Law no. 5 of 2021
On March 6th 2021, President Abdel Fattah El-Sisi issued Law no. 5 of 2021 amending a number of provisions of Tax Real Estate Disposition Law.
The amendments stipulate that a tax of 2.5% is imposed (without the ability for any further reduction), on the gross revenues generated from the disposal of constructed real estate or land prepared for construction within the cities' boundaries, whether the disposal commenced on the land as it exists in its original state, or after constructing buildings thereon, and whether the disposal is for the entire real estate, part of it, or even a residential unit within the site. This also applies regardless of the real estate's purpose, whether the buildings were constructed on land owned by the taxpayer or by third parties, and whether the contracts for such disposals are publicized or not.
According to the law, the taxpayer is obligated to pay the tax within 30 days from the date of disposal, otherwise, a fine shall be imposed for the delay, which is calculated on the basis of the credit and discount rate declared by the Central Bank of Egypt. It should also be noted that the submission of a grievance or a judicial appeal does not suspend the fine being payable.
Exceptions to this tax are:
- Property offered as an in-kind share in the capital of shareholding companies, on the condition that the shares shall not be disposed of for five years;
- Compulsory sales, whether administrative or judicial;
- Disposition for public interest or improvement;
- Disposition by donations or grants to the government, local authority units, public legal persons, or projects of public benefit;
- Disposition of a will, donation, or gift to spouses, ascendants, or descendants;
- Disposition of an heir of real estate transferred to him through inheritance before 26/7/2018;
- Dispositions carried out by legal persons;
- Disposition of buildings and land used for construction located in the villages and their neighborhoods, hamlets, and manors, in accordance with the law regulating the local administration
Please note however, the real estate investment activity has particular accounting grounds when applying the taxes:
In case the taxpayer is a natural person engaged in the activity of construction or purchase of real estate with the intention of selling one or more times, the gained profit shall be subject to income tax for natural persons as profits of commercial activity, in accordance with the progressive tax brackets established in the Income Tax Law. In such cases, the taxpayer should have the right to offset any payments made for tax on real estate disposition against his final tax due.
In case the taxpayer is a real estate investment company, the profit of such company from the sale of real estate shall be subject to corporate tax as taxable sales revenues.
Overall, these latest amendments clearly define the exempted and non-exempted categories of real estate disposition activities and set controls and penalties for non-compliance, taking into consideration that tax collections represent the biggest source of national income, and the government is putting great emphasis on maximizing tax collection, in an effort to aid the country's commercial activities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.