is a The tax on the profits of juridic persons can be defined as “a type of directCompanies: They are establishments owned by more than one person, whether this participation takes a financial or in-kind form, by providing the partner a share of the money or participating in the work. In this case, from the point of view of the Egyptian civil law, the facility is considered a juridical person whether it isa partnership or corporation. The tax on the profits of juridical persons can be defined as “a type of direct tax that is imposed annually at a certain price on the net profits achieved by the juridical person residing in Egypt, whether these profits are realized inside or outside Egypt, and the juridical person not residing in Egypt in relation to the profits that it achieves through a permanent establishment inside Egypt during a certain period, except for the National Service Projects Organization at the Ministry of Defense. Fourth : Characteristics of the tax on the profits of juridical persons. ‘The tax on profits of juridical persons in light of the provisions of the Income Tax Law No. (91) of 2005 and its executive regulations is characterized by a set of characteristics, perhaps the most important of which are the following: 1- Direct tax: The juridical person on whom the tax is imposed bears the value of its burden and can not transfer this burden to others. 2 Annual tax: It is an annual tax, meaning that the tax period is the fiscal year that starts from the first of January and ends at the end of December of each year, or any 12-month period that is taken as the basis for calculating the tax. Each taxpayer shall submit to the competent tax office an annual tax return before the first of May of each year, or within four months following the date of the end of the company’s fiscal year. ‘The basic is that this year corresponds to the calendar year, but if the nature of the activity of the company is seasonal, the Tax Authority does not mind treat companies whose activity is characterized by seasonality on the net profit achieved within 12 months, even if its beginning and end fall between two overlapping years. 17introducing any modification to it, whether by decreasing the price, increasing it, or changing the segments by attributing them to the period of activity. on 1/5/2020 and the Example: If a juridical person started practicing the activ end of the company’s fiscal year was 31/12 of each year, what is the tax period for the taxpayer. 18 (From the date of starting the activity) (to the date of the end of the fiscal (year From 1/5/2020 to 31/12/2020 "===> 8 months only Example: If a juridical person starts practicing the activity on 1/5/2020 and the end of the company’s fiscal year is 30/6 of each year, what is the tax period for the taxpayer? From the date of starting the activity) (to the end date of the following fiscal (year =) From 1/5/2020 to 30/6/2021 14 months According to the text of Article 6 of the Executive Regulations, if the period from the beginning of the activity until the end of the fiseal year does not exceed three months, then in this case this period is included in the taxpayer's first tax period, Example: Ifa juridical person ceases to practice the activity on 1/5/2020 and the end of the company’s fiscal year is 31/12 of each year, what is the tax period for the taxpayer? (From the date of the beginning of the fiscal year) (to the date of cessation ty (ofa From 1/1/2020 to 1/5/2020 4 months only Example: If a juridical person requests on 31/12/2020 to amend the end of the company’s fiscal year from 31/12 of each year to 30/6 startiong from2021 , what is the tax period for the taxpayer? (From the date of the beginning of the fiscal year) (to the date of the end of the fiscal year) —) From 1/1/2020 to 31/12/2020 12 months (From the date of the amendment of the fiscal year) (to the date of the end of the fiscal year after the amendment) From 1/1/2021 to 30/6/2021 , 6 months (From the date of the beginning of the fiscal year) (to the date of the end of the fiseal year). 19From 1/7/2021 to 30/6/2022 12 months alt t ta) ‘The juridical person is obligated to submit the tax return, accompanied by the required documents, before the first of May of each year or within four months following the end of the fiscal year The juridical person is obligated to pay the amount of the tax due from the reality of the tax return on the same day of its submission, and the tax authority has the right to correct the calcul contained in the tax return after its subi n. ‘The taxpayer shall be notified of the result of the corre attached to the amount owed to the taxpayer or claim him for the differences owed. If the taxpayer includes the amount of tax in the tax return less than its final estimated tax value, he is obligated to pay an additional amount for the final tax (fine for incorrect tax return) and it is determined as follows: ~ 5% of the tax that has not been included if the difference between the tax included in the tax return and the final tax equals from 10% to 20% of the amount of the final tax. — 15% of the tax that has not been included if the difference between the tax included in the tax return and the final tax equals from 20% to 50% of the amount of the final tax. ~ 40% of the tax that has not been included if the difference between the tax included in the tax return and the final tax equals more than 50% of the amount of the final tax. Example (1 One of the partnerships submitted the tax return on time and paid the amount of tax due from the declaration, which amounted to 170,000 LE but , after the tax examination it was found that the final tax was set at 200,000 LE. How much money is to be paid to the tax authority? ~ The value of the error in the amount of the final tax: (200,000 - 170,000 ) =30,000 LE 20(ano + 20000)=15% (200000 130.00) = 70600 | aaa! (ano ~ 20,000) =38% ius the van of te arava rtura: ooaose= 108008 is3 Tax is imposed on the net profit of juridical persons: ‘The tax is imposed on the net profit achieved by the company during the year in its broadest sense, as the legislator expanded the concept of taxable revenue to include each of the basic revenue resulting from the revenue of the company's or capital revenue, or revenue from subsi company (incidental revenue) activities of the 4 Taxis taken on an acerual basis: ‘That is, the realized profit is measured on the basis of the comparison between the revenues and expenses of the year, regardless of the fact of collection or payment. This means adopting the idea of independence of fiscal years and recognizing revenues and expenses that pertain only to the year, but there is an exception in the event that the company engages in professional activities, so the revenues are determined according to the cash basis and the expenses according to the accrual basis which is called the common basis . 6 Tax with relative prices (not incremental: ‘The tax on profits of juridical person is characterized as having a single relative rate regardless of the net profit achieved by the juridical person meaning that this relative price does not change. ine ae a aa a EEIn accordance with Article 49 of Law No. 91 of 2005, the profits of juridical persons are subject to tax at a rate of 20%, and as of May 18, 2013 and according to Law No. 11 of 2013 the tax rate on the profits of juridical person became 25% of the annual net profits however according to Article number 1 of the A temporary annual additional tax is imposed for a period of one year, starting from the current tax year, at a rate of (5%) on what exceeds one million pounds from the tax base on the income of natural or juridical persons in accordance with the provisions of the aforementioned Income Tax Law, and it shall be assessed and collected in accordance with those provisions. Cases to apply the tax on the total revenue : In some eases , the tax shall be applied to the total revenue without allowing any deduction for any expenses incurred by the taxpayer in order to obtain this revenue. Examples of income that are subject to tax without any exempt ion: + Amounts that are subject to tax at a rate of 20% are the amounts paid by the owners of sole proprietorship and juridical persons residing in Egypt to non-residents in Egypt. These amounts include royalties, fees for services performed abroad, and for sports and artistic activities obtained by non- residents in Egypt. * Amounts that are subject to tax at a rate of 20% are the amounts paid by the owners of sole proprietorship and juridical persons to any natural person as a commission and brokerage when it is not related to the practice of the profession. The payer of the commission or brokerage is obligated to withhold the amount of tax due and transfer it to the competent tax office. + Returns of treasury bills and bonds are subject to tax at a rate of 20 %, out deducting any costs. The payer of these returns is obligated to collect the amount of tax due and remit it to the competent tax authority on the day following the day on which the discount was made. 24= The proceeds of bonds issued by the Ministry of Finance for the benefit of the Central Bank or other banks are subject to tax at a rate of 32%, are subject to a rate of 32%. = Bond yields issued by the Central Bank are exempted. ~ Bond yields issued by the companies listed on the stock exchange are exempted. ~ Bond yields issued by the companies not listed on the stock exchange are subject to tax at a rate 22.5%, Example(1- 4): Below is a set of tax cases (each of them is independent), specify the tax treatment for each ease with legal reasons: 1- The credit side of the profit and loss account for one of the companies includes an amount of 20,000 LE which is the value of bond yields issued by the Ministry of Finance for the benefit of Central Bank, so what is the tax treatment in this ease? Solution: Bond yields issued by the Ministry of Finance for the benefit of the Central Bank or other banks are subject to tax at a rate of 32%, and therefore are not subject to tax on the income of a juridical person to prevent duplication, and therefore the value of these returns is deducted from the net accounting profit by 20,000, 2. The credit side of the profit and loss account for one of the companies includes an amount of 20,000 LE which is the value of bond yields issued by the Central Bank, so what is the tax treatment in this case? 25Solution: ‘Tax on Di jends: * The tax rate on dividends earned from a source in Egypt during the year obtained by a resident natural person is (10%), without deducting any costs, while the tax rate drops to 5% if the shareholding in the distributing company increases over 25% of the capital or voting rights, provided that the period of holding shares is not less than two years, without deducting any costs. * However, this was amended in Article 56 in accordance with Law No. 199 of 2020 which states that “it is subject to tax at a rate of 10% without deducting any costs of dividends made by corporations or partnership including companies established under the economic zone system with special nature of the non -resident natural person and the resident or non-resident juri person including the profits of non-resident juridical persons that th achieve through a permanent establishment in Egypt, except for distributions made in the form of free shares, and the price of these shares is (5%) from 26ith: Seope of Tax Application: ‘The scope of the tax on the profits of juridical persons is intended to determine the juridical persons who are subject to tax. Article No. (47) of the Income Tax Law No. (91) of 2005 stipulates that an annual tax is imposed on the total net profits achieved by juridical persons whatever their purpose, and in general this tax applies to’ 1+ Juridical persons residing in Egypt ‘The permanent establishment, according to the provisions of Article (4) of Law 91 means that it is every fixed place through which all or some of the works of projects for a non-resident in Egypt are carried out, and includes the following : ~ Gil field) mine, oF gas well) quarry, Extraction place of natural resources including timber, or any other produets from forests. a building site, assembly, or supervisory activities related to any of these.‘The tax legislator stipulated in Article No. (2) of Income Tax Law No. (91) of 2005. that a juridical person is considered residing in Egypt in any of the following cases 1- Ifthe juridical person is established in accordance with the Egyptian law. 2- If the juridical person is a company in which the state or one of the public juridical persons owns more than 50% of its capital. 3+ If its main or actual head office is in Egypt. The jons of the law stipulates that Egypt shal be the actual management center of the juridical person if at least two of the following cases are realized: article of the executive regu! ‘+ If Egypt is the headquarter where the dai made. management de ‘+ If Egypt is the location where the Board of Directors meetings are held. ‘+ If Egypt is the headquarter in which at least 50% of the members of the board of directors or managers reside + If Egypt is the headquarters of the partners or shareholders whose shares exceed half of the capital or voting rights. Taxable juridical persons: The legislator used for the first time in the Income Tax Law the term juridical persons and did not specify a definition for them in the first article of it, but rather presented what is meant by it in Article (48) of this law, where it stipulates that juridical persons are intended in the application of the provisions of the Income Tax Law No. 91 of 2005 the following: 1- Corporations and partnerships whatever law they are subject to as well as reality companies. 29 2- Cooperative societies and their federations as long as they have juridical personality and aim to achieve profit. 3 Public bodies and other public juridi activity. I persons in relation to their taxable 4- Foreign banks, companies, and establishments, even if their head office is abroad and their branches are in Egypt. 5- Units establis and ied by local administrations, whether in governorates, cities ges, in relation to their taxable acti10- 11 32 ions and institutions established under the Non-governmental organi provisions of the Non-governmental Organizations and Institutions law promulgated by law no. 84 of 2002, within the limits of the purpose for which they were established. EERUDEUPEREEUUERESRIN cu jct co tne provisions of lnw no. 54 of 1975. or revenues from transactions them, except theprovisions of Article 56 of this law. Dividends obtained by the parent company or the holding company from the resident and non-resident subsidiary after adding 10% of the value of these distributions to the taxable base of the parent or holding company against costs that are not deductible, provided the following:~The sharehol than 25% of the affil ig rate of the parent or holding company shall not be less jiated company’s capital or voting rights. ~The parent or holding company's possession of that percentage is not than two years, or it is obligated to keep this percentage for two years from the date of acquiring the shares or voting rights. as the case may be, in accordance with the rules determined by the executive regulations of this law. 1B. if fee 15- Juridical persons’ income that is received from their investment in securities registered with the Egyptian Stock Exchange Market. Any losses resulting from these transactions cannot be deducted or carried forward to succeeding years, 16- Juridical persons’ proceeds from: — Securities and financial deeds of different ypes, registered with the Egyptian Stock Exchange Market, whether issued by the state or shareholding companies. jends from shares in joint-stock companies and partnerships limited by shares. = Dividends from equity quotas in limited liability companies, partnerships, and partnerships limited by shares. ~ Dividends from investment securities issued by investment funds. Note: Article 56 of the executive regulations stipulates that the exemption period shall be determined based on the date of commencement of the activity or the start of production with respect to land reclamation or cultivation companies stipulated in Article 50 of the law in accordance with the following: 341- If the company engages in reclamation or cultivation activity for others, the exemption period begins from the date of concluding the first contract for either of the two activities. 2- If the company engages in reclamation or cultivation activity for its own account and sells reclaimed or cultivated lands, the exemption period begins from the date of selling the first piece of reclaimed or cultivated land. 3+ If the company engages in reclamation or cultivation activity or cultivation solely for its own account and has cultivated the land, the exemption period shall start from the date the land was considered productive in accordance with a decision issued by the Ministry of Finance in agreement with the Minister of Agriculture. 1+ Amounts paid under tax account: ‘They are the amounts that are paid according to the system of dise collection under the tax account, or the system of advance pi accordance with the text of Article No. (84) of the Income Tax Law No. (91) of 2005. 2 Foreign tax: ‘Which is represented in the fax paid by a resident company on its profits abroad. For deduction of foreign tax, the following conditions are required: ting or yments in + Submit supporting documents for this foreign tax. "The deducted tax shall not exceed the value of the tax payable in Egypt for the profits realized from business abroad in accordance with the text of Article No. (54) of the Income Tax Law No. (91) of 2005. ‘Tax due x Total profits from business abroad Tax base Note: The maximum foreign tax can be reached in another way: Total profits from business abroad before foreign tax deduction 22.5% 35H| f|Note: Required: 37Solution Hi 38