0.4%-1.5% Tax? Egypt’s New Tax Paradise for Businesses
Egypt has introduced significant tax reforms aimed at supporting its small and medium-sized enterprise (SME) sector with the enactment of Law No. 6 of 2025, effective as of March 1, 2025. This new legislation offers a range of tax incentives and simplified procedures for businesses with an annual turnover not exceeding twenty million Egyptian pounds. HLUL LEGAL provides a brief overview of the key aspects of this law.
1. Overview of Law No. 6 of 2025
Who Qualifies?
- Businesses with an annual turnover ≤ EGP 20 million.
- Exclusions:
- Professional services (e.g., consulting) deriving ≥90% of revenue from 1–2 clients.
- Businesses artificially splitting operations to qualify.
Key Benefits
✔ Lower tax rates (0.4%–1.5% of turnover instead of 22.5% on net profits).
✔ Exemptions from stamp duty, development fees, dividends tax, and capital gains tax.
✔ Simplified compliance (annual tax returns, e-invoicing integration).
✔ Five-year tax audit deferral for compliant businesses.
2. Reduced Turnover Tax vs. Standard Corporate Tax
Tax Rates Under the New Scheme
| Annual Turnover (EGP) | Tax Rate (on Turnover) |
|---|---|
| <500K | 0.4% |
| 500K–2M | 0.5% |
| 2M–3M | 0.75% |
| 3M–10M | 1% |
| 10M–20M | 1.5% |
Standard Corporate Tax
- 22.5% on net profit (after deducting expenses).
3. When is the Reduced Turnover Tax Better?
The breakeven net profit margin determines whether the new tax scheme is advantageous.
Breakeven Margins by Turnover Bracket
| Turnover (EGP) | Breakeven Net Profit Margin |
|---|---|
| <500K | 1.78% |
| 500K-2M | 2.22% |
| 2M-3M | 3.33% |
| 3M-10M | 4.44% |
| 10M-20M | 6.67% |
Key Scenarios
✅ Better for HIGH-margin businesses (when net profit margin EXCEEDS the breakeven %)
- Examples: IT services, consulting, high-value manufacturing
- Why? The fixed turnover tax becomes cheaper than 22.5% of larger profits
✅ Ideal for businesses wanting simple compliance
- No need to track/document expenses
- Predictable tax liability based on revenue
❌ Worse for LOW-margin businesses (when the net profit margin is BELOW breakeven %)
- Examples: retail, wholesale, restaurants
- Why? 22.5% of small profits cost less than turnover tax
❌ Not beneficial if you have significant deductible expenses
- Standard tax allows expense deductions that can lower liability
4. Practical Examples
High-Margin IT Company (Better with Turnover Tax):
- Turnover: EGP 5M
- Net profit: EGP 1M (20% margin)
- Breakeven: 4.44%
- Turnover tax (1%): EGP 50K
- Standard tax (22.5%): EGP 225K
→ Saves EGP 175K with turnover tax
Low-Margin Restaurant (Better with Standard Tax):
- Turnover: EGP 5M
- Net profit: EGP 200K (4% margin)
- Breakeven: 4.44%
- Turnover tax (1%): EGP 50K
- Standard tax (22.5%): EGP 45K
→ Saves EGP 5K with corporate standard tax
5. Key Considerations Before Choosing
- Profitability trends: If margins fluctuate, reassess annually.
- Administrative ease: The reduced tax scheme simplifies filings.
- Growth plans: Exceeding EGP 20M turnover may disqualify the business.
6. Significant Tax Exemptions and Incentives
Beyond reduced rates, qualifying businesses enjoy comprehensive exemptions that further lower costs and simplify operations:
A. Full Exemptions
- Exemption from the state financial resource development fee. Exemption from stamp duty.
- Exemption from notarization and registration fees for company establishment contracts, credit facilities, mortgages related to business operations, and necessary land registration.
- Exemption of capital gains tax on the sale of fixed assets, machinery, or production equipment.
- Exemption of profit distributions (dividends) from tax.
- Exemption from the advance payment and installment systems under the Income Tax Law No. 91 of 2005.
B. Simplified Compliance
📅 VAT filings – Quarterly (vs. monthly) submissions
📅 Payroll taxes – Annual reconciliation (vs. monthly)
📔 Record-keeping – Relaxed accounting requirements
🔍 Audit deferral – First examination occurs after 5 years of compliance
7. Conclusion
Egypt’s Law No. 6 of 2025 provides significant relief for small businesses by reducing tax burdens and simplifying compliance making Egypt a tax paradise for small enterprises. However, not all businesses benefit equally. Companies should:
- Calculate their net profit margins against the breakeven points.
- Evaluate administrative needs (simplified vs. standard tax filing).
- Consult a tax and legal advisor for tailored advice.
Need Help Navigating Egypt’s Tax Laws?
📞 Contact HLUL LEGAL for expert legal advisory services.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult a professional for specific tax planning.
