In the endless pursuit of making Egypt an investor-friendly destination, newly appointed Finance Minister Ahmed Kouchouk has prioritized tax reform. “We will succeed together in building an efficient and investment-incentive tax system,” he said during a tour of tax centers and offices in April.

His focus is to “make it easy for our taxpayer partners and communicate with them directly, based on trust and support.” Kouchouk’s reform strategy revolves around introducing “packages of facilities.” The one introduced for the 2025 tax season includes penalty caps, legislation for SMEs and multiple new amnesty options.  

Local tax experts are cautious, as the Egyptian Tax Authority (ETA) hasn’t published executive regulations for those modified laws, making implementation tricky. “There are loopholes because there is no executive regulation,” Yasser Maharem, tax partner at Shawky-Mazars Law Firm, told AmCham Egypt members at an event in February. He and other experts highlighted areas requiring urgent reforms.

Revolving exemption

One of the ETA’s strategy pillars is settling tax disputes with taxpayers. “The ETA, taxpayers and companies recognize how aggressive the current tax law is,” Ramy George, tax partner at Deloitte, told AmCham Egypt members. “That is why every once in a while, the government publishes new laws and reforms offering amnesty, reducing punishments and offering more facilitations.”

The priority for the 2025 tax season was settling disputes with companies that have not paid all their taxes since 2020. Audited firms were exempted from penalties, which in some cases reached 300% of the due tax, if they settled all their outstanding tax claims for the stated period. Companies that received an “estimated tax claim” from the ETA for those five years and lodged a settlement request got up to a 30% discount on the stated tax amount and paid zero penalties. 

Some investors also received penalty exemptions if they settled and paid all their capital gains and real estate transaction tax claims since 2020. Transactions that happened before that year were exempt from the tax.

Also in 2025, taxpayers could revise their filing during auditing “to correct mistakes during those five years,” Maharem said. “That was significant.”

New laws

In 2025, the government ratified a new tax law stating the ETA will not audit pre-registration financials of companies that register with the state. Those firms also will be exempt from on-site audits for five years if they hold digital invoices and submit their tax filings on time. 

The second tax law change applies to companies making less than EGP 20 million annually. “The calculation is based on the previous year’s ETA-approved tax filing,” Rabie Morsy, tax partner at Grant Thornton, told AmCham Egypt members. “If it is the SME’s first year as a registered business, the ETA will use the approved results from their first tax filing.”

The new law offers incentives, including exemption from taxes on stamps, contract stamps and duties and capital gains, as well as development and dividend taxes.

Other benefits include “simplified accounts and tax filing. Also, VAT is filed every quarter, not monthly like non-eligible companies, and payroll tax is settled once a year,” Morsy said. “Those facilitations help SMEs retain as much liquidity as possible throughout the year.”

According to George, to remain eligible, companies must file and pay taxes on time, maintain an electronic invoice system linked to the ETA, and not “deliberately” evade paying their taxes.

To prevent non-eligible companies from establishing eligible shell SMEs to benefit from those advantages, the law states that the qualified enterprise can’t have two clients contribute 90% or more of its income. 

The ETA also will heavily audit those SMEs to ensure they were not previously one company whose owners split into several legal entities to stay under the EGP 20 million threshold. That includes examining how much business eligible firms do with each other and their ownership structure. 

Morsy noted that eligible SMEs’ ETA-linked electronic invoice systems will likely be audited to ensure they aren’t underreporting earnings in the paper tax filing.

Modified legislation

In 2025, the ETA significantly lowered penalties for late tax payments. “In the outgoing law, penalties could reach 200% or 300% of the tax amount,” Ahmed El Sayed, tax partner at Ernst & Young (EY), told AmCham Egypt members. “The modified regulation limits it to 100%.” 

Despite its simplistic premise, El Sayed said the law is open to interpretation. First, it doesn’t mention if the cap applies to pending penalty appeals lodged before the law passed. It also doesn’t state if the cap applies to unpaid ETA tax claims with over 100% penalties issued before the law’s ratification.

Maharem highlighted the lack of clarity over the sequence of deductions if the taxpayer is eligible for several. “If a company is eligible for the 100% penalty cap and the 30% penalty deduction. Which one would apply first?”

He explained that if the penalty is 125% of the total amount, applying the 100% cap first would bring the penalty payment to 100%. The 30% discount would reduce it to 70% of the total tax amount. However, if the 30% applies first, it would decrease the penalty to 95%, making it ineligible for the 100% cap. “The order of implementation is critical, yet extremely vague as there is no executive regulation,” Maharem said.

Future reforms

While the ETA has fixed many problems for taxpayers, challenges remain. A case in point is the 2023 law regulating taxes on capital gains, dividends, and transactions with a local parent or holding company. The ETA still hasn’t published the relevant executive regulation, despite the law explicitly stating that it identifies provisions, thresholds, and eligibility criteria. 

In the 2024 tax filing, accountants relied on a general guide attached to the paper tax filing document. “That will be the case until the executive regulation is published or the law is modified to include more details,” Maharem said. 

Another headache for taxpayers is the electronic invoicing system. “Every registered business [should be] linked to the system,” Maharem said. “This means all business transactions [should be] recorded electronically.” 

He stressed that despite its clear advantages, recognizing only electronic invoices in tax filings is troubling. For one, almost all registered manufacturers deal with informal suppliers for raw and semi-finished products. The ETA approves such transactions on a case-by-case basis, making it a constant source of conflict with taxpayers, noted AmCham Egypt tax experts in attendance.

Additionally, several government agencies still don’t issue electronic invoices, including customs, electricity, water, natural gas and fuel. “They are currently working on solving that issue,” said Sherif Shawky, head of tax at PricewaterhouseCoopers. “Until then, they are an unwritten exception.” 

George noted that foreign freight companies also “can’t issue digital invoices” as they are not registered in Egypt. That means local exporters can’t prove those payments in their tax filings, causing consternation between the taxpayer and ETA.

For now, the Maritime Chamber of Commerce in Alexandria agreed with the ETA to allow freight representative offices based in the city to file electronic invoices on behalf of the shipping companies they represent for the benefit of local exporters.

George said that while this is a practical solution, it’s technically illegal. “The local dealer and shipping company are two different legal organizations,” he stressed. “Therefore, one can’t file an electronic invoice on behalf of the other, even if the regulator allows it.”

Lastly, El Sayed highlighted some technical problems with transfer pricing (TP) when local branches transact with their overseas parent company. “Many of the [local] auditors don’t have experience with TP,” he said. “That means most cases are escalated to the TP department to handle lodged appeals.” That causes significant settlement delays, as “the department doesn’t have sufficient resources to process them fast enough.”

This article first appeared in May’s print edition of Business Monthly.