TAX ACCOUNTING

Chapter Two
The General Provisions of Tax on Income of Natural Persons
Learning Objectives
This chapter discusses the general provisions of tax on income of natural
persons in Egypt according to law 91/2005 based on the latest amendments.
After ending this chapter, you should know:
- Scope of the tax on income of natural persons.
- Characteristics of tax on income of natural persons.
- The taxable income of a natural person.
2.1. Scope of The Tax on Income of Natural Persons
According to article (6) of the law No. 91 of 2005 an annual tax will be
imposed on the total net income of natural persons, resident and non-resident,
with regard to their incomes realized in Egypt from the following sources:
1. Salaries and the like.
2. Commercial and Industrial activities.
3. Non-commercial or Professional activities.
4. Real Estate Wealth.
In applying the provisions of article (2) of the law a natural person is
considered resident in Egypt in any of the following cases:
1. If having permanent residency in Egypt.
2. If residing in Egypt for more than 183 continuous or intermittent days
within 12 months.
3. An Egyptian working abroad and receiving his income from an
Egyptian treasury.

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Therefore, according to article (6) the income realized by a resident person in

Egypt (income generated inside/outside Egypt) will be subjected to tax.
However, the income realized inside Egypt only by a non-resident person will
be subjected to tax.
The income realized outside Egypt by a resident person will be
subjected to tax under two conditions:
1. The natural person has a commercial or industrial or professional
activity in Egypt.
2. The income realized outside Egypt as a result of performing a
commercial or industrial or professional activity.
On the other hand, a legal person is deemed a resident in Egypt in any of the
following cases:
1. If established according to Egyptian Law.
2. If its main or effective managing headquarters in Egypt.
3. If its corporations in which the state or any state-owned legal person
hold more than 50% of its capital.
2.2. Characteristics of Tax on Income of Natural Persons
2.2.1. Under the law 91/2005 the tax on income of natural persons has the
following characteristics:
Direct Tax Unified Tax
The person who bears the tax According to Article (6) of the tax law
burden is the one who pays it. 91 2005 it is imposed on the total net
So, the person cannot transfer income of natural persons from the
its charge to another person. following four different sources:
- Salaries and the like.
- Commercial and Industrial
activities.
- Non-commercial Professions.
- Real Estate Wealth

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So, if the natural person has more than

one source from the previous sources of
income, the tax will apply on the total
revenues from all sources.

2.2.2. Progressive (Escalating) Tax:

Article (8) of law 91/2005 stated that the tax rate is a progressive rate which
increases by the increase of taxable income. Article (8) was amended by the
law no. 82/2017, 97/2018, 26/2020, and 30/2023. Under the new law 30/2023,
the applicable progressive tax rates will depend on the level of annual net
income of the taxpayer as follows:
- First bracket of the taxable income up to L.E 21000, exempted.
- Second bracket: More than L.E 21000 up to L.E 30000, tax at 2.5%.
- Third bracket: More than L.E 30000 up to L.E 45000, tax at 10%.
- Fourth bracket: More than L.E 45000 up to L.E 60000, tax at 15%.
- Fifth bracket: More than L.E 60000 up to L.E 200000, tax at 20%.
- Sixth bracket: More than L.E 200000 up to L.E 400000, tax at 22.5%.
- Seventh bracket: More than L.E 400000, tax at 25%.
- Eighth bracket: More than L.E 1,200,000 tax at 27.5%.
Note: The sum of annual net income is rounded to the nearest lower
(10) pounds before calculating the tax due. Assuming that the taxable
income of taxpayer was L.E 40,509. The taxable income L.E 40,509 must be
rounded to L.E 40,500 (the nearest lower 10 pounds).
1st 21,000 exempted
2nd 9,000 x 2.5 % = 225
3rd the rest 10,500 x 10 % = 1,050
Total income L.E 40,500 Tax amount L.E 1,275

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For example, assume the following annual income for different

taxpayers. To calculate the tax amount, the tax slices should be calculated as
follows:
Tax Brackets
Annual Annual Annual Annual Annual Annual
net income Net income net income net income net net income
Tax Up to More than More than More than income More than
Rate L.E L.E L.E L.E More than L.E
600,000 600,000 700,000 800,000 L.E 1,200,000
Up to Up to Up to 900,000
L.E L.E L.E Up to
700,000 800,000 900,000 L.E
1,200,000
0% From 1 up – – – – –
to 21,000
2.5% More than From 1 up – – – –
21,000 up to 30,000
to 30,000
10% More than More than From 1 up – – –
30,000 up 30,000 up to 45,000
to 45,000 to 45,000
15% More than More than More than From 1 up – –
45,000 up 45,000 up 45,000 up to 60,000
to 60,000 to 60,000 to 60,000
20% More than More than More than More than From 1 up –
60,000 up 60,000 up 60,000 up 60,000 up to 200,000
to 200,000 to 200,000 to 200,000 to 200,000
22.5% More than More than More than More than More than –
200,000 up 200,000 up 200,000 up 200,000 up 200,000 up
to 400,000 to 400,000 to 400,000 to 400,000 to 400,000
25% More than More than More than More than More than From 1 up
400,000 up 400,000 up 400,000 up 400,000 up 400,000 up to
to 600,000 to 700,000 to 800,000 to 900,000 to 1,200,000
1,000,000
27.5% – – – – – More than
1,200,000
Tax Slices
Annual Annual Annual Annual Annual Annual
net income Net income net net income net net income
Tax Up to More than income– More than income More than
Rate L.E L.E More than L.E More than L.E
600,000 600,000 L.E 800,000 L.E 1,200,000
Up to 700,000 Up to 900,000
Up to Up to

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L.E L.E L.E L.E

700,000 800,000 900,000 1,200,000
0% 21,000 – – – – –
2.5% 9,000 30,000 – – – –
10% 15,000 15,000 45,000 – – –
15% 15,000 15,000 15,000 60,000 – –
20% 140,000 140,000 140,000 140,000 200,000 –
22.5% 200,000 200,000 200,000 200,000 200,000 400,000
25% 200,000 300,000 400,000 500,000 600,000 Up to
1,200,000
27.5% – – – – – More than
1,200,000
Example (1):
The taxable income of taxpayer is L.E 210,000. Compute the due tax on this
taxpayer.
Solution.
1st 21,000 exempted
2nd 9,000 x 2.5 % = 225
3rd 15,000 x 10 % = 1,500
4th 15,000 x 15 % = 2,250
5th 140,000 x 20 % = 28,000
6th the rest 10,000 x 22.5 % = 2,250
Total income L.E 210,000 Tax amount L.E 34,225.
Example (2):
The taxable income of taxpayer is L.E 610,000. Compute the due tax on this
taxpayer.
Solution.
1st 30,000 x 2.5 % = 750
2nd 15,000 x 10 % = 1,500
3rd 15,000 x 15 % = 2,250

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4th 140,000 x 20 % = 28,000

5th 200,000 x 22.5 % = 45,000
6th the rest 210,000 x 25 % = 52,500
Total income L.E 610,000 Tax amount L.E 130,000.
Example (3):
The taxable income of taxpayer is L.E 710,000. Compute the due tax on this
taxpayer.
Solution.
1st 45,000 x 10 % = 4,500
2nd 15,000 x 15 % = 2,250
3rd 140,000 x 20 % = 28,000
4th 200,000 x 22.5 % = 45,000
5th the rest 310,000 x 25 % = 77,500
Total income L.E 710,000 Tax amount L.E 157,250.
Example (4):
The taxable income of taxpayer is L.E 810,000. Compute the due tax on this
taxpayer.
Solution.
1st 60,000 x 15 % = 9,000
2nd 140,000 x 20 % = 28,000
3rd 200,000 x 22.5 % = 45,000
4th the rest 410,000 x 25 % = 102,500
Total income L.E 810,000. Tax amount L.E 184,500.
Example (5):

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 TAX ACCOUNTING

The taxable income of taxpayer is L.E 910,000. Compute the due tax on this
taxpayer.
Solution.
1st 200,000 x 20 % = 40,000
2nd 200,000 x 22.5 % = 45,000
3rd the rest 510,000 x25 % = 127,500
Total income 910,000 Tax amount 212,500
Example (6):
The taxable income of taxpayer is L.E 1,010,000. Compute the due tax on this
taxpayer.
Solution.
1st 200,000 x 20 % = 40,000
2nd 200,000 x 22.5% = 45,000
the rest 610,000 x 25 % = 152,500
Total income L.E 1,010,000. Tax amount L.E 237,500.
Example (7):
The taxable income of taxpayer is L.E 1,250,000. Compute the due tax on this
taxpayer.
Solution.
1st 1,200,000 x 25% = 300,000
2nd the rest 50,000 x 27.5 % = 13,750
Total income L.E 1,250,000. Tax amount L.E 313,750
2.2.3. Personal Tax and Annual Tax
Personal Tax Annual Tax
The tax is imposed on the net income It is imposed on the total net
of natural persons after deducting the income realized by the taxpayer

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cost of gaining the revenue. It is during the previous whole year and
imposed on the total net income that becomes due on the day following
exceeds 21,000 per year. the end of a tax period the first of
January of each year.

Since the article (5) of the law no.

91 2005 stated that:
A tax period is the fiscal year that
begins on the first of January and
ends on 31 of December each year,
Or any period of twelve months
which is taken as a base for Tax
calculation.
There are some exceptions to the annual tax principle.
Less than (12) months More than (12) months
- Starting the activity during the - In case of changing the end of the
fiscal year (The taxpayer's first taxpayer s financial year and the
financial period). period between the beginning of
- Stopping the activity during the tax year before the change and the
financial year (before the end of date of change, transitional
the financial), e.g., decease period, does not exceed (3)
(death) of the taxpayer, expiry of months. In such a case, the tax is
residence, or closure of the calculated for a period more than
activity. (12) months by adding that period
- Keeping proper accounts and (the transitional period) to the
records during one of the first new tax year.
taxpayer’s financial years.
- Changing the end of the taxpayer
s financial year (e.g., the tax is
calculated from the beginning of
tax year before the change
(1/7/2019) up to the date of
change (31/12/ 2019).

2.2.4. A Tax that Adopts the Principle of Economic and Social

Attachment
Resident persons in Egypt Non-resident persons in Egypt

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(Egyptians or Foreigners) (Egyptians or Foreigners)

- Whether the income realized in - With respect to their income that
Egypt or abroad. In accordance is realized only in Egypt. In
with the principle of social accordance with the principle of
attachment. economic attachment. So, their
incomes realized abroad are not
subject to tax.

2.3. The taxable income of a natural person.

According to article (82) of the law no. 91 of 2005, every taxpayer, a natural
person, must file an annual tax return (tax declaration), before the first of April
of each year, on form no. (27 tax returns). The annual tax return takes the
following form:
Taxable Income L.E
1. Taxable net salaries and the like. 30,000
2. Taxable net profits (loss) of the commercial and industrial 20,000
activities.
3. Taxable net profits (of the non-commercial professions. 17,000
4 Taxable net revenues of the real estate wealth 10,200
Taxable Total Net Income 77,200
(It is rounded to the nearest lower 10 pounds)
Deduct: The exempted bracket (if the taxable income did not (21,000)
exceed 600,000)
Tax Base 56,200

2.3.1. Salaries and the Like

According to article (9) of the law, the tax will apply on all amounts due to
the taxpayer resulting from his/her work with third parties including all
amounts due to taxpayer from a foreign source for works performed in Egypt.
In addition, to the salaries and remunerations of chairmen of the corporations
and members of the boards of directors.
2.3.2. Commercial and Industrial Activities: (Sole Proprietorship)

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The taxable net profit (loss) of the commercial and industrial activity
is calculated based on the accounting accrual basis, as follows:
The taxable net profits = Taxable accrued revenues – Deductible accrued
expenses
Revenues Expenses
Are recognized (recorded) in the Are recognized (recorded) in the
year in which they are earned year in which they are incurred
(services are performed or goods are regardless they are paid or not yet.
sold) regardless they are collected or
not yet.

2.3.3. Non-Commercial Professions (Clinics, Engineering office,

Accounting)
The taxable net profit (loss) of the non-commercial profession activity is
calculated based on the accounting cash basis.
The taxable net profits = Taxable cash revenues – Deductible cash
expenses

Revenues Expenses
Are recognized (recorded) in the Are recognized (recorded) in the
year in which they are collected year in which they are paid
regardless they relate to this year or regardless they relate to this year or
not. not.

2.3.4. Revenues of Real Estate

According to the article no. 37 of the income tax law no. 91 of 2005, the
revenues of real estate wealth, which are subjected to the tax on income of
natural persons, include:
(1) Revenues of buildings rented according to the provisions of the Civil Code
(new rent law); and
(2) Revenues of furnished units.
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Are subjected to tax after deducting (50 %) of the revenue for all expenses.
The taxable net revenues = The total annual revenues x 50%

Example (1):
The following is the data for an engineer who has a permanent residency in
Egypt for year 2020.
1. He works as a consultant engineering in a company with a monthly
salary L.E. 4,000. The taxable income from his salary was L.E. 41,000.
Notice that the company deducted L.E. 120 as monthly tax on salaries
and the like.
2. He has a sole proprietorship working in the field of real estate
construction. Its cash revenue was L.E. 70,000 including L.E. 20,000
received in advance for operations planned to be carried out in 2021.
Its total expense for the year was L.E 60,000.
3. He has an engineering office. Its cash revenue was L.E. 14,709
representing fees of designing buildings in Egypt after deducting L.E.
300 professional services withholding tax (PSWT). In addition to that,
L.E. 10,000 is still due and was not collected yet. Note that, the office
expenses were L.E. 7,500 including L.E. 1,000 will be paid during the
next year.
4. He owns a building consists of three floors rented according to the
provisions of the Civil Code. His total monthly revenue from this
building was L.E. 1,000.
Required:
A. Determine The annual taxable net income of the engineer.
B. Calculate the tax due for the year 2020.

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Solution.
(A) The annual taxable net income of a natural person (engineer).
Taxable Incomes L.E
1. Taxable net salaries and the like 41,000
2. Taxable net profits (loss) of the commercial and industrial (10,000)
activities = (70,000 – 20,000) = 50,000
= 50,000 – 60,000
3. Taxable net profits (of the non-commercial professions) = 8,509
(14,709 + 300) – (7,500 – 1000)
= 15,009 – 6,500
4. Taxable net revenues of the real estate wealth 6,000
Building rented according to the provisions of the Civil Code
(New rent law) = 1,000 × 12 months × 50%
Taxable Net Income 45,509
Rounded to the nearest lower 10 pounds 45,500
Deduct: The exempted bracket (21,000) since the taxable (21,000)
income did not exceed (600,000).
Tax Base 24,500
(B) The tax due can be calculated as follow:
1st 21,000 exempted
2nd 9,000 x 2.5% = 225
3rd 15,000 x 10% = 1,500
4th the rest 500 x 15% = 75
Total income L.E 45,500. Tax amount L.E 1,800.
(-) Any income tax paid during the year such as:
- Income tax on salaries deducted by the workplace
(120 x 12 months) = (1,440)
- Income tax withheld at source (PSWT) = (300)
Tax payable (The tax due) = 60
Example (2):
You have the following data for an Egyptian doctor resident in Egypt.

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1. He works as a consultant physician in a hospital and receives a monthly

salary L.E 3,000. His taxable income from this company after deducting
the exemptions was L.E 29,000.
2. He owns a private hospital and its total revenues for the year L.E
50,000, with total expenses for the year L.E 32,000.
3. He owns a private clinic and the professional cash revenues from this
clinic were L.E 30,000, and the actual paid expenses were L.E 18,000.
4. He owns a building consists of three floors rented according to the
provisions of the Civil Code. His total revenue from this building was
L.E 16,000.
Required:
Calculate the tax bracket for this doctor and the due tax.
Solution.
The annual taxable net income of a natural person (doctor).
Taxable Incomes L.E
1. Taxable net salaries and the like 29,000
2. Taxable net profits (loss) of his private hospital as a 18,000
commercial activity = 50,000 – 32,000
3. Taxable net profits from his clinic (non-commercial 12,000
professions) = 30,000 – 18,000
4. Taxable net revenues of the real estate wealth 8,000
Building rented according to the provisions of the Civil Code
(New rent law) = 16,000 × 50%
Taxable Net Income 67,000
Deduct: The exempted bracket (21,000) since the taxable (21,000)
income did not exceed (600,000).
Tax Base 46,000
The due tax:
1st 21,000 exempted
2nd 9,000 x 2.5% = 225

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3rd 15,000 x 10% = 1,500

4th the rest 1000 x 15% = 150
Tax amount = 225 + 1,500 +150 = L.E 1,875
Note: According to article (82) of the law no. 91/2005, The taxpayer is
exempted from filing (submitting) the tax return in one the following (3)
cases:
1. If the income of the taxpayer is limited to salaries and the like.
2. If the income of the taxpayer is limited to salaries and the like and revenues
from real estate wealth and his total net income does not exceed the exempted
bracket (21,000) stated in the law.
3. If the income of the taxpayer is limited to revenues from real estate wealth
and his net income does not exceed the exempted bracket (21,000) stated in
the law.

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Questions
The following is the data for an Egyptian resident in Egypt for year 2020:
1. He works in a private company. His taxable income from his company
as salary was L.E. 11,200.
2. He owns a building consists of two floors rented as furnished units. His
total annual revenue from his building was L.E. 7,600.
Required
A. Determine his annual taxable net income as an individual.
B. Calculate the tax due for year 2020.
C. Choose the best answer for the following questions:
1. The taxable income from salary and the like equals L.E …….
a- 11,200
b- 36,000
c- 29,000
d- Zero
e- None of the above

2. Taxable Net profit (loss) of the commercial & industrial activity equals
L.E ….….
a- 25000
b- 13,000
c- (22,000)
d- Zero
e- None of the above

3. Taxable Net profit (loss) of the non-commercial profession equals

L.E ……...
a- 6,000
b- 15,000
c- 12,000
d- Zero

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e- None of the above

4. Taxable Net profit of the real estate equals L.E …….

a- 7,000
b- 3,800
c- 750
d- Zero
e- None of the above

5. Taxable (Total) net income for 2020 equals L.E…………………..

a. 15,000
b. 10,000
c. 9,000
d. Zero
e. None of the above

6. The tax base for 2020 equals L.E…………………..

a. 16,500
b. 10,000
c. 9,000
d. Zero
e. None of the above

7. The tax amount for 2020 equals L.E……………

a. 1,000
b. 540
c. 460
d. Zero
e. None of the above

8. The tax due for 2020 equals L.E

a. 1,000 b. 540 c. 460
d. Zero
e. None of the above

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Determine whether each of the following statements is true or false and

correct the false ones:
1. According to Law 91/2005, the tax on income of natural and legal
persons is imposed on the total net income of the taxpayer during the
one whole year in all cases.
2. The tax on income of natural persons is imposed on the total net income
of the taxpayer within 12 months.
3. A natural person is considered a resident if he stays in Egypt for a period
more than 183 days continuous within 12 months.
4. Every natural person has L.E 21,000 as a cost-of-living exemption
whether married or unmarried.
5. Tax on income of natural persons is subject to progressive tax rates
according to ascending classes.
6. The income of the natural person, who works abroad and receives his
income from an Egyptian or foreign treasury, will be subjected to tax
on salaries and the like.
7. The income of the natural person, who works in Egypt, will be
subjected to tax on salaries and the like whatever the entity that employ
him.

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