Tax on dividends

In the middle of 2014, witnessed a new tax event, which is the issuance of Decree-Law (53) for the year 2014, known in the media as the Stock Exchange Transactions Law And it is decided to impose a 10% tax on share dividends, with the possibility of reducing it to 5% according to the ownership percentage of the companies’ shares

Law No. (91) of 2005 was defined in accordance with what came in the last paragraph of Article (1) and added by Decree-Law No. (53) of 2014 published in the Official Gazette Issue No. 26 bis (a) on June 30, 2014 ,Dividends are any income derived from stocks or shares, including enjoyment shares or enjoyment rights, mining shares, founding shares or any other rights that give the right to participate in profits, whether these are cash distributions, bonus shares, or in the form of bonds or founding shares. or any other image.

The tax applies to dividends on shares and quotas obtained by natural and legal persons, including companies established under the economic zones system of a special nature, except for distributions that take place in the form of free shares, whether these distributions are realized in Egypt or abroad, as follows:

First: Distributions obtained by the natural person:

1- Resident natural person:

      Distributions sourced inside Egypt:

The tax base is determined on the dividend distributions stipulated in Article (46 bis) of the Tax Law On income in relation to what a resident natural person receives:

A. Who does not carry out a taxable activity during the tax year in Egypt, according to what is decided by the authority concerned with distribution, for amounts exceeding (10,000) pounds annually at a rate of 10%.

B. who carries out a taxable activity at a rate of 10

% without any discounts.

C. 1% is deducted under the account from the party that provided the distribution and is transferred to the tax authority

D. The tax is reduced to -5% if the following conditions are met: The shareholding percentage in the distribution company must exceed 25%, and the period of possession of the stake or shares shall not be less than two years.

     Distributions sourced outside Egypt:These distributions are subject to the prices mentioned in Article (8) of Law No. 91 of 2005 after being amended by virtue of Article 1 of Decree Law No. 96 of 2015 issued on August 20, 2015:

• The first tranche: up to 6,500 pounds per year, tax-exempt

• The second tranche: 10% - more than 6,500 pounds up to 30,000

• The third tranche: 15% - more than 30,000 pounds up to 45,000 pounds

• The fourth tranche: 20% - more than 45,000 pounds up to 200,000 pounds

• The fifth tranche: 22.5% - more than 200,000

2-Non-resident natural person:

What a non-resident natural person gets is subject to a tax on distributions at a rate of 10%. The tax is withheld and transferred to the Tax Authority from the entity that implements the transaction. The tax is reduced to 5% if the following conditions are met:

  1- The shareholding percentage in the distribution company exceed 25%.

  2- The period of possession of the stake or shares shall not be less than two years.

Second: Distributions obtained by the legal person:

1- Distributions achieved in Egypt:

 - The recipient of the distribution is a legal person, resident or non-resident:

What a resident or non-resident legal person receives is subject to a tax on distributions at a rate of 10%, and the tax is withheld and transferred to the tax authority from the entity that carries out the transaction

And the tax is reduced to 5% if the following conditions are met:

1- The shareholding percentage in the distribution company should exceed 25%.

2- The period of possession of the stake or shares shall not be less than two years.

Second: Distributions obtained by the legal person:

2- Distributions achieved abroad:

What the legal person gets is subject to tax on the distributions stipulated in Article (49) of the first paragraph of Law 91 of 2005 and amended by Article 1 of Decree Law 96 of 2015 issued on August 20, 2015 at a rate of 22.5%. Because these distributions were achieved abroad and not inside Egypt.

Taking into account the deduction of the foreign tax paid on these distributions and within the limits of the Egyptian tax in accordance with the provisions of Article (54) of Law 19 of 2005, and the inadmissibility of deducting losses, provided that no loss achieved in a foreign country shall be deducted from profits made in another foreign country.

Distributions of non-resident companies:

The profits of non-resident legal persons that achieved through a permanent establishment in Egypt are considered to be distributed legally within 60 days from the date of the end of the fiscal year of the permanent establishment.

Third: Exempted Distributions:

Article: 50, Clause (10) of Law No. 91 of 2005, after it was amended by Decree Law             No. 53 of  2014

1. Dividends obtained by the parent company or the holding company from subsidiaries and non-resident companies are exempted after adding 10% of the value of those distributions to the taxable base of the parent or holding company for non-deductible costs, according to the following conditions:

• The shareholding of the parent company or the holding company shall not be less than 25% in the subsidiary company’s capital or voting rights.
• The parent or holding company’s possession of that percentage must not be less than two years, or it must commit to keeping this percentage for a period of two years from the date of acquisition of shares or voting rights

2. Distributions of investment funds whose activity is limited to investing in cash only.

3. Distributions of holding investment funds in which investment is limited to investment funds established in accordance with the provisions of Law No. 95 of 1992 (Capital Market Law) and whose investment in securities is not less than 80% of debt instruments.

4. Distributions of investment funds in securities established in accordance with the provisions of Law No. 95 of 1992 (Capital Market Law), whose investment in securities is not less than 80% of debt instruments.

5. Dividends obtained by investment funds and investment holding funds after adding 10% of the value of those distributions to the taxable base for non-deductible costs.

Fourth: Distributions subject to withholding tax:

It is subject to tax at a rate of 10% without deducting any costs of dividend distributions made by financial companies or companies of persons, including companies established under the economic zones system of a special nature for a non-resident natural person and a resident or non-resident legal person, including the profits of non-resident legal persons achieved from Through a permanent establishment in Egypt, except for distributions that take place in the form of free shares, and the tax rate is reduced to 5% without deducting any costs if the shareholding percentage in the company conducting the distribution exceeds 25% of the capital or voting rights, provided that the period of possession of the shares or stakes is not less than two years.