Executive summary

On 12 February 2025, the Egyptian Parliament published Law No. 5 of 2025 (Law No. 5) in the Official Gazette, as part of a comprehensive package of laws. This package of laws represents a substantial contribution to the transformation of the tax landscape in Egypt, focusing on facilitating tax compliance, enhancing tax settlements and providing incentives for taxpayers, thereby fostering a healthy tax system for taxpayers.

Law No. 5, effective from 13 February 2025, is expected to positively impact the Egyptian economy.

Detailed discussion

Background

The issuance of Law No. 5 represents a significant reform in Egypt's tax framework, aimed at enhancing compliance and fostering a more conductive business environment. Law No. 5 allows tax registered and unregistered businesses to reconcile their tax position for past periods without incurring penalties, facilitating a smoother transition into the tax system, thereby encouraging timely compliance.

Law No. 5 also aims to facilitate tax administration and compliance procedures, particularly relating to settlements and dispute resolution.

Key elements of Law No. 5

Tax provisions for unregistered taxpayers

Law No. 5 of 2025 stipulates that there will be no tax obligation (i.e., with respect to corporate income tax, value-added tax (VAT), state development tax and stamp duty) for unregistered taxpayers for periods prior to the effective date of Law No. 5 (i.e., 13 February 2025), which is considered the commencement date of their activity, in line with Income Tax Law No. 91 of 2005 and VAT Law No. 67 of 2016.

To avail themselves of the above benefits, taxpayers should meet the following conditions:

• Taxpayers should register for corporate income tax and VAT, as per the relevant laws, within three months from the effective date of Law No. 5. The Minister of Finance may extend this period once upon application.
• The Egyptian Tax Authority should not have initiated any prior actions or procedures against the applicant.
• All required documents must be submitted electronically.

Filing past returns for registered taxpayers

Taxpayers who have not filed their tax returns and tax forms, including the Master File, Local File and Country-by-Country report for any tax period starting from FY2020 until 13 February 2025, can still submit their returns.

In addition, taxpayers who have filed the abovementioned tax returns and forms for the specified tax period may submit amended tax returns if there is an error or missing data, without incurring delay fines or additional tax for the period between submitting the original and the amended returns. This applies for amended tax returns submitted after their original deadlines but before 13 February 2025.

Further, no penalties or fines shall apply if these returns are submitted within six months from 13 February 2025.

Dispute settlement mechanism for deemed-basis inspections¹

Taxpayers who undergo a tax inspection by the Egyptian Tax Authority on a deemed basis for periods prior to 1 January 2020 may request dispute settlements at any dispute level, according to the following cases:

1. Submission of tax return with a tax due: Paying 30% of the tax due as reported in the submitted tax return for tax periods subject to dispute, without prejudice to paying the tax due in the return if it has not been paid
2. Failure to submit tax return, submission with no tax due, or submission with tax losses: Paying the value of the tax due based on the last agreement between the taxpayer and the Tax Authority on the disputed tax period or periods, in addition to 40% of the tax due

Payment can be made in quarterly installments over a one-year span at a rate of 25% without late payment fees or additional taxes.

In both cases, the Tax Authority is expected to provide further details on the application mechanism.

Dispute settlement mechanism for actual inspections prior to January 2020

Taxpayers that were inspected based on regular books and records, for periods ending before 1 January 2020, may request to settle disputes at any dispute level with a 100% exemption from delay-interest fines, additional taxes and additional amounts if the original tax due is fully settled within three months from the date of submitting the dispute settlement request.

Dispute settlement request deadline

To avail themselves of the dispute settlement incentive, taxpayers should submit a dispute settlement request within three months from 13 February 2025. The Minister of Finance may extend this period once upon request.

Tax settlement mechanism for natural persons

Natural persons who sold real estate or unlisted securities in the last five years without paying the tax due, may request to account for their tax obligations and pay the tax due within six months from the effective date of Law No. 5 to benefit from a full waiver of delayed interest fines.

In addition, where there is a dispute, natural persons may request to settle this dispute and pay the tax due within three months to benefit from a full waiver of delayed interest fines. The Tax Authority is expected to provide further details on the application of this mechanism.

The Tax Authority cannot pursue transactions that occurred more than five years prior to 13 February 2025.

Restrictions on tax recovery after dispute resolution

In all cases, the resolution of the dispute does not allow taxpayers to recover the previously paid tax.

Implications

Taxpayers should consider the provisions of Law No. 5 and assess their eligibility for potential tax reliefs arising from the new settlement and dispute resolution procedures.