Chapter (2): Tax on Salaries and The Like

Introduction

▪ Egyptian law for income tax No.91 in 2005 → includes at the first part salaries tax which is applied to
all employees' revenue whether they have employment contractors or not, working on permanent or
not.
What's meant by “Employee” ?

▪ Employee →Dependent to an employer (Third party) and the main criteria for applying salaries and
the like is (Dependency).

What's meant by “Salaries” ?

▪ Salaries →is a type of income results from work done by a person who is Dependent to an employer.

Salaries tax is applied to the following persons:

1 Residents inside Egypt as permanently.

Foreigners work in Egypt and paid by Egyptian resource are categorized →
Resident Non-resident
2 A person who spends more than 183 Days in A person who spends Less than 183 Days in Egypt
Egypt during 12 month (Separate or during 12 month will be regarded as non-resident. He
Connected) will be regarded as resident and will not subject to tax salaries, but will be subject to a
treated as Egyptian employees certain tax rate without any reductions or exemptions
3 Board of directors members in the public sector who are not shareholders on profits.
4 Board of directors and managers in corporations (Private Sector) for their admin work
compensations who are not shareholders.

What are the characteristics of Tax on Salaries and The Like ?

1.Applied on Revenue from work and it must be for other as there is dependency relationship
between employer and employee.
2.it`s personal tax imposed on natural persons (individuals).
3.it`s cut from the source (withholding Tax).
4.Based on Accrual basis.
Scope of Tax (Taxable Revenues)

▪ It means revenues which is tax will be applied on, these revenues include:
Basic Salary Variable Salary and like
= Basic salary + Periodical - Social increment (Allowance).
Raise + Special Increment - Special increment (Allowance) (not added to basic salary).
- Commission and bonus.
- Representation allowance.
- Nature of work allowance
- Incentives.
- Grants and Rewards
- Overtime wages and Profit Share
- In-Kind benefits.
- Allowances necessary for work, Transportation, closing and housing
 Taxable Revenues

1. Basic Salaries

Taxable Salaries Non-Taxable Salaries

- Salaries for work done inside Egypt paid from Egyptian sources. Exempted
(Even the person is Egyptian or Resident). 1) Salary of the owner of a
- Salaries for work done inside Egypt paid from Foreign sources. company.
- Salaries for work done outside Egypt as far as they paid from 2) Salary of Partners in
Egyptian sources, Such as employees of Egyptian embassies. Partnership.
2. Periodic Rewards (Raise)

Taxable Periodic Rewards Non-Taxable Periodic Rewards

- An amount is given at the beginning of the fiscal year for Exempted
additional work over his work, it is added to the basic salary. It Leaving work reward
must be characterized by periodicity and permanent.
3. Cash Benefits (Variable Salary)

Taxable Cash Benefits Non-Taxable

- Incentives: it is a compensation for helping employees to improve their work.
- Commission: amounts paid to employees according to the percentage of the
Grant of the heirs of
sales they made.
died employee.
- Grants: the state grants the employees grants based on 10 days of their salaries
in the recent years.
4. In-kind Benefits (Variable Salary)

1.Group Benefits (Necessary for work) → For all employees (Non-Taxable) → No benefits
- Housing: some entities` provide their employees with house as it is provided to all employees it will
be exempted (not optional).
- Uniform: Some entities forced their employees to wear a certain uniform.
- Transportation: the company present a group transportation for all employees.
- Meal: Some entities provide meals to all employees.
2.Individual Benefits → For certain employees (Taxable) → Benefit
- Transportation: an employee can use the car of the work for his personal use, so in this case the
expenses of this car not belong to entity only, the law determine 20% from operating expenses
(Fuel + maintenance + Insurance) will be Taxable (benefit).
Example (1) → The value of the fuel and maintenance invoice for a car owned by a company is 15,000 L.E and
the car is used by one of the employee, what is the value if in-king benefit taxed?
The benefit is 20% of the total value = 20% x 15,000 = 3000 (Taxed).
Example (2) → The value of the fuel and maintenance invoice for a car owned by a company is 15,000 L.E and
the car is used by all the employees, what is the value if in-king benefit taxed?
A. 3000 B. Zero C. No benefit D.None of the above
Example (3) → A car owned by a company is given to an employee. The car monthly operating costs are as
follows:
 2.Individual Benefits → For certain employees (Taxable) → Benefit
- Mobiles phones: Some entities give their employees mobile phones to be used for work, the law
determined the In-king benefit by 20% of the total mobile calls invoice.
Example(1) → The value of the calls invoice of a mobile give to one of the employees is 5,000 L.E, what
is the value if in-king benefit taxed?
The benefit is 20% of the total value = 20% x 5,000 = 1000 (Taxed).
- Housing: Some entities` provide one of it`s employees with housing (optional).
Example (1) → The company give one of it`s managers a penthouse in which the rent of this unit is
10,000 L.E but the company discounted only 2000 L.E from the employee salary, what is the value if
in-king benefit taxed?
The benefit = 10,000 – 2000 = 8000 (Taxed)
Example (2) → The company provide their employees with house as it is provided to all employees
the rent of this unit is 10,000 L.E, what is the value if in-king benefit taxed?
A.8000 B. Zero C. No benefit D.None of the above
- Loans to employees: Some employees may need to get some loans, the law determined the value of
the in-kind benefit by 7% as what the employee get in excess of his salaries over the pervious six
months.
Taxable in-kind benefit = (loan amount – total income obtained during 6 months prior to the loan) ×
(7% - loan interest rate)
Example (1) → One employee get a loan from his company, if you know that the total amount the
employee get over the past six months is 30,000. What is the value of benefit in the following cases:
1) 20,000 with return 7%
2) 40,000 with no return.
3) 40,000 with return 4%.
4) 40,000 with return 8%.
1- it not considered as benefit. (no benefit not Zero). (Non-Taxable).
2- Benefit = (40,000 – 30,000) X 7% = 700
3- Benefit = (40,000 – 30,000) X (7% - 4%) = 300
4- it not considered as benefit. (no benefit not Zero). (Non-Taxable).
Example (2) → An employee received L.E 20,000 as a loan from his employer at 1/7/2015. The total
amounts received by the employee from 1/1/2015 until 30/6/2015 was L.E 15,000 (L.E 2,500
monthly). Suppose that:
Case (1): The loan interest rate is 8%.
Case (2): The Loan interest rate is 5%.
Case (3): The loan is interest free.
1- it not considered as benefit. (no benefit not Zero). (Non-Taxable).
2- benefit= (20000 – 15000) × (7% - 5% loan interest rate) = 5000 × 2% = 100
3- benefit = (20000 – 15000) × (7% - 0% loan) = 300
- Insurance policies made by the employee for his life, properties or family: if the employer pay part
of the installment of the policy, the benefit is considered equal to this part paid by the employer.
Example → The value of installments for the life insurance policy for one of the employee is 4000 L.E
per year, and the company paid 600 L.E for the employee as a part of his installment. What is the value
of benefit ?
The benefit = 600 (Taxed)
- Give the Employees the company shares at value less than it`s fair market value: increasing
employees loyalty to the company. The value of the benefit determined by the difference between
fair value of shares at the date of getting this shares and the value of shares given to the employees.
in some cases the entity may have some restrictions as not exchange it before one year, so the
benefit will not be considered before this restriction finished.
Example (1) → The entity grant one of it`s managers some share on September 2020 which have
market value 1000 and accounted for the manager at 900 and restricted the exchange for this shares
not before one year to be sold, what is the value of benefit ?

Example (2) → An employee received 150 shares from the company at a value L.E 100 per share. The
market value of the share at that date was L.E 120., what is the value of benefit ?

Example (3) → An employee received shares from the company at a total value of L.E 3,000. The
market value of these shares at that date was L.E 4,000, what is the value of benefit ?
(4000 – 3000) = 1000
Example (4) → An employee received 100 shares from the company at a value L.E 15 per share on
July 1st. The market value of the share on July 1st was L.E 18, while its market value on Dec. 31 was
L.E 22., what is the value of benefit ?

Example (5) → An employee received shares from the company at a total value of L.E 3,000. The
market value of these shares at that date was L.E 4,000. But there are some restrictions in the grant
limiting the employee’s ability to sell or otherwise dispose of these shares for 2 years. what is the value
of benefit ?
As there are some restrictions in the grant limiting the employee’s ability to sell or otherwise dispose
of the shares, the benefit shall not be included in the taxable variable salary of the employee (no
taxable benefit) until those restrictions have expired or are otherwise removed
8. Social / Special Bonuses (Basic and Variable Salary)
Non-Taxable Special Bonuses Taxable Special Bonuses
- Every year the state give social bonuses for all - According to the law the given bonus will added
the employees for the high cost of living at the to the basic salary after 5 years.
first of July. It is added to the basic salary.
7. Overtime (Variable Salary)
Taxable Overtime
- Its compensation for work done more than the formal and normal work time of the employee.
6. Incentives (Production) (Variable Salary)

Taxable Incentives
- Its compensation for helping the employees to improve their work.
5. Allowances (Variable Salary)
Taxable Allowances
- Work nature allowance: it is compensation for the nature work done (Doctor – Nurse).
- Representation allowance: it is compensation for job requirements for the appearance of the
employee in certain events.
 9. Employee`s profit share NOT distributed according to the law

Taxable profit share Non-Taxable profit share

- When such profit not distributed according to - Distributed according to the law.
the law that states “the percentage should not
be less than 10% from the profits and should
not be more than 12% and it spends in cash,
not exceed the salaries of 12 months.
Example → An employee of XYZ at Dec. 31 2021 have share in the profits of the company 20,000, if you
that his monthly salary is 5000, is his profit sharing subject to tax or not?
- Annual salary 5000 X 12 = 60,000
- Profit sharing according to law = from (10% X 60,000) = 6000 To (12% X 60,000) = 7200
- Subject to Tax.

Problem (1):
 How to Calculate Tax Due (%) → Progressive Rates

How to Calculate Tax Due (%)

1 First Bracket (15,000) Exempted
2 Second Bracket More than 15,000 up to 30,000 2.5%
3 Third Bracket More than 30,000 up to 45,000 10%
4 Fourth Bracket More than 45,000 up to 60,000 15%
5 Fifth Bracket More than 60,000 up to 200,000 20%
6 Sixth Bracket More than 200,000 up to 400,000 22.5%
7 Seventh bracket More than 400,000 25%

Problem (2):

Taxable base 80,000 Tax Due Remaining

1 First Bracket (15,000) Exempted Exempted 65,000
2 Second Bracket (30,000) 2.5% 750 35,000
3 Third Bracket (45,000) 10% 3500 0
Tax Due (annual) 4,250
Tax Due (Per month) = 4250 /12 354.166

Problem (3):
Items which are exempted from tax:
 Steps for Calculating Tax Base:

Steps for Tax Base

There are three main steps to calculate the tax base as follows:
- The first Step: is to calculate the total of taxable revenues.
- Second step: is to calculate the total of exempted amounts.
- Third step: is to calculate the tax base which is the difference between the result of the first
step and second step.
Problem (1):
Problem (2):
Problem (3):
Problem (4):
Calculation of Tax Due Per month

Problem (1):
- Representation allowance 19,200
 If Employee is in Private Sector

Problem (1):
Problem (2):
Lump Tax
Wages of Daily workers