Over the past few years, Egypt has enacted several business-friendly laws and regulations mainly dedicated to micro, small and medium-sized businesses (MSMEs1), as well as informal economy projects. These changes are reflecting the Egyptian government’s effort to legalize all forms of businesses and increase the tax contributions that are currently much needed, and bring them into Egypt’s formal business economy.
A prime example of these new laws is the New Micro, Small, and Medium Enterprises (MSMEs) Development Law issued in 2020 and its executive regulation issued in April 2021. Enacting such a law has proven to be timely given the importance of MSMEs to the Egyptian economy. It is estimated that SMEs employ about 70% of the country’s workforce, contribute about 34% to Egypt’s GDP and now take a center stage position in the business landscape2.
The law grants unprecedented tax and non-tax incentives to MSMEs and facilitates the work of entities and bodies that support their ecosystem. It has also laid the groundwork for the foundation of the MSMEs Development Agency3 which supports, oversees, and facilitates the funding of SMEs, helping in the legalization process of MSMEs and informal economy projects.
However, the wide benefits of the MSMEs law remain incomprehensible and confusing to many business owners.
“Many entrepreneurs don’t quite understand the difference between the Old Law and the new MSMEs Development Law … they don’t have a full grasp of the tax incentives under this law and the benefits it can bring to their businesses.” - Hani Kozman, Managing Partner of Kozman & Co. Auditing Firm
The following segment details some of the tax incentives as per the law that apply to all MSMEs and informal economy projects regardless of their industry:
MSMEs and informal economy projects that apply for a license to legalize their status get a 5-year exemption from stamp duty tax and notary public fees. This period starts from the date of filing with the commercial registry.
MSMEs receive a fixed tariff of (2%) on all imported equipment and tools.
Exemption from the Capital Gains Tax on the disposal of assets or machinery provided that the gains realized from such disposal are used to purchase new assets or machinery within (1) year from the date of disposal.
The Law also stipulates that MSMEs might get exempt from taxes on built properties owned by such enterprises.
A very important part of the MSME Law is the special tax rates and tax treatment only dedicated to MSMEs:
Special tax rates for Micro Enterprises:
Enterprises that make annual revenues less than EGP 250,000, pay EGP 1,000.
Enterprises that make annual revenues between EGP 250,000 & 500,000, pay EGP 2,500.
Enterprises that make annual revenues between EGP 500,000 & 1,000,000, pay EGP 5,000.
Special tax rates for SMEs:
Enterprises that make annual revenues between EGP 1 million and 2 million are subject to an income tax rate of (0.5%).
Enterprises that make annual revenues between EGP 2 and 3 million are subject to an income tax rate of (0.75%).
Enterprises that make annual revenues between EGP 3 and 10 million are subject to an income tax rate of (1%). However, this special tax will only be applicable for five years.
The law also exempts MSMEs from submitting their books and financial records when filing their tax returns, a prerequisite under the Income Tax Law No. 91 of the year 2005.
There is still so much more to this law including non-tax to regularization incentives and informal economy projects. In summation and for the purpose of this article, the MSMEs Development Law is the crown jewel of a series of business-related laws issued by the state in the past several years. This law holds much promise for the vital MSMEs and private sectors. It is a comprehensive mechanism for building a business-friendly ecosystem that continuously supports small and medium sized businesses and their owners.
For more details and insights about the new MSMEs Development Law, its recently enacted executive regulation and how to calculate and file your tax returns, reach out to Kozman & Co. tax experts. Our experts are well seasoned in Egypt’s tax laws and regulations. By partnering with us, you will be able to maximize your tax benefits and be updated on the tax incentives that apply to your business. Contact us at: email@example.com or visit: www.faroukkozman.net, www.santafe-associates.com
1- Micro enterprises: projects/enterprises with an annual business turnover less than EGP 1 mln, incorporated no more than (2) years ago and with a paid or invested capital of less than EGP 50k.
Small enterprises: projects/enterprises with an annual business turnover between EGP l mln to 50 mln, incorporated no more than (2) years ago and with a paid or invested capital between EGP 50k to 5 mln.
Medium enterprises: projects/enterprises with an annual business turnover between EGP 50 mln to 2OO mln, incorporated no more than (2) years ago with a paid or invested capital between EGP 5 mln to 15 mln.
3- MEMEs Development Agency website: https://www.msme.eg/ar/Pages/default.aspx