The Egyptian government has passed a package of changes to the tax law in June 2023. International companies operating in Egypt are particularly affected.

The changes are primarily aimed at the regulations on permanent establishments. The reform also brings with it a number of other tax law innovations in Egypt.

Permanent establishments

The definition of a permanent establishment under Egyptian tax law will be expanded. The background to this is that it is to be brought into line with the OECD definition (BEPS Action 7).

To this end, several changes were made to the previous definition of a permanent establishment and to the exceptions:

– The internationally established threshold period of 90 days was newly added. Accordingly, from now on, a “fixed place of business” in Egypt will be triggered if a construction or building site, installation or assembly project continues in Egypt for a total period of 90 days within a 12-month period. This includes any activity carried out in Egypt in connection with the exploration, extraction or exploitation of natural resources, including the use or installation of essential equipment.

– The concept of a so-called service permanent establishment is introduced into the Egyptian Income Tax Law. Such a permanent establishment exists if a non-resident entity provides services (including planning, supervision, or consultancy activities) for a project or related projects for a total period of 90 days within a 12-month period in Egypt. Under the newly amended tax law, the service permanent establishment is triggered when the non-resident entity provides services through its employees or other persons engaged by the non-resident entity.

– A person who acts as an independent agent in Egypt for a foreign entity and acts exclusively or almost exclusively for that entity is not considered independent and thereby also triggers a permanent establishment for the non-resident entity.

– However, a permanent establishment is not considered relevant for tax purposes if it only carries out certain preparatory or auxiliary activities (for example, holding stocks of goods for storage, display, etc.). To prevent closely connected persons from splitting a permanent establishment into several small business units in order to benefit from the exemption for preparatory or auxiliary activities, additional rules have been issued. Accordingly, activities carried out by different closely connected persons are to be aggregated when assessing whether they can be considered preparatory or auxiliary.

Source GTAI Country News

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Law on Tax Reform in Egypt (Law No. 30 of 2023) in Arabic